In the Matter of Norman E. Roth, et al., Appellants,v.City of Syracuse, et al., Respondents. (And Other Proceedings.)BriefN.Y.May 1, 2013 To be argued by: Estimated time: John A. Cirando, Esq. 15 minutes Syracuse, New York STATE OF NEW YORK COURT OF APPEALS In the Matter of the Application of NORMAN E. ROTH, STAMPEDE, LLC, STAMPEDE II, LLC, STAMPEDE III, LLC, STAMPEDE IV, LLC, STAMPEDE V, LLC And UNIVERSITY HILL REALTY, LLC, Petitioners/Appellants, v. THE CITY OF SYRACUSE, NEW YORK, THE BOARD OF ASSESSMENT REVIEW OF THE CITY OF SYRACUSE and JOHN GAMAGE, THE COMMISSIONER OF ASSESSMENT OF THE CITY OF SYRACUSE, Respondents/Respondents. For a Review of Tax Assessments Under Article 7 of the Real Property Tax Law. Onondaga County Index Nos. 2001-2698, 2002-3223, 2003-2666, 2004-2269 THE RESPONDENTS’/RESPONDENTS’ BRIEF HON. MARY ANNE DOHERTY Corporation Counsel of the City of Syracuse Attorney for Respondents/Respondents D.J. & J.A. CIRANDO, ESQS. Of Counsel 101 South Salina Street, Suite 1010 Syracuse, New York 13202 (315) 474-1285 John A. Cirando, Esq. Bradley E. Keem, Esq. Elizabeth deV. Moeller, Esq. and Shannon M. Jones, Esq. Assistant Corporation Counsel Of Counsel i TABLE OF CONTENTS PRELIMINARY STATEMENT ...........................................1 STATEMENT OF FACTS..............................................2 POINT I........................................................41 MATTER OF COMMERCE HOLDING CORP. DOES NOT REQUIRE A REDUCTION OF THE TAX ASSESSMENTS BASED ON “COST TO CURE”. POINT II.......................................................51 THE TAX ASSESSMENTS, ON THE RECORD, ARE NOT OVERVALUED OR INCORRECT. CONCLUSION.....................................................57 THE ORDER OF THE APPELLATE DIVISION SHOULD BE UNANIMOUSLY AFFIRMED. INDEX TO APPENDIX APPENDIX A....................................................A-1 RELEVANT ASSESSMENTS AND VALUATIONS ii TABLE OF AUTHORITIES Cases 300 Gramatan Avenue Associates v. State Division of Human Rights, 45 N.Y.2d 176, 179-181 [1978] .................................................................................................. 52 Adams v. Rizzo, 13 Misc.3d 1235(A), 2006 N.Y. SlipOp. 52135(U) [Sup. Ct. Onon. Co., 2006] ......................................................................................................... 48 Allied Corp. v. Town of Camillus, 80 N.Y.2d 351, 355 [1992] ................................................... 47 Chapman v. Silber, 97 N.Y.2d 9, 20-21 [2001] ............................................................................ 48 City of Buffalo v. J.W. Clement, Co., 28 N.Y.2d 241, 257-258 [1971] ....................................... 49 Criscuola v. Power Authority of the State of New York, 81 N.Y.2d 649, 654 [1993] ................. 49 D’Agostino v. Forty-Three East Equity Corp., 12 Misc.3d 486, 470 [NYC Civil Ct., 2006] ...... 49 Farash v. Smith, 59 N.Y.2d 952, 955 [1983] ................................................................................ 51 Harrison & Burrows Bridge Constructors, Inc. v. State of New York, 42 A.D.3d 779, 781 [3rd Dept. 2007] .......................................................................................................................... 49 In the Matter of Roth, et al. v. City of Syracuse, et al., 78 A.D.3d 1590 [4th Dept., 2010] .......... 41 Inmar Associates, Inc. v. Borough of Carlstadt, 112 N.J. 593, 609, 549 A.2d 38, 46 [1988] ...... 50 Juarez v. Wavecrest Management Team, Ltd., 88 N.Y.2d 628 [1996] ........................................ 49 Matter of Alexander’s Department Store of Valley Stream, Inc. v. Board of Assessors, 227 A.D.2d 549, 550-551 [2nd Dept., 1996] ............................................................................... 48 Matter of Ames Department Stores, Inc. v. Assessor of the Town of Greenport, 276 A.D.2d 890, 891 [3rd Dept., 2000] ....................................................................................... 48 Matter of Atkin v. Board of Assessors of the Town of Greece, 19 Misc.3d 1125(A), 2007 N.Y.SlipOp. 52552(U) [Sup Ct Monroe Co 2007].................................................................... 