Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: v. 88, no. 2275: October 21, 1911

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^§T:^^ ^^c5 ^UIL?^ Vol. LXXXVIII OCTOBER 21, 1911 No. 2275 INFLATED ASSESSMENTS AND THE RISING BUDGET. City Expenditures GroAV Unavoidably in Geometrical Ratio, Compared with Population—Tax Resources Already Exhausted—Other Means of income. THE Record and Guide publisher this week a number of sales recorded during the year in which the price ob¬ tained waa lower than the tax assess¬ ment. These instances of over-assessment have reference only to Manhattan, the borough which pays the largest share of the tax levy. They have been collected in a more or less haphazard way. In¬ deed, most of them have been supplied by certain brokers, who, alarmed by the prospect of a $215,000,000 budget, have asked the Record and Guide to urge the present high assessments and ths uimlii- ished current earning power of real es¬ tate as compelling reasons for economy in the city administration. The list of examples of over-assessment here brought together is therefore by no means com¬ plete. Yet is leaves no room to doubt that the time has come for a readjust¬ ment of the fiscal policy of the city. The Record and Guide is too well con¬ vinced of the general efficiency of the Tax Department, which has been of late years thoroughly reorganized by Presi¬ dent Purdy, to assume that so many in¬ stances of over-assessment in so many different tax districts as are here re¬ corded can be the result of bungling ap¬ praisals. On the contrary, there is reason to believe that the majority of the prop¬ erties in question receded in value be¬ tween the time the assessments were laid and the time the sales took place. If this assumption is correct, the conclusion is unavoidable that tax assessments in all but the growing sections of town are in¬ flated to a degree which leaves no margin for the decline in values normal to after- panic years. The .Tax Department, as a matter of fact, is not responsible for the existing high level of assessments. The responsi¬ bility belongs to the Board of Estimate, The Board of Estimate fixes the expendi¬ tures of the city and it is the business of the Tax Department, after ascertain¬ ing what proportion of the expenditures must be raised by taxation, to base the tax levy on this calculation. The depart¬ ment has only two ways of increasing the levy—by advancing the tax rate and by advancing the assessed valuations. For fiscal as well as political reasons, the bulk of the yearly increases have been met through advanced assessments. The city's borrowing power has for years been so nearly exhausted under the constitu¬ tional limitation which restricts its debt to 10 per cent, of its total assessed real estate valuation that annual increases of the total assessment has been indispen¬ sable. Emergeney ANses.fmeufs. Ever since the Greater City came into existence, the assessment increases have been extremely heavy, necessitated, on one hand, by an expanding debt, and, on the other, by an expanding budget. The increases have heen out of all proportion to the growth of population. Neverthe¬ less, they have not heen sufficient to meet the city's debt creating requirements, and the State constitution has been modified several times to enable the city to bor¬ row in excess of 10 per cent, of the tax valuation on real estate. How far we have advanced in the way of inflating as¬ sessments may be seen from a brief sur¬ vey of the city's fiscal history since con- sohdation. The report of the commission of 1,S96, which framed the Greater New York Charter, declared that the constitutional limitation on the debt creating power of cities then in force in the State was "too large to be in itself an adequate restric- tmn. The limitation in question was contained in Section 10 of Article VIII of the State constitution. It provided that no county or city should be allowed to become indebted for any purpose or in any manner to an amount which in¬ cluding existing indebtedness, should ex¬ ceed 10 per cent, of the assessed rea! es¬ tate of the county or city subject to tax¬ ation as it appeared hy the assessment rolls of the county or city on the last assessment for State or county taxes. To guard against extravagance under this provision the commission "devised and imposed" a number of additional "checks upon the debt creating power of the Greater City." However, the charter revision commis¬ sion of I'JOO found it necessary to recom¬ mend a change in the constitution, ex¬ cluding from the 10 per cent, restriction "indebtedness hereafter to be incurred by the city of New York for purposes of water supply. The justification for this exception is the profit incidental to mu¬ nicipal ownership of the water supply." The amendment was adopted, and water bonds issued since Jan, 1, 1901, are not included in the debt as computed with reference to the borrowing power of the city, But before any relief could he obtained from this source, the borrowing power had been so nearly exhausted that Mayor Low in 1002 was constrained to advocate assessing real estate at "full value." If this were done, he said, "the city will have to raise less money by taxation than now, and at the same time it will be able to carry forward its public work as the needs of the hour require. That is to say, the city ought to have and can have at same time a smaller tax levy and a larger working capital. Unless this policy IS pursued, the city must either forego for the time being the great pub¬ lic improvements that it demands or con¬ tinue to pinch itself indefinitely as to Its current needs." Accordingly the as¬ sessed valuation was raised a year later by :i;i,400,000,000. Budget Ttndeuoies. Nevertheless, the charter revision com¬ mission of 1007 found it