Towns’ Next Hit From Hurricane Is to Tax Revenue

Damage in the Rockaway neighborhood in New York City, where the historic boardwalk was washed away during Hurricane Sandy.
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Damage in the Rockaway neighborhood in New York City, where the historic boardwalk was washed away during Hurricane Sandy.

Localities across the New York region, already reeling from the cost of cleaning up from Hurricane Sandy, are confronting the prospect of an even bigger blow to their finances: a precipitous decline in property tax revenues.

The storm damaged tens of billions of dollars' worth of real estate, especially in coastal areas of Long Island and New Jersey. As a result, localities can no longer expect to reap the same taxes from properties that have lost much of their value — in some cases, permanently.

Without new revenues, state and local officials and Wall Street analysts said, these areas may have to make deep cuts in spending on schools, police and fire departments and other services. They also may be hard-pressed to finance rebuilding.

"Absolutely, this is going to be devastating for several years," said Ester Bivona, former president of the New York State Receivers and Collectors Association, which represents local tax officials.

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The Division of Local Government Services in New Jersey estimated this month that more than a dozen municipalities in the state could lose at least 10 percent of their tax bases. About another 10 face a drop between 5 percent and 10 percent, state and local officials said.

Among the worst hit is Toms River, one of New Jersey's largest municipalities, with 90,000 people. It recently warned Wall Street that property tax receipts could drop 10 percent to 15 percent, according to its financial disclosure documents.

Down the coast, the tiny borough of Tuckerton lost close to 20 percent of its property tax base. In Sea Bright, nearly half the homes are uninhabitable.

The situation is similar on Long Island, according to interviews with officials there.

The village of Freeport in Nassau County expects that many of its 15,000 homeowners will qualify for reductions in property tax bills, erasing at least 5 percent of property tax revenues and probably far more.

Experts said the looming revenue crisis for localities in the region underscores how natural disasters can have a profound effect long after the debris is gone.

If localities try to raise overall tax rates to make up for looming deficits, they may touch off a backlash from homeowners with undamaged properties.

"My thing is to encourage property owners to not seek reassessments because you're going to pay on one end or the other," said Andrew Hardwick, Freeport's mayor. "If too many people seek reassessment and are successful with it, that means, how do you pay the bills on the other end? You raise the taxes again? It doesn't make sense."

Some localities, like Long Beach, on Long Island, had shaky finances before the storm and are now in deeper trouble, according to local budget records. But many others had been on solid financial ground.

Two major bond-rating agencies, Moody's Investors Service and Standard & Poor's, have expressed concerns in recent weeks about the fiscal stability of numerous municipalities in the region.

New York City and county governments in New York are far less reliant on property taxes than localities, so they are expected to have an easier time weathering a drop in the value of the tax base caused by storm damage. The city, for example, has its own income and business taxes.

What's more, the city and county governments in both states have a much broader property tax base than small localities.

The $50.7 billion Hurricane Sandy relief bill approved this month by the House of Representatives provides up to $300 million in low-interest loans for localities facing shortfalls. The Senate has supported a similar provision in its own relief package.

But some local officials said such financing was not nearly enough. States themselves have not yet sent aid, and senior state officials said they were not inclined to do so until federal money was exhausted.

"It's a pretty inescapable conclusion that there will be an impact on the tax base," said Michael Drewniak, chief spokesman for Gov. Chris Christie of New Jersey.

"In many instances, we had homes completely wiped out or severely damaged to the point they were rendered uninhabitable," Mr. Drewniak said. "That left behind rebuildable land but, in the meantime, no 'improvements' to tax. In other cases, people may find it cost prohibitive to rebuild at all, depending on their individual circumstances."

It could be a year or two before the aftereffects are fully understood, given that localities will have to assess damaged properties before lowering property taxes on them.

That process, in fact, could be contentious. Some localities take as long as two years to incorporate revised assessments into taxpayers' bills. In the meantime, homeowners may balk at paying the higher tax when their properties are seriously damaged or destroyed.

But legally, they must pay every penny until the property has been reassessed.

Corinne DiSomma, the tax receiver for Babylon, N.Y., was duty-bound last month to send out thousands of property tax bills — her annual "Christmas cards," as friends tease. They were based on July 1 values, no matter that scores of homes, in addition to her own, were heavily damaged in the storm.

Dan Tergesen's home burned down in Babylon when the storm kept firefighters from reaching it in time. Local officials, he said, have since advised him that any reduction of his tax bill could be slow in coming, and "of course, they want me to rebuild my house as quickly as possible, so I am back on the tax rolls."

Localities are also facing the prospect that homeowners will demand that property taxes be cut because of perceived decreases in the value of land beneath their homes.

Assessors rarely mark down land. But some homeowners may argue that their beachfront properties are worth less because buyers, newly sensitive to extreme weather, will avoid areas seen as vulnerable.

"We feel our market value will go down significantly, not just on the house but also the land," said Kathy Barisciano, the president of the Ortley Beach Voters and Taxpayers Association, in Toms River. Ms. Barisciano said she has been telling town officials that they must take into consideration the fact that buyers may avoid Ortley Beach because of uncertainty over whether its battered beaches will be replenished and fortified against future storms.

Still, some officials said they were trying to find a silver lining.

In the Village of Mastic Beach, a newly incorporated patch of Long Island with 7,500 pieces of property, damage was reported at 400 homes.

"Definitely, it's going to hurt the tax base of the village," Mayor Bill Biondi said. "We're a fairly new village, and in the two years, we've been hit with two hurricanes."

But Mr. Biondi said he was hopeful that property tax revenues would rise again once people rebuilt bigger, sturdier homes. He noted that 100 homes in the flood zone were going up on pilings.

"We may get hit the first year," he said, "and then I'm really hoping to bounce back bigger and better."

Griff Palmer contributed reporting.