46 Matter of B. Altman & Co. v. City of White Plains, 57 N.Y.2d 904, 905-906 [1982]................. 42 Matter of Bass v. Tax Commissioner, 179 A.D.2d 387 [1st Dept., 1992] .................................... 45 Matter of City of New York v. Mobil Oil Corp., 12 A.D.3d 77, 78 [2nd Dept., 2004] ................. 49 Matter of City of Syracuse IDA (Alterm, Inc.), 20 A.D.3d 168, 171-172 [4th Dept., 2005] .. 44, 45 Matter of Commerce Holding Corp. v. Board of Assessors of the Town of Babylon, 88 N.Y.2d 724 [1996] ...................................................................................... iv, 3, 42, 44, 46, 52 Matter of Consolidated Edison Company of New York v. City of New York, 8 N.Y.3d 591, 595-596 [2007] .................................................................................................... 41 Matter of FMC Corp. v. Unmack, 92 N.Y.2d 179, 187-188 [1998] ....................................... 51, 52 Matter of Northville Industries Corporation v. State, 14 A.D.3d 817, 818-819 [3rd Dept., 2005] ............................................................................................................. 44, 45, 46 Matter of NYC Coalition to End Lead Poisoning v. Vallone, 100 N.Y.2d 337 [2003]................ 49 Matter of Villa Roma County Club, Inc. v. Fulton, 301 A.D.2d 911, 912-913 [3rd Dept., 2003] .......................................................................................................................... 56 Matter of Welsh Foods, Inc. v. Town of Westfield, 222 A.D.2d 1053, 1055 [4th Dept., 1995] .......................................................................................................................... 48 Mola Development Corporation v. Orange County Assessment Appeals Board No. 2, 80 Cal. App. 4th 309, 95 Cal.Rptr. 2d 546 [2000] ....................................................................... 50 Pan Chemical Corp v. Hawthorne Borough, 404 N.J.Super. 401, 414, 961 A.2d 1219, 1226 [2009]......................................................................................................................................... 50 People ex rel. The H.B. Clafin Co v. Feinter, 58 App. Div. 468, 472, fn. 3 [1st Dept., 1901] ..... 55 iii Rushford v. Facteau, 280 A.D.2d 787, 789 [3rd Dept., 2001] ....................................................... 56 Stiles v. Batavia Atomic Horseshoes, Inc., 81 N.Y.2d 950, 951 [1993] ...................................... 51 Thoreson v. Penthouse, Intl., 80 N.Y.2d 490, 495 [1992] ...................................................... 51, 57 University Plaza Realty Corp. v. City of Hackensack, 264 N.J. Super. 353, 355, 624 A.2d 1000, 1001 [1993] ....................................................................................................... 46 Westling v. County of Millie Lacs, 543 N.W.2d 91, 92 [Minn. 1996] ......................................... 47 Weyerhaeuser Co. v. Easter, 126 Wash.2d 370, 375-376, 894 P.2d 1290, 1293 [1995] .............. 50 Williamsburg Around the Bridge Block Ass’n. v. Guiliani, 223 A.D.2d 64, 67 [1st Dept., 1996] .......................................................................................................................... 49 Statutes 22 NYCRR §202.59(g) ................................................................................................................. 33 Public Health Law §§1370-1376-a ............................................................................. 40, 44, 46, 51 Public Health Law §1373.............................................................................................................. 38 Real Property Tax Law §712 .......................................................................................................... 4 Real Property Tax Law Article 7 ................................................................................................ 2, 4 Title 15 U.S.C. §§2681-2692 ...................................................................................... 39, 44, 46, 51 Other Authorities Review and Reduction of Real Property Assessments in New York, NYSBA 3rd Ed., §1.08, p. 33 ................................................................................................ 