necessary to recommend that the "constitution of the State be so amended as to exclude from the computation of the city's debt limit all bonds or evidences of indebtedness issued for purposes which produce reve¬ nues in excess of their maintenance charges." Acting on- this recommenda¬ tion, the Legislature exempted rapid transit and other "self-sustaining" bonds ynder a law which went into effect in During the first decade of its existence, the Greater city advanced its real estate valuation 116 per cent., as against a growth of about 37 per cent, in popula¬ tion. Nevertheless, the Board of Esti¬ mate put into effect, through the Tax Department, another emergency assess¬ ment increase of nearly a billion dollars in 1911. Compared i\ith the extraordinary as¬ sessment increase of this year, the in¬ crease for 1912 is moderate. As the budget has not yet heen made up, the tax rate for the coming year is unknown. However, it is likely to be higher than that for 1011, and if the budget turns out to he as large as some members of the Board of Estimate have intimated, the tax rate may reach 2 per cent. It is evident that the budget will be very considerably increased, Sound fin- lance requires the insertion of important items which have heretofore been provided for by issues of corporate stock and which have, consequently, gone to swell the public debt. Under the system of bookkeeping recently introduced it is pos¬ sible for the Budget Committee of the Board of Estimate to distinguish operat¬ ing and maintenance expenses from pay¬ ments on account of capital assets in the demands for appropriations submitted by department heads. The Budget Commit¬ tee this year consists of Borough Presi¬ dent McAneny, Comptroller Prendergast and President IVIitchel of the Board of Aldermen. Each of these gentlemen is known to be in favor of carrying out the principles of the new system of municipal hookkeeping and of putting an end to the folly of defraying any part of the current expenses with borrowed money. It is understood, for example, that next year's budget will contain an item of sev¬ eral millions for repairing street pave¬ ments in Manhattan. Such repairs were under the old system of bookkeeping charged to corporate stock. T^ie stock ran for long terms, generally for flfty years. The average life of a street pave¬ ment in Manhattan, however, is only ten or twelve years. The practice of. charg¬ ing paving repairs to corporate stock is responsible for no small share of our huge public debt. We are paying the in¬ terest on and are reducing the principal of the accumulated loans -incurred during half a century of paving work, the bulli of which has disappeared through the ordinary wear ot traffic. In advance of any statement by the Budget Committee it is impossible to say how many new items of this kind will toe inserted in the budget or what total of expenditure they will call for, but there is every prospect that they will enlarge the budget materially. The new system of booklieeping will also require some merely apparent additions to the budget. Thus, the Borough Presidents will he called upon to pay over to the Department of Water Supply, Gas and Electricity a good-sized sum in the aggregate for water used in public buildings. This practice, though introduced in the interest of proper ac¬ counting, means only that the city will take money out of one pocket and put it in another. There remain two important sources of increase in the budget, namely, mandatory legislation and the natural growth of the city. It is too early to attempt to esti¬ mate what the increase will be from these sources. The purpose of this article is served by explaining in a general way the effect which the new system of account¬ ing will have on the budget and by mak¬ ing clear the fact that the growth of the city demands a disproportionately large budget increase. There was a more or less general feel¬ ing of disappointment last October among taxpayers when it was found that the in¬ troduction of an improved system of ac¬ counting had not brought ahout a reduc¬ tion in the budget. The disappointment has not been allayed by the knowledge that the coming .budget is likely to exceed this year's by a wide margin. As a mat¬ ter of fact, the new accounting has af¬ fected all that was reasonably expected of it. One thing it has done is to trans¬ fer to the budget items of expenditure that were formerly charged to the public debt. If this method of charging had been followed in the past, we should not have had in the budget for 1911 an item of some $29,-4OI>,000 for interest on the city debt and another item of -'{; 17,CO0,01)0 for redemption of deht. These two items constituted nearly one-third of the entire budget 'and a very large part of the taxes levied on their account went to pay for services which the present generation of taxpayers has not enjoyed. .Vbiliiy fo Pay. That the growth of the city requires a disproportionately heavy increase of ex¬ penditure is another fact which should be borne in mind. It is not uncommon to hear criticisms of the budget on the ground that its percentage of increase has been larger than that of the popuiat-ion. The idea behind this criticism is that the budget has increased faster than the abil¬ ity of lhe population to pay taxes. How¬ ever, the growth of population is not a valid index to increase of value of taxable propertj', notably real estate. The value of real estate depends upon the purchas¬ ing power of the population. But there is no accurate way of gauging that power. Every budget expenditure must therefore be judged on its individual mer¬ its and the flnal arbiter is public opinion. It is not difficult to see why the budget should increase in a geometrical ratio compared with the growth of population. We have a good illustration just now in