HOLD LIMITED LIABILITY PROPERTY OWNERS ACCOUNTABLE FOR THEIR NEGLECTED PROPERTIES
A substantial number of properties in New York are owned by corporations or limited liability companies. Unfortunately, it is not uncommon for those corporations and limited liability companies to abandon properties once the property has become unprofitable. Once abandoned, these properties blight the community, often becoming a safety hazard. Cities and villages are then left to shoulder the cost of remediating the properties and, in many instances, demolishing unsafe buildings. Although local governments may place the costs they incur in remediating a property as a lien on the property, the municipality's abatement/demolition costs frequently exceed the property's resulting value, leaving the local government and its taxpayers paying for the costs of the property.
The cost of demolishing a single family home can range from $20,000 to $40,000 per home. Demolitions of multiple dwellings and commercial properties frequently exceeding $50,000 and can stretch into the hundreds of thousands of dollars. With tens of thousands of buildings needing to be demolished across the State of New York, the cost to New York's local governments and their taxpayers is in the tens of millions.
State law should be amended to allow local governments to petition a supreme court judge for an order allowing the local government to attempt to recover the costs it incurs in remediating or demolishing an unsafe building from the owner of the corporation or limited liability company. Specifically, local governments should be allowed to pierce the protective veil of a corporation or limited liability company if the value of property which is the subject of a proceeding pursuant to General Municipal Law § 78-b(1) is less than the cost of abating the nuisance condition or code violation or demolishing the unsafe structure and (a) the assets of the corporation or limited liability company are insufficient to cover the cost of abatement or demolition and (b) the corporation or limited liability company (i) made a profit on the property at any time during the five years prior to the abatement or demolition or (ii) used financial losses on the property to write-off capital gains or income from other properties that the corporation or limited liability company owns during the five years prior to the abatement or demolition. Legislation has been introduced which would effectuate these changes (A. 6673 (McDonald)).
SCAFFOLD LAW
Enacted in 1885, the Scaffold Law holds contractors, employers and property owners absolutely liable for gravity-related injuries, even if the worker was grossly negligent. Municipalities are large property owners, and as such, are faced with widespread liability for accidents that occur on worksites beyond their supervision.
As a result of this heightened liability, municipalities often face significantly higher insurance premiums, particularly when municipalities are self-insured. Furthermore, a judgment or settlement based on the Scaffold Law often exceeds the municipality's insurance coverage, imposing further costs on local governments. Studies have shown that general liability insurance premiums have skyrocketed due to increased litigation resulting from the Scaffold Law. In fact, New York – the only state with this law on the books – has insurance premiums that are 300% to 1200% higher than any other state in the country. Many insurance carriers have been forced to leave the market, citing the high costs associated with the absolute liability standard set forth in the Scaffold Law. As a result, municipalities involved in construction projects are faced with significantly high construction costs.
In light of the damaging effect of the Scaffold Law on local governments and their taxpayers, NYCOM supports A. 3209/S.543, sponsored by Assemblyman Morelle and Senator Gallivan, which we believe offers common sense reform to the Scaffold Law. This bill would amend the Civil Practice Law and Rules to establish a comparative negligence standard for personal injury, property damage or wrongful death actions arising under the Scaffold Law when the employee has committed a criminal act, used drugs or alcohol, failed to use safety devices, or failed to comply with employer instructions or safe work practices when a cause of action accrued. This legislation would create a more equitable standard, holding an employees who directly contribute to their injury liable for his or her apportionment of fault.
PUBLICATION REQUIREMENTS FOR OFFICIAL NOTICES
New York State law is replete with provisions mandating that local governments publish an official notice in a local newspaper.1 These onerous requirements necessitate the expenditure of municipal moneys whenever a local government proposes to enact a local law, puts out a request for bids or holds a public hearing, among other municipal actions.
A conservative estimate reveals that local governments across the state are spending millions of dollars every year publishing legal notices. The cost of the publication requirement is compounded by the fact that many of New York's local governments are only serviced by a weekly newspaper. Weekly newspapers present serious challenges to local governments acting efficiently when they need to quickly enter into a purchase or public works contract, as the deadline for submissions to weekly newspapers can result in a two-week lag before the notice is actually published, thereby delaying the opening of bids. The foregoing demonstrates that the impacts of this mandate are more than financial, as delays in posting caused by the presence of a weekly newspaper, to a limited geographic area, do nothing to ensure that a local government will obtain the best services for the most favorable rate available.
Requiring local governments to pay to advertise official notices in a local newspaper is incredibly antiquated, particularly in the age of the Internet. State law should be amended to allow local governments to satisfy official notice requirements by posting the notices on the municipality's website continuously for a period of days, thereby allowing local government officials to notify interested parties of important information in a more timely, efficient and cost effective manner.
- This solution will drastically reduce the costs currently associated with public notice requirements, as local governments would no longer have to pay advertising fees associated with publishing in local newspapers. Moreover, if newspapers believe that the subject of the notification is newsworthy, they can still report on the matter.
- Municipalities would be permitted to make procurements in a more timely fashion, inasmuch as local governments would not be forced to wait for a weekly newspaper to publish a notice.
- Internet posting would allow local governments to more effectively communicate with their constituents, stakeholders, and interested parties. Individuals would be able to check municipal websites for notices 24 hours a day, seven days a week, not just once a day by sifting through the small print of newspaper legal notices. Moreover, numerous online services could be used to allow individuals to automatically receive notification of the municipal notices as soon as they are posted.
- Internet publication requirements for procurement contracts would ensure that the notice will be seen by a wider spectrum of potential bidders, thereby guaranteeing that a municipality will enter into the most favorable contract possible.
- The significant reduction in cost will enable municipalities to use their moneys in a more productive, cost efficient manner, which benefits local governments, their taxpayers and New York State as a whole.
Endnote
1. See General Municipal Law § 103 (2); Public Officers Law § 104.
LACK OF REIMBURSEMENT OF MUNICIPAL LEGAL COSTS
A plaintiff can sue any municipality so long as the statutory notice requirements are complied with. Oftentimes plaintiffs rush to comply with the notice requirements and, in so doing, commence litigation against the wrong municipality. Despite this wrongful commencement, municipalities are still obligated to expend money and resources defending the lawsuit
In addition to municipalities expending significant time and money defending these wrongful lawsuits, these suits clog up the courts, increasing judicial delay and the overall costs of the legal system.
Require individuals or businesses who sue the wrong municipality to reimburse the municipality for all legal costs incurred. This would encourage plaintiffs to thoroughly research the proper parties and may ultimately reduce the number of municipalities that are wrongfully sued.
LOCAL GOVERNMENT LIABILITY
Local governments are favored targets of lawsuits because they are perceived as having deep pockets and, in many instances, they may be the only viable defendant, even if they are only minimally related to the incident giving rise to the cause of action. Compounding this problem is a myriad of New York State laws that (1) amplify the financial exposure local governments face from such lawsuits and (2) increase the incentive to commence frivolous lawsuits against municipalities.
Jury Trials
One major source of cost to local governments and property taxpayers is the jury trial system for civil actions against municipalities. Numerous studies have shown that juries render larger damage awards than judges. The United States Bureau of Justice Statistics found that jury awards were larger than awards handed down by a judge.1 In addition to excessive damage awards, jury trials are more expensive for local governments to litigate. Studies indicate that litigation costs, for both the municipal defendants and the state which administers the judicial system, are greater in jury trials than bench trials because jury trials are longer and more involved. For example, jury selection accounts for nine to seventeen percent of total trial time.2 Moreover, the prospect of large jury awards serves as an incentive to sue local governments, even if the perceived likelihood of success on the merits of the case is small
Excessive Damage Awards
Additionally, the compensation which local governments must pay frequently exceeds defendants' actual damages, pain, and suffering. Juries also "appear to be more receptive to ‘redistribute the wealth' arguments than judges."3 Finally, in many instances local governments are sued because they may be the only potential source of money, even if the local government is only nominally related to the case or partially responsible for the damages.
New York's laws regarding local government liability result in higher insurance premiums for local governments. In addition, local governments incur substantial costs defending meritless lawsuits. While it is difficult to quantify the costs to local governments of New York's plaintiff friendly laws, the failure to reform New York's tort laws is costing municipalities across New York State millions of dollars. For example, New York City alone estimates that the failure to reform New York's collateral source law will cost it nearly $164 million in pending cases. And cities from Albany to Buffalo, as well as hundreds of villages and towns across the State, are forced to pay out hundreds of thousands, even millions of dollars, each year - all because the Legislature has not yet fixed this obvious mistake. This means not only higher taxes, but also fewer services, firefighters or police officers for our communities.