55, 56 iv COUNTER-STATEMENT OF QUESTIONS PRESENTED 1. Is appellant entitled, on this Record, to a Commerce Holding Corp. tax assessment reduction---cost to cure---for the years in question? 2. Did appellant show, on this Record, that the subject properties are overvalued or that the tax assessments are incorrect for the years in question? STATE OF NEW YORK COURT OF APPEALS In the Matter of the Application of NORMAN E. ROTH, STAMPEDE, LLC, STAMPEDE II, LLC, STAMPEDE III, LLC, STAMPEDE IV, LLC, STAMPEDE V, LLC And UNIVERSITY HILL REALTY, LLC, Petitioners/Appellants, v. THE CITY OF SYRACUSE, NEW YORK, THE BOARD OF ASSESSMENT REVIEW OF THE CITY OF SYRACUSE and JOHN GAMAGE, THE COMMISSIONER OF ASSESSMENT OF THE CITY OF SYRACUSE, Respondents/Respondents. For a Review of Tax Assessments Under Article 7 of the Real Property Tax Law. Onondaga County Index Nos. 2001-2698, 2002-3223, 2003-2666, 2004-2269 THE RESPONDENTS’/RESPONDENTS’ BRIEF PRELIMINARY STATEMENT This is an appeal from an Order of the Appellate Division, Fourth Department, entered on November 12, 2010, which unanimously affirmed the Decision and Final Order of the Supreme Court, Onondaga County (Donald A. Greenwood, J.). The Appellate Division indicated it was affirmed for the reasons stated in the 2 court below. The Decision and Final Order, following a non-jury trial, held that the taxpayer failed, in this Real Property Tax Law Article 7 proceeding, for the five properties in question, to show contamination on the taxable status dates, and that the “cost to cure” would, therefore, not be considered; and failed to meet its burden of proof that those properties are overvalued or that the assessments are incorrect. By Order, entered June 26, 2012, the Court of Appeals granted the taxpayer leave to appeal to the Court of Appeals. STATEMENT OF FACTS NORMAN ROTH (hereinafter “the taxpayer”) began investing in residential housing in the University area of the City of Syracuse, in approximately 1973 (10). The instant matters were commenced in the taxpayer’s name individually, and in the names of several of his single member limited liability companies that engage in the ownership of real estate (11). The instant non-jury trial was limited to 5 properties (hereinafter “the properties”): 116 Victoria Place; 125 Victoria Place; 960 Lancaster Avenue; 965 Lancaster Avenue; and 126 Harvard Place (11)1. The remaining 37 properties were held in abeyance to be addressed by a Supplemental Order. 1 The assessments and relevant valuations for these properties are set forth in Appendix A. 3 The taxpayer grieved (PE #5-8) the assessments of the properties for the Tax Years 2001, 2002, 2003 and 2004 before the City of Syracuse Board of Assessment Review (hereinafter “BAR”)(19, 22-23, 32-33, 196). The taxpayer grieved his taxes because he felt the properties had environmental issues, but he did not know lead and asbestos was present, at the properties, at the time of the grievance (19, 22, 23, 41, 76, 79, 196). The taxpayer did not have a full comprehension of the extent of lead contamination and costs associated with remediating the lead; he only had “guesstimates” as to the cost to remediate, which turned out to be very low (41, 42, 79). Each yearly grievance packet (PE #5-8) contained the following documents: a complaint; a print-out of the Commerce Holding case which the taxpayer obtained from the internet; his standard form lease that contains a lead disclosure form; general information about the condition of the property; a floor plan; property information prepared by GSAR MLS System; Saber System band of investment capitalization approach; real property transfer report from the New York State Office of Real Property Services website; and paid property tax bills showing taxes paid (23-24, 26-28, 61-83, 196). The BAR’s Notices of Determination (PE #9-12) denied any reduction for any of the properties (32- 33). 