by Ted Carroll, Guest Columnist
So far in our series here focused on Rye’s Political Assessment’s we’ve profiled high ranking former and current city employees and elected officials quietly obtaining substantial city property tax reductions for their personal benefit, spotlighted incredible city hall ‘luck’ in both property assessment and building law by local political mega-donors, predicted the failure of public officials to remedy or even publically address the full range of these gambits, and proposed a way to identify and share the wealth enjoyed by those selective few with city hall connections and the pull to use them. Our politicos secretly hate this last one so today we’ll naturally follow up on it and focus on finding and plugging of some potentially gigantic city ‘revenue leaks’ favoring the local building industry, which coincidentally collectively remains the city’s largest political donor group.
Want to join the Rye Golf Club? Bring your driver’s license and a current utility bill. Need a slip at the Rye Boat Basin? Bring that driver’s license, your boat registration and proof that you have insurance coverage (no photocopies please). Is your child looking forward to Rye Rec Day Camp? That will take either a birth certificate or passport, that utility bill again, and proof from a doctor that your child has been immunized. And Fido? He needs his rabies certificate from the vet to get his Rye Dog License.
And we could go on – Rye Merchant Parking Permits, Rye Marriage Licenses – and on – State Hunting Permits, Admission to the Rye City School District – but I think the idea of requiring the presentation of 3rd party proof attesting to the completeness and accuracy of representations put forth in applications for government permits and licenses in Rye is both customary and well established. Established as you might suspect pretty much everywhere except where the really big money is. But before we get to that, let’s gaze reverently upon Exhibit 1.
As far as a government designed form goes this baby is a model of brevity and simplicity.12 lines to fill out, then you sign the 13th in front of a notary who attests to nothing more than it’s you doing the signing. The 12th line demarked with a $ sign requires a single figure. That single figure represents the signer’s sole attestation representing the summation of sometimes literally hundreds of individual invoices covering materials, supplies, labor and other building project related costs. And that’s it – the signer decides what the total figure is and what costs get included and which get excluded. There are no copies required of primary supplier invoices or labor schedules, no breakout form outlining typical construction related functional categories so the city can see the 3rd party documents and make informed judgments about the reasonableness of what kind of work was accomplished for what kind of price, no math to check, no other anything is required, just the single figure and the notarized signature. From an applicant’s perspective it’s a thing of beauty, with a Mona Lisa smile.
The ‘Big Dog’ in city revenue has always been our property tax receipts, in 2014 toping $21M making up about 63% of all revenues. The city assessor along with the city attorney police all changes to citizen tax assessments here (excluding the select few) and perform their duties with apparent impartiality and rigor. The 2nd largest annual city revenue line item is Licenses & Permits, again in 2014 delivering about $3.4M or 10% of overall treasury receipts. Building Permit and Alteration fees make up the majority this, again in 2014 accounting for $2.4M of the total of $3.4M. Yet the only one currently effectively policing these revenues are the applicants themselves. As to money and value, well, it sure does add up.
There’s an old saying in management that good results don’t come from what you expect, but from what you inspect. In Rye today Fido needs a note from his vet to get his license but builders don’t need show a shred of 3rd party proof of full and final project costs to get their Certificates of Occupancy. That’s pretty scary and the financial impacts, given that there will always be a few rotten apples, can be large and are borne by us all.
How Big Could This Be?
Well, for example, take the hypothetical that ALL permit applicants here have a bit of larceny up their sleeves. Say they all religiously underreport their actual cost outlays to the building department yearly by 10%. That’s 10% of $15 million dollars or in other terms it’s a not “staffed for failure” paid fire department, it’s a fully staffed police department, or it’s multiple residential property tax increases avoided. Most builders I know here cherish their good reputations and would never take those risks but some invariably do and will.
What’s much more corrosive is when an apparently ethics-free resident with friends in high places doesn’t give a fig about the town forcing the honest employees at city hall (there are many) and the rest of us living here to cover their bills. They do this by brazenly underreporting construction costs while receiving miniscule property tax assessment increases. In the local example we’ve featured in our previous stories, the final renovation invoice issued by a highly reputable local builder lists $1,015,160 for full final reportable costs while their sworn and notarized statement of final costs on file at the building department shows only $325,000. That’s an apparent $690,000 shortchange representing a 68% underreporting and $9,660 of avoided permit revenues. It’s also apparently a fraud. But no one on multiple city councils has ever yet dared whisper a single word about it publically.
If one were to hypothetically extrapolate this level of apparent gross underreporting to EVERY building permit applicant then instead of $15 million in fees above here we would have taken in $47 million ($15M divided by the inverse of 68% or 32%) or an extra $32 million – almost enough to run the whole city for a year. Meanwhile assessable construction values would increase to $2.4 billion ($766 million of value increases divided by 32%) or over $1.6 billion higher. That’s a whole lot of extra assessable value to spread the city’s expenses across relieving all the rest of us of a like amount.
After my last article about this apparent potential for Found Money I made sure to email the senior partner at our current city auditor and invite him to discuss these apparent substantial internal control weaknesses and impacts with me over lunch. I offered to bring documents and I offered to pay for the meal.
So far, there’s been no reply.
Ted Carroll was recently awarded a property assessment reduction by one court, then had it taken away by another, has made no recent political donations, is a lifelong Rye resident, a Certified Public Accountant, and a partner at Noson Lawen Partners, a media industry private equity firm.
See some of Carroll’s other 2016 MyRye.com commentaries here: