Nassau County Wins Tax Rebate Case; Challenge Likely

Nassau County, N.Y., won a court case last week in a dispute over payment of tax rebates to homeowners, but the county can expect a court challenge.

According to Jon Kaiman, the supervisor for North Hempstead, the battle isn’t over. “The town plans to appeal the ruling,” his director of communications, Collin Nash, said Thursday.

Judge Thomas Adams of the New York State Supreme Court in Mineola on Jan. 4 upheld a county law, called the Common Sense Act of 2010, that allowed Nassau to charge back the proportionate share of successful tax certiorari, or appeal-related, payments to towns, schools and other special districts within the county.

It replaces a 1948 law in which the county assumed responsibility for chargebacks.

North Hempstead, along with some 40 school districts, 18 special districts including fire and sanitation, and some private citizens challenged the law, saying it violated state statutes.

Despite its name, the Supreme Court is the lowest court in New York State.

Nassau County Executive Edward Mangano said the ruling would save the financially stressed Long Island county, which was rolling up debt to cover the rebates and is under a state-appointed budgetary oversight panel, about $80 million annually.

According to Moody’s Investors Service, annual Nassau expenditures for these rebates have averaged about $90 million over the past five years, “and given ongoing weakness in the real estate market, additional appeals are likely.”

Nassau began to borrow up to 60% of these expenses during its struggles from 2008 to 2010.

Moody’s expects bond proceeds to fund all of the fiscal 2011 rebate costs, expected to total $100 million.

Moody’s called Adams’ ruling a credit positive for the county, provided the appellate courts uphold it.

“Conversely, the ruling is credit negative for local governments in the county as it shifts this expense to them,” the rating agency added.

Ranier Melucci, president of the Nassau County Council of School Superintendents, said shifting the cost of reimbursing any overpayment of taxes would be “financially catastrophic” for many school districts.

Melucci said that dividing an overpayment of $80 million dollars among the county’s 56 local school districts would represent an additional financial burden of about $1.4 million per school district.

Moody’s rates Nassau’s general obligation bonds A1, while Standard & Poor’s and Fitch Ratings assign an equivalent A-plus. Fitch lowered its rating of Nassau last month. North Hempstead has a Aa1 rating and stable outlook from Moody’s, affecting $213.3 million of general obligation debt outstanding.

The rating agency also said the new expenditure will add to such other budgetary pressures such as rising fixed costs and the property tax cap limit, which state lawmakers passed last summer.

“Municipalities that have relatively thin operating reserves, such as the town of Oyster Bay, may be more challenged by this new expenditure requirement,” said Moody’s, which rates the town’s general obligation bonds Aa3 with a negative outlook.

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