4 The taxpayer, thereafter, duly and timely commenced proceedings pursuant to the Real Property Tax Law Article 7 for each Tax Year grieved before the BAR by filing and service of a Notice of Petition and Petition (PE #17-20) for the properties grieved (34-36). The basis for the Petitions (PE #17-20) was the taxpayer’s belief that lead paint and asbestos were present on the properties (41, 79). The City opposed the Petitions (PE #17-20) because it believed the properties were not overvalued. The City never filed an Answer because, pursuant to Real Property Tax Law §712, the City was not required to so file or serve an Answer and all allegations contained in the Petitions were deemed denied. A non-jury trial in Supreme Court (Donald A. Greenwood, J.), Onondaga County was then held (10a-11a). The taxpayer purchased the properties, which are located in the University area, between 1977 and 1979 (11-12, 187). The sellers of these properties did not disclose the existence of lead or asbestos, and the taxpayer did not have any lead or asbestos testing performed before purchasing (12-13). During the tax years in question, the tenants at the properties were generally students (17). From 2001–2004, 126 Harvard Place had five students; 116 Victoria Place had five students, and some years six students; 125 Victoria Place had five students; 960 Lancaster Avenue had five students; and 965 5 Lancaster Avenue had five students (17). All of the properties have all of the Certificates required by the City of Syracuse (14, 190). PETER KOSLOWSKY (Taxpayer’s Witness No. 2) of Envirologic does environmental testing for lead, asbestos and mold, and has been certified by the EPA (86-88, 102-103, 111). An XRF gun, which is an x-ray fluorescence machine that has a radioactive source, is used to test for lead (88). The XRF gun is pointed at the surface and the radioactive source bounces off the surface to give a reading (88). Homeowners are usually the ones that request Envirologic’s services to determine whether there is lead (89). Lead paint would be expected in properties of similar age to the properties in question (110). Lead paint can be painted over to encapsulate it on walls, but the problem with encapsulation is that it would not remove the lead and the problem would not be resolved with any finality (105,112). The taxpayer only asked Envirologic to do lead testing and it was not requested that they perform asbestos or mold testing (111). Envirologic’s inspections were done around April 24, April 29 of 2008 (89, 106). Koslowsky went into every floor in each of the properties, but the only basement he entered was at 960 Lancaster Avenue (106). In one of the properties, there were tenants living there when Koslowsky tested for lead (109). One 6 tenant asked him what he was doing and when he told him; the tenant did not have any concerns (109-110). More than half of the readings tested positive for lead (108). Most rooms in the properties had a positive reading but whether the lead was throughout the room or just in parts depended on which property, because some properties were worse than others (109). Koslowsky saw peeling paint at each of the properties (110). The lead readings for each property are contained in the Appraisal Reports for that specific property (PE #21-1916-1923; PE #22-2034-2041; PE #23–2154-2163; PE #24-2274-2282; PE #25- 2392-2402)2 (90, 107-108). A reading of 1.0 milligrams per square centimeter is considered lead based (93). Koslowsky only gave the results to the taxpayer, and he was not required to report the results to any agency having jurisdiction over lead paint (103,111). Koslowsky has had no training as to whether or not lead is required to be removed (103). Koslowsky’s recommendation in each of his Reports (PE #21-1914; PE #22-2032; PE #23-212; PE #24-2272; PE #25-2391) is that all surfaces that were positive for lead, and in fair or poor condition, should be remediated by a contractor whose workers are certified in lead safe work practices, but there is no requirement that the lead be removed (104, 110). 2 Exhibit number followed by pages of Record on Appeal. 