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Administrative shortcomings in the School Tax Relief (STAR) program have resulted in duplicate and improper exemptions going to individuals or entities not eligible to receive them, according to an audit released today by New York State Comptroller Thomas P. DiNapoli. Auditors estimate these exemptions cost New York State $13 million during the 2010-11 fiscal year and could top $73 million by the 2015-16 fiscal year.

“The STAR program has succeeded in delivering million of dollars in tax relief, but it is difficult to ferret out abuse or even errors because it is hard to police the program. STAR exemptions could be easily gamed at a significant cost to the state,” said DiNapoli. “New York cannot afford these abuses. Some local assessors have taken it upon themselves to track down improper exemptions but state and local officials need to work together to ensure legitimate tax breaks are only provided to those homeowners entitled to receive them.”

New York’s STAR program provides a partial exemption from school taxes for most owner-occupied, primary residences. Basic STAR exemptions are available for an owner-occupied, primary residence where the income of owners and their spouses totals less than $500,000. The state’s enhanced STAR program provides an additional benefit for the primary residences of senior citizens with incomes of $74,100 or less. Property owners are eligible for one exemption for a primary residence only. The program does not affect the overall revenue given to a school district, because the state makes up the difference in state aid given to the school district.

In 2010-11, there were a total of 2,765,194 basic STAR exemptions and 624,474 enhanced STAR exemptions statewide. New York State’s costs for underwriting STAR benefits have grown significantly, from $582 million in 1998-99 to $3.2 billion in 2010-11 and are expected to reach over $3.7 billion by 2015-16. Over 13 years, actual State disbursements for the STAR program total $37.6 billion.

DiNapoli’s auditors examined more than 6,500 parcels receiving STAR exemptions in 46 municipalities around the state (see Appendix C for the list of municipalities). Auditors found nearly 20 percent of the STAR exemptions tested should not have been granted because they were duplicate or improper.

Auditors found that because New York State’s Basic STAR program application does not require information that identifies real property owners, such as Social Security numbers, local assessors often have difficulty detecting duplications. In addition, local assessors do not have access to state databases that would allow them to track STAR exemptions outside their jurisdictions. It also made testing the data by auditors difficult. Auditors found the majority of duplicate exemptions involved individuals who received exemptions for property that was not their primary residence or was seasonal property. In other examples, homeowners may have died and a relative who inherited the property continued to receive the exemption. Auditors found other instances where banks or corporations improperly received exemptions.

DiNapoli credited several municipalities for taking proactive steps to reduce the number of exemptions provided to residents for multiple homes and other abusive practices, helping to lower costs for the state, including Nassau County and the towns of Amherst, Brookhaven, Brunswick, Chili and Greenburgh. For example, municipalities that required more stringent proof of eligibility from STAR applicants and vigorously monitored recipients’ continuing eligibility, using local resources, generally had lower exception rates than municipalities that did not use these best practices.

Nonetheless, DiNapoli said there remains a need for improved oversight and guidance. He made a number of recommendations in the audit, including:

• State policymakers should require a unique identifier to more easily monitor STAR exemptions;
• State policymakers should develop mechanisms that allow local assessors to search for duplicates in the real property assessment databases maintained by New York State and other states;
• State policymakers should consider obtaining electronic tools and software to analyze real property assessment records to identify improper exemptions;
• Local assessors should look to neighboring governments for best practices to implement, such as those identified in the audit; and
• The State Legislature should consider strengthening enforcement by increasing fees and penalties for STAR violators.

DiNapoli noted the audit’s findings underscore the need for increased enforcement of the STAR program as called for by Governor Cuomo in his 2013-14 Executive Budget proposal.

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