Court of Claims Jurisdiction
Unlike cases brought against New York's cities and villages, cases brought against the State of New York are adjudicated by the State's Court of Claims, which does not adjudicate cases via a jury. Consequently, the State of New York is subject to neither excessive jury awards nor the expense of litigating jury trials. New York's local governments should be afforded this same cost-saving opportunity. Requiring cases against local governments to be adjudicated by the Court of Claims would lower the costs local government and local property taxpayers incur in defending jury trials.
Cap Non-Economic Damage Awards
As previously mentioned, juries are susceptible to "redistribute the wealth" arguments. They often view local governments as having limitless resources and thus force them to pay large monetary awards. Consequently, New York's existing tort system should be amended to compensate plaintiffs more accurately for the actual damages they incur. Specifically, state law should be amended to reduce the municipal costs for tort liability by imposing a medical expense threshold and a $250,000 cap on non-economic damages in actions against public entities. Thirty-eight states cap both economic and non-economic loss damages against local governments.
Endnotes
1."The Decline In Jury Trials: What Would Wal-Mart Do?," South Texas Law Review, Winter 2005, Justice Scott Brister, citing Bureau of Justice Statistics, U.S. Dep't of Justice, NCJ Bull. 202803, Civil Trial Cases and Verdicts in Large Counties, 2001 3 tbl.2 (2004), http://www.ojp.usdoj.gov/bjs/pub/pdf/ctcvlc01.pdf; see also Eric Helland and Alexander Tabarrok, "Runaway Judges? Selection Effects And The Jury," Journal of Law, Economics and Organization, October, 2000.
2."The Decline In Jury Trials: What Would Wal-Mart Do?," South Texas Law Review, Winter 2005, Justice Scott Brister, citing Dale Anne Sipes et al., Nat'l Ctr. for State Courts, On Trial: The Length of Civil and Criminal Trials 14, 40 (1988).
3.Eric Helland and Alexander Tabarrok, "Runaway Judges? Selection Effects And The Jury," Journal of Law, Economics and Organization, October, 2000.
INTEREST RATES ON JUDGMENTS AGAINST MUNICIPALITIES
Various sections of New York State law govern the interest rate on judgments paid by both public and private entities. Pursuant to the Civil Practice Law and Rules § 5004, the interest rate on judgments is set at 9%. Pursuant to General Municipal Law § 3-a, the interest rate on judgments paid by a local government “shall not exceed 9%.” Despite this language in General Municipal Law, more often than not, the 9% rate is applied. This rate is applied in three circumstances: (1) interest on a claim until a verdict or a court's decision, (2) interest on a verdict or court's decision until it is reduced to judgment, and (3) interest on the judgment until the judgment is paid. While the requirement to pay interest on judgments is fair and reasonable, the current rate of 9% is much higher than the interest rate that a judgment creditor would earn by investing the money. This excessively high interest rate is borne to the taxpayers of New York State.
For example, assume that a plaintiff receives a $1,000,000 court award five years after suffering an injury. Pursuant to CPLR § 5004, the plaintiff would be entitled to the $1,000,000 plus interest on that award calculated at an interest rate of 9%, which works out to $411,582. If the interest rate was established at a rate that is more equitable and reflective of the current market rates, for example 6.5%, the plaintiff would receive the $1,000,000 award plus $286,466. Arguably, $286,466 is a fair return for the plaintiff on the $1,000,000 award, and at the same time would save the taxpayers $125,115. While this is a simplified example, it is useful in demonstrating how amending New York’s laws on the interest rate on judgments could save taxpayers money while at the same time treating plaintiff’s fairly.
Although it is difficult to quantify the actual cost associated with the current 9% interest rate, it has been estimated that using market rates would generate significant annual savings for local governments.
Enact legislation that would reduce the rate of interest on judgments against municipalities from 9% to a variable market rate with a 9% cap.