7 Koslowsky believes that the requirement to remove lead comes into play when it is a hazard and there are children under the age of six living in the home (104). Lead is a hazard if it’s in fair or poor condition, not an intact condition, meaning not peeling and if it’s not on a friction surface, like on a window (104-105). If there is lead paint on a friction surface and it is moved, lead dust is created (105). It is hard to minimize exposure to the lead dust hazard without removing the paint on windows because of the friction surface (105). There was no testing for lead dust at any of the properties (111). CRAIG ZINSERLING (Taxpayer’s Witness No. 3), of CRAL Contracting, Inc., does lead abatement, mold remediation and environmental contracting services (114-115, 138). The CRAL organization and its personnel are licensed by the EPA (116, 131, 145). Zinserling claimed that he did lead abatement work for the City when he was employed by Marcor on single-family residential property in the mid to late 90s (115-116,138-139). The City prepared the reports and then Marcor was hired by the City’s Lead Program to remove, not encapsulate, the lead on all projects (115-116,138). When he worked on City projects he had contact with the woman that ran the program, MARY ELIZABETH MOZYRZICK (City’s Witness No. 2) (140). 8 WILLIAM MARINICH (Taxpayer’s Witness No. 4), of Marinich Builders was present at some properties for some of Zinserling’s inspections because Marinich would be rebuilding, and Zinserling told Marinich what would be taken out and described the condition after the work (141). There were no tenants present when Zinserling inspected the properties (141). Most of the properties have dentil molding and detail work in the interior and many have details such as dentil molding and scallions on the exterior (123). Dentil molding and other detail work with lead paint removal is “painstakingly harder” than removing a plaster wall because it requires chemical removal and HEPA vacuuming, which is labor intensive, to chisel out small pieces of paint without removing and destroying the architectural feature (122-124). Some areas of the house without dentil molding and detail were also reported to have lead (125). The anticipated method of removing the contaminant for these interior areas was physical removal of the plaster or sheetrock walls because it is more cost effective (125-126). The lead remediation method for the exterior areas was physical removal so that they are no longer present (126). The removal of parts of the structure was a part of CRAL’s proposal, but not putting back the removed components because CRAL doesn’t do that (126-127). The proposal includes mobilizing a work force of workers with lead awareness training, 9 using specialized equipment, materials and a health and safety plan to protect the workers and anyone else who may be exposed to the work (127). The health and safety plan is good work practices and meets OSHA requirements (139-140). Zinserling’s work with CRAL never involved encapsulation because they remove the contaminant that would still be there if they used encapsulation and would eventually be a problem for the owner (122-123). After reviewing the Envirologic Reports (PE #21-1916-1923; PE #22-2034-2041; PE #23-2154-2163; PE #24-2274-2282; PE #25- 2392-2402) and inspection of the property, in 2008, Zinserling prepared his two page Letter Report (PE #21 1930-1931; PE #22- 2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25-2416-2417) for each property (117-119, 121, 141). The abatement proposal costs are: for 126 Harvard Place- $49,250 (PE #21-1930-1931); 116 Victoria Street-$54,650 (PE #22- 2054-2055); 960 Lancaster Avenue-$29,250 (PE #23-2174-2175); 965 Lancaster Avenue-$46,750 (PE #24-2295-2296); and 125 Victoria Street-$41,850 (PE #25-2416-2417) (132-134). The proposals are given in one lump sum which is standard in the industry (139). The specific cost for any specific bullet item (PE #21-1930- 1931; PE #22-2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25-2416-2417) is unknown (140) 10 Based on the soil sample test results only the proposal (PE #22-2051-2053) for 116 Victoria Street included removal and replacement of the soil approximately two feet deep just past the drip line where the gutters come down or the eaves end on the house, but no separate price is included for that (134-135). The proposal (PE #21-1930-1931; PE #22-2054-2055; PE #23- 2174-2175; PE #24-2295-2296; PE #25-2416-2417) did not contemplate the