COMPTROLLER ISSUES PRELIMINARY ESTIMATE OF
COUNTY LIABILITY FOR REAL ESTATE TAX REFUNDS

Nassau County Comptroller Howard S. Weitzman today released a preliminary audit of the county's Assessment Review Commission including an estimate of Nassau County's liability for real estate tax refunds as of year-end 2003. The Comptroller's estimate of $365 million dollars is approximately $45 million higher than the amount estimated by the county's Assessment Review Commission.

The results of the preliminary audit were provided yesterday in a letter to the Assessment Review Commission, the county, and the members of the Nassau Interim Finance Authority. The text of the letter is attached.

To: Howard S. Weitzman, Comptroller

From: Manuel Mosquera, Deputy County Comptroller

Re: Estimate of Nassau County's Real Estate Tax Refund Liability (ARC Audit, Phase One)

Date: May 25, 2004

The Comptroller's Office has completed the first phase of its audit of the Assessment Review Commission (ARC). Specifically, we reviewed the methodology and overall reasonableness of ARC's calculation of the estimate of Nassau County's liability for real estate tax refunds as of December 31, 2003

Per our review and validation of ARC's methodology and the underlying data, we estimate the liability to be $365 million.

Nassau R.E. Tax Refund Liability – Comptroller’s Estimate
	$ (in millions)
Back Years as of 12/31/02	$ 193.1
2003/2004	$ 124.7
Small Claims Assessment Reviews	$ 47.2
	$ 365.0

Using its methodology, ARC computed a real estate tax refund liability of $320.1 million. The difference in the two liability estimates results from our reliance on actual settlements reached for the 2003/2004 tax year, and the application of the percentage of reduction to all outstanding 2003/2004 claims. By contrast, ARC's approach relied on estimates of reductions generated by staff appraisers.

The county's liability of $365 million is also $40 million higher than the $325 million figure cited by the County Attorney and included in the Comprehensive Annual Financial Report of the Comptroller (CAFR) for the fiscal year ended December 31, 2002. The increase is primarily the result of the impact of the 2003 reassessment on residential properties.

After 2005, the county will be required to fund real estate tax refunds out of its annual operating budget. The multi-year financial plan allocates $57.9 million per year for this purpose. Based on prior years' payments for outstanding liabilities, we estimate that the total claims backlog will need to be reduced below $231 million by December 31, 2005 in order to achieve the goals set forth in the financial plan.

Finally, we believe revisions to the methodology for future year estimates are necessary. ARC's December 31, 2003 real estate tax refund liability estimate was based on a statistically selected sample of all parcels, regardless of protest status. This sample was originally intended for a possible equalization ratio challenge by the Certiorari Bar. In future liability estimation processes, we recommend that ARC refer to actual settlements activity. Further, we recommend they stratify the overall liability by year.