LIMITATIONS ON MUNICIPAL DEPOSIT OPTIONS
Under current state law, originally enacted in 1909, the only banking institutions that are permitted to accept deposits from local governments are commercial banks and trust companies. In fact, New York is one of only a handful of states that does not allow other banking institutions, such as credit unions, to accept municipal deposits. Consequently, the cash management needs of local governments in New York State, which are estimated to be $6 to $8 billion, all must be handled by commercial banks, effectively giving them a monopoly over the deposit of public funds.
Limiting the number of depository options precludes municipalities from taking advantage of the best available interest rates, thereby decreasing their ability to earn greater returns on their investments without increasing their investment risk. According to data collected for the NYS Credit Union League, credit union deposits could save municipal property taxpayers $18 million to $24 million annually. The more local governments can increase money on interest earnings, the more they can decrease their reliance on property taxpayers. Not only can credit unions, at times, offer a better rate of return, they are 100% locally-owned, not-for-profit institutions, which means the money they take in remains within the local community. In addition, municipalities in rural and economically diverse areas will likely be better served by credit unions and other financial institutions, since commercial banks are not always in a location that is convenient to the municipality that is depositing funds. This issue has been exacerbated by the bank mergers that have taken place recently, not only adding to the inconvenience but also leaving municipalities with fewer and fewer local depository options.
Enact legislation that would allow savings banks, savings and loan associations and credit unions to accept deposits from municipalities. During these difficult economic times, municipal officials need to have as much flexibility as possible to assist them in their efforts to balance their tight budgets while keeping property taxes down. Expanding depository options for municipalities will not only help them in this effort, but will help local economies as well.
BUILDING CODE ENFORCEMENT
When the state first enacted the Uniform Fire Prevention and Building Code (the Uniform Code) in the early 1980s, it mandated that local governments enforce and administer the Uniform Code. When the Uniform Code was first enacted, the state also enacted Insurance Law § 9108 and State Finance Law § 54-g, which imposed a fee on commercial fire insurance policies written in New York. The fire insurance fee was originally created for the purpose of helping local governments offset their costs associated with enforcing and administering the Uniform Code. Since 1991, however, these monies have been diverted into the state's general fund instead of being distributed to municipalities. In the past eight years alone, over $98 million in commercial fire insurance fees have been collected but diverted from funding local code enforcement activities.
Needless to say, the state's diversion of these monies has turned the enforcement and administration requirement found in Executive Law § 381(2) into an unfunded mandate, which has forced local governments to fund code enforcement and administration activities through the local property tax. This issue has become even more acute in recent years because the Department of State promulgated regulations that impose additional enforcement requirements on local governments.
The state's building code enforcement mandates require New York's local governments to spend tens of millions of dollars every year to enforce and administer the Uniform Code. The state's diversion of the fire insurance fee from code enforcement and administration activities costs local governments more than $14 million annually.
Legislation has been introduced that would provide a permanent funding stream to support local enforcement of the Uniform Code and serve as a measure of relief for local property taxpayers. The proposed law would reimburse local governments for a part of the costs they incur to enforce and administer the Uniform Code.
TAKING TITLE TO ABANDONED PROPERTIES
As if the economic challenges facing New York's communities weren't already great enough, the "Great Recession" has further strained local economies that were already under tremendous pressure. The decline in jobs and population, particularly in upstate New York, over the past four decades has left many communities with depressed housing markets. This has resulted in a high rate of rental, vacant, and abandoned properties that depress surrounding property values, require a disproportionate focus of municipal resources, and generally inhibit sound economic and community growth. The responsibility of dealing with the negative effects of vacant and abandoned properties falls primarily to the local governments in which those properties are located. Unfortunately, State law does not adequately allow municipalities to promptly deal with abandoned property.
Vacant properties - that is those properties without an occupant but where the property owner is active in the property's maintenance and upkeep, or is at least capable of being located by municipal officials -- have significant negative consequences on their surrounding communities. Abandoned properties are those where the responsible party, who should be held accountable for property maintenance violations and unpaid property bills and taxes, cannot be located. Abandoned properties present much more serious problems for local government officials.
It is difficult enough for local government officials to deal with vacant and neglected properties. When a property is also abandoned, local government officials must first make sure that the property does not present an immediate threat to the public's health, safety, and welfare. If a property does present an imminent danger to the public, then the municipality may take steps to eliminate the danger, often at a cost to local taxpayers. Once it is determined that there is no danger present, or such danger has been eliminated, then local governments must focus on returning the property to the hands of a responsible property owner. However, the first challenge of getting abandoned property into the hands of responsible property owners is to acquire clear title to the property.