presence of tenants because the properties cannot be occupied during the work due to the extent of the work to be done (127-128,141-142). Each separate project would take approximately three to four weeks, therefore, in total there would be approximately five periods of three to four weeks (128). Zinserling was never shown anything that indicated the EPA, HUD, City of Syracuse or County of Onondaga required the lead be removed (139). The taxpayer has not hired CRAL or told Zinserling that he was going to have him do the work (43, 143, 184). Zinserling has never done any work for the taxpayer on any of his properties (143). The general scope of MARINICH’S business is total remodeling and approximately ninety-eight percent (98%) is residential work (203-204). Marinich is not an expert in lead remediation and does not do lead abatement (204, 206). 11 The taxpayer contacted Marinich and asked for his assistance in obtaining proposals for the properties and paid $400 for the proposals (204, 228, 232). The request was to remodel the house after the lead abatement was done (204). Marinich had never before remodeled or restored after lead abatement or removal (219-220). In preparing his proposals (PE #21-1933-1936; PE #22-2057- 2060; PE #23-2176-2179; PE #24-2297-2298; PE #25-2418-2419), Marinich relied on the CRAL Reports (PE #21-1930-1931; PE #22- 2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25-2416-2417) his walk through of the properties and conversations with the CRAL representative where he was told everyplace CRAL was going to do work; the notes he took during the walk-through; and the document sent by CRAL as to what they would be doing (207-208, 215, 218-219, 225). Marinich would return the properties essentially to the condition they were in before the CRAL work, only without any lead (206, 210, 220). Marinich’s work is restoration and does not include improving the property (220-223). Marinich tried to use the least expensive method and no areas of any proposal utilized the more expensive approach compared to others available (211). The proposed cost (PE #21-1933-1936) for 126 Harvard Place is $61,122.29 (208). The proposed cost for 116 Victoria Street 12 is $29,374.77 (PE #22-2057-2060) (212). The proposed cost for 965 Lancaster Avenue is $40,256.99 (PE #23-2176-2179) (213). The proposed cost for 965 Lancaster Avenue is $40,256.99 (PE #24- 2297-2290) (213). The proposed cost for 125 Victoria Street is $99,246.33 (PE# 25-2418-2419) (214-215). The proposals (PE #21-1933-1936; PE #22-2057-2060; PE #23- 2176-2179; PE #24-2297-2298; PE #25-2418-2419) are not good anymore because they were given in May 2008 and the cost of everything has gone up (227, 231-232). The work that Marinich proposed had not yet been performed or started; and would only take place after CRAL does the lead abatement (43, 184-185, 205). The taxpayer never retained experts to test for asbestos (42, 184). The taxpayer did not specifically, nor as a larger group, list the properties for sale during the period from 2001-2004 and has never received a signed real estate contract for the purchase of the properties (43). The taxpayer did run an advertisement in the Wall Street Journal (RE #XX), on a Wednesday and Saturday, approximately a year prior to trial, with an asking price of 8 million dollars for 50 properties (57). The taxpayer posted an advertisement on LoopNet (RE #WW), approximately two or three weeks before the trial, that was still running at the time of trial, for 50 properties, or 300 13 units, listing an asking price of 9 million dollars, with a $30,000 unit price, and giving a capitalization rate of nine (9%) percent (45-48, 50, 52-53, 55-57, 196). The LoopNet advertisement (RE #WW) is for the sale of a business that includes commercial properties and student housing with an income stream, plus domain names, office equipment, personnel, long term contracts, valuable management software, parts, equipment, supplies and trucks (50-51, 57, 186-187, 196- 197). The LoopNet advertisement (RE #WW) reads “approximately 50 houses with approximately 300 residents/students and 3 commercial. Homes remodeled, etc. Never a vacancy. Great