Relates to establishing a business franchise tax credit of ten percent of the fair market value of real property of a taxpayer that is foreclosed upon in a given taxable year and donated to a municipality

Section 2 provides the effective date.

Existing law

Article 9-A of the Tax Law relates to the franchise tax on business corporations. Section 210-B of the Tax Law provides the credits relative to the franchise tax on business corporations. There are no credits currently provided in statute relative to the donation of a foreclosed property.

Justification

Vacant and abandoned properties are more than community eyesores. According to a 2014 statement published by the US Department of Housing and Urban Development, these properties are symptomatic of larger economic forces at issue in the community, including increased crime, risks to public health and welfare, rising municipal costs, and declining tax revenues and property values, all of which contribute to the community's decline and divestment. Often, vacant properties are the result of foreclosures. Reducing the incidence of vacant properties following foreclosures will mitigate the devastating effects that corollary abandoned properties. This legislation establishes an alternative for these sites by providing a tax credit equal to 10% of the market value of a foreclosed property donated to a local government. Once under the authority of a municipality these lots can be greened, reused, or repurposed for new uses.

Studies attempting to quantify the effect of foreclosure on surrounding property values find that foreclosures depress the sale prices of nearby homes by as much as 8.7%. When a foreclosed home becomes vacant or abandoned, the distressed property has an even more pronounced effect on surrounding lots, and the length of time the property remains vacant further enhances this effect. This effect on property values is again compounded by the fact that crime and disorder are often synonymous with vacant and abandoned properties due to what has been termed by social scientists, as the "broken windows theory." The broken windows theory states that signs of abandonment or disorder encourage further disorder.

While foreclosures themselves have no effect on crime rates, according to a study conducted in Pittsburgh, Pennsylvania, when a foreclosed home becomes vacant, the rate of violent crime within 250 feet of the property increases by 15%, relative to the areas located further than 250 feet away from the vacancy. Without neighbors to deter and report crime, signs of vacancy, like boarded doors and windows and overgrown lawns reveal to criminals illicit "safe heavens." These properties become prime locations for unsupervised illegal activities, including vandalism, theft of resalable materials that may remain in the abandoned property, including copper and appliances, and arson. The US Fire Administration estimates that between 2006 and 2008 28,000 fires occurred in vacant residences and of these 37% were intentionally set, resulting in 45 deaths, 225 injuries and $900 million in property damage.

Localities are subsequently burdened with the costs of providing vacant lots with police and fire protection. Local governments also must maintain, provide administrative services for, and at times, demolish vacant and abandoned properties. A Chicago study showed that direct municipal costs range from $430 for a foreclosed and auctioned property to $34,199 for a vacant property destroyed by fire, based on varying durations of vacancy, remediation efforts, and other circumstances such as crime. A similar study found that each vacant property increases annual police and fire expenditures by $1,472.

Costs associated with foreclosed and vacant properties further burden local governments' budgets by impacting all three primary sources of public revenue, income tax, sales tax, and property tax receipts. Residents that abandon their tax obligations with their homes directly impact a locality's revenue. Similarly, vacant properties reducing nearby property values will subsequently diminish tax assessments, again decreasing a locality's revenue. Because in most cases a lender has no legal responsibility for the property until the foreclosure is final and the deed is recorded, the local government's public responsibility for the property operates at a deficit. Even when the property is taken by the lender, the outcome of the property remains uncertain, as there are no assurances that the property will be adequately maintained.

Managing and reversing the foreclosure and abandoned property crisis in this state will require a cooperative approach, including collaboration with private sector financial industries. By providing a tax credit to corporations that donate a foreclosed property to a municipality accepting such donation will reduce number of vacant and abandoned properties that become vulnerable to vandalism and disuse. Preventing the blight and increased criminal activity that is often associated with foreclosed and vacant properties will reduce crime, decrease operational costs, and support the economic growth of communities throughout New York State.

Legislative history

New bill.

Fiscal implications

The fiscal impact of this legislation is dependent on those corporations that donate properties to local governments, and the local governments that accept the donation. While this legislation will have a fiscal impact on the state, local governments will benefit tremendously by having more control over vacant properties to ensure these lots are repurposed and utilized for positive purposes, thus decreasing administrative, fire, and police costs associated with vacant properties and blight.

Effective date

This act shall take effect immediately and shall apply to taxable years beginning January 1, 2017.