The Real Property Actions and Proceedings Law allows municipalities to take title to residential dwellings that are abandoned in their jurisdiction. However, municipalities are not permitted to take title to all abandoned real property, including commercial real property that has been abandoned. As a result, thousands of abandoned properties in New York continue to blight the communities in which they are located.
With municipalities unable to take title to abandoned commercial properties, the property remains vacant, thereby contributing to blight in the surrounding communities. This decreases property values (which in turn affects property tax revenues), puts a strain on local government resources, and generally inhibits the community and economic health of the area. While there are no hard figures about the cost that abandoned properties place upon New York's communities, many studies have been conducted across the country that illustrate the serious consequences of not addressing abandoned properties:
- A study of Austin, Texas concluded that neighborhoods with unsecured vacant buildings had over three times as many drug calls, almost twice as many theft calls, and twice the number of violent calls to police as neighborhoods without vacant buildings;1
- Every year, there are more than 12,000 fires, most intentionally set, in vacant structures, resulting in $73 million in property damage;2
- Over the past five years, St. Louis has spent $15.5 million, or nearly $100 per household, to demolish vacant buildings;3
- Detroit spends $800,000 per year4 and Philadelphia spends $1,846,745 per year cleaning vacant lots;5 and
- A 2001 study in Philadelphia found that houses within 150 feet of a vacant or abandoned property experienced an average net loss of $7,627 in value.6
Amend the Real Property Actions and Proceedings Law to permit municipalities to take title to all abandoned real property, including commercial property. This would allow municipalities to quickly and effectively address the negative effects abandoned properties have on the surrounding community. In addition, amend the procedure for completeing the abandonment process to streamline the notice requirement while at the same time protecting property owners' rights. Finally, amend the Real Property Tax Law to shorten the redemption period for tax deliquent abandoned property to one year so that the abandoned property do not sit for long periods of time blighting the surrounding community while falling into further disrepair. Legislation has been introduced that amend the RPAPL (A.7355 (McDonald)) and the RPTL (A. 2490 (McDonald)/S. 175 (MArchione)) effectuate these changes.
Endnotes
1. William Spelman, "Abandoned Buildings: Magnets for Crime?" Journal of Criminal Justice 21.5 (1993): 481, cited in Vacant Properties: The True Costs to Communities, National Vacant Properties Campaign, August 2005 (http://www.vacantproperties.org/latestreports/True%20Costs_Aug05.pdf).
2. "New Tool Ready to Combat Arson: Vacant and Abandoned Buildings Targeted," American Re, 16 June 2003 , cited in Vacant Properties: The True Costs to Communities, supra.
3. Jodi Wilgoren, "Urban Renewal Without the Renewal," The New York Times, 7 July 2002, cited in Vacant Properties: The True Costs to Communities, supra.
4. Id.
5. Pennsylvania Horticultural Society, "Vacant Land Management in Philadelphia Neighborhoods: Cost Benefit Analysis," Philadelphia, 1999: 17, cited in Vacant Properties: The True Costs to Communities, supra.
6. Temple University Center for Public Policy and Eastern Pennsylvania Organizing Project, "Blight Free Philadelphia: A Public-Private Strategy to Create and Enhance Neighborhood Value," Philadelphia, 2001, cited in Vacant Properties: The True Costs to Communities, supra.
LOCAL RECORDS MANAGEMENT
Local municipalities are required by state law to retain and manage an immeasurable number of various documents, which requires a significant expenditure of time and money by the municipalities. In 1989, the Local Government Management Improvement Fund was created to assist the municipalities in complying with the mandate and to improve local government records management. The money is collected by County Clerks on every deed and mortgage filed in their offices by local citizens, which is then distributed back to local governments through a competitive grants program.
In March 2008, a portion of the money collected by county clerks was swept into the state's general fund. Using these funds for state general fund relief means that local governments will have to expend more of their resources to cover the cost of this mandate.
The state should not be permitted to balance its own budget deficits by using money directly collected by and for local governments.
State Mandates
IF I WERE MAYOR, I WOULD... ESSAY CONTEST: EIGHTH GRADE
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