Erie County Comptroller Stefan I. Mychajliw Jr. has accused County Executive Mark C. Poloncarz of misleading taxpayers and “cooking the books” by relabeling certain sewer taxes as “fees” in the 2016 budget and the one proposed for 2017.
As a result, Mychajliw said at a news conference Tuesday, Poloncarz has improperly claimed that his budgets have remained under the state property tax cap when, in fact, the county budget exceeded the cap by $7 million this year and would be over the cap by $17 million for next year under his proposed budget.
“They’re trying to be cute,” Mychajliw said. “It may be cute. It’s very illegal.”
Poloncarz demanded an apology for what he called “scurrilous and meritless claims.”
The county executive called the conversion of sewer taxes to sewer fees entirely legal and that it has been approved by sewer boards and the County Legislature.
“He’s flat-out wrong,” Poloncarz said. “He’s wrong in saying we’re cooking the books. It’s a legal action. It’s more than appropriate.”
Mychajliw said, “There is no question in my mind that they came up with a smoke-and-mirrors scheme to come in under the tax cap. We are going to call on the County Executive’s Office to report this correctly, not cook the books.”
Mychajliw added that if the county lowballed its property tax revenues, the result could lead to the loss of efficiency rebate checks for taxpayers, hurt the county’s credit rating and cause penalties that would have to be addressed in next year’s budget.
County administrators later informed The Buffalo News that the Comptroller’s Office failed to recognize that the county simply recategorized a base water fee charged to all sewer users. That change, vetted by two outside lawyers, is entirely legal, they said.
Poloncarz said Mychajliw’s latest claims represent another example of how the Comptroller’s Office doesn’t understand basic finances.
“A blank piece of paper has more substance than a report that comes out of the Comptroller’s Office,” he said.
Mychajliw and his staff members pointed to a little-noticed bookkeeping change in sewer revenues that began last year. Sewer taxes have historically been charged to every county property owner based on home assessments.
In the 2016 budget, the Comptroller’s Office contends, the county began improperly relabeling millions in sewer taxes as sewer fees in three of the seven sewer districts. By doing so, the county was able to keep $7 million in sewer taxes from being counted against the state tax cap.
Although sewer boards approved the changes, staffers in the Comptroller’s Office contend that this detail may have slipped by them because it was so technical.
“Because it’s so complicated, they figure nobody is ever going to figure this out,” said Deputy Comptroller Gregory G. Gach.
For instance, the 2016 property tax bill for homes on Albert Drive in Lancaster noted the sewer tax levy fell by 60 percent, or $3.5 million, from the previous year’s bill. But a comparison of the property tax rate on homeowners’ bills from 2015 to 2016 actually shows a rate increase of more than 8 percent.
Scott W. Kroll, the comptroller’s chief of audit and control, said that while state law allows sewer fees based on water usage to be exempted from the property tax cap, that exemption does not apply to any revenue generated based on property assessments.
County administrators with both the budget and sewerage management offices responded that the Comptroller’s Office simply misunderstands the tax bill. And they could have cleared up the matter if Mychajliw’s staff had asked questions.
“The County Comptroller’s Office has never raised an objection to this until this morning’s press conference,” said Deputy Budget Director Timothy C. Callan. “If they had simply reached out and checked, we could have explained this.”
Kroll said he reached out to Joseph L. Fiegl, deputy commissioner with the Division of Sewerage Management, to get clarification. Both men said Tuesday that they had differing understandings of the nature of the conversation.
According to budget and sewer administrators, fixed, base water usage charges used to be counted as part of the county’s property tax levy. But they don’t have to be. In order to stay under the state-imposed tax cap, the county legally relabeled this base fee in certain sewer districts so they aren’t counted as property taxes anymore.
Base water-usage fees are not calculated based on property assessments, unlike what the Comptroller’s Office suggests, Fiegl said.
Kroll responded that this explanation does not add up when looking at tax bills.
“They’re just changing lines around as a gimmick to get around the tax cap,” he said.
Callan does not deny that the technical changes were made to get around the tax cap. He and others simply contend that this is a permissible change under state law. He pointed out that the county has reviewed the change in the sewer revenue lines with lawyers from Hodgson Russ, who said the maneuver was legal.
Nevertheless, county legislators expressed deep concern regarding the assertions made by the Comptroller’s Office.
“Where do we go from here?” asked Legislature Majority Leader Joseph C. Lorigo, C-West Seneca, chairman of the Legislature’s Finance and Management Committee. “These are serious allegations.”
Legislator Edward A. Rath III, R-Amherst, said, “This is a very serious red flag, if this is the case.”
Legislators agreed to have the Comptroller’s Office return to the Legislature on Thursday to further discuss the report. Legislators also criticized the Comptroller’s Office for dropping the detailed and troublesome report on the Legislature at a Tuesday budget hearing with almost no advance notice. Legislator Patrick B. Burke, D-Buffalo, urged Mychajliw to proceed in a less “dramatic” fashion in the future.