condition. Student housing” (57). The LoopNet advertisement (RE #WW) also includes what he would like to call five commercial properties/units (196). The properties are a part of both advertised listings (RE #WW, XX) but there is nothing in the advertisements that identifies any property as containing lead paint (46). The taxpayer has received two offers over the phone (57- 58). One offer was for less than 3 million dollars, and one for less than 7 million dollars (58). The taxpayer received a signed Letter of Intent, from Michael Cowen, that included the properties approximately 9 months before trial, with a purchase price of 7 million dollars net of commission, but it was basically voided by the buyer, in about three days, because the 14 buyer couldn’t get financing (58-60). The last offer for the 50 properties was verbally given, over the phone, for 6 to 6 ½ million dollars with the taxpayer holding the financing (60). The tenants pay utilities (64-65, 72). The submission to the BAR included an income and expense statement (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7- 1134, 1171, 1228, 1243, 1307; PE #8-1344-1389, 1440, 1447, 1503) that lists a utility expense, but the taxpayer was unable to indicate what the utility expense was for (65-66). The common costs (management) on line eight of the income and expense statement (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344-1389, 1440, 1447, 1503) consist of items such as snow removal, landscaping, personnel, vehicles and lighting for office (66- 67). The taxpayer takes all costs for the year and divides the cost by the number of properties he owns to get a commons cost (management) expense figure for a specific property (67-68). The 2000 year expenses (PE #5-738, 780, 837, 904) were estimated based on prior years (67). The numbers listed on the income and expense statements (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092) were the actual number and it is unknown why E-S-T is listed in front of the number (68). The real estate taxes paid to the City of Syracuse listed on the income and expense statement (PE #5-738, 780, 837, 904, 15 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344-1389, 1440, 1447, 1503) may include sewer rents (69)3. The total rents listed on the income and expense statement (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344-1389, 1440, 1447, 1503) exceed the rents under the leases because the income line includes water rents billed and paid to the taxpayer by a tenant, and the taxpayer would then take the expense and it would be a “wash”, it is just an accounting practice (70, 73- 74). The 2001-2004 grievances to the BAR included inconsistent income and expense data (PE #5-738, 780, 837, 904, 909; PE #6- 966, 1002, 1027, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344, 1389, 1440, 1447, 1503), including large variances in expense for utilities since the tenant is responsible for utilities (81, 82, 147, 148-149, 150, 155-156, 161, 163-167, 169-171, 173-174, 176, 180, 182, 192). The taxpayer assisted in the preparation of the income and expense statements (PE #21-1880-1883; PE #22-1998-2001; PE #23- 2119-2122; PE #24-2238-2242; PE #25-2357-2360) in the appraisals (36-38). 3 The sewer rent is charged on the water bill. 16 The lead disclosures attached to each lease (PE #5-753, 764, 801, 857, 890, 920; PE #6-963, 997, 1028, 1068, 1129; PE #7-1160, 1189, 1218, 1256, 1292; PE #8-1343, 1373, 1425, 1460, 1524) indicates that lessor has no knowledge of lead-based paint and/or lead-based paint hazards in the housing (76-77 82, 84, 148, 150-151, 156, 165-166, 168, 170, 172, 174, 181-183). The EPA instructed the taxpayer to complete the lead disclosures the way he did because there, in fact, had been no testing performed (80). EPS had provided an asbestos quote and proposal (PE #5-745- 746, 830-832, 843-844, 877-879, 931-933; PE #6-955-956, 983-985, 1035-1036, 1075-1076, 1116-1118; PE #7-1142-1143, 1200-1202, 1235-1237, 1274-1276, 1315-1317; PE #8-1355-1357, 1377-1379, 1431-1433, 1475-1477, 1510-1512) listing a summary of abatement services and costs listing several properties with amounts, but had performed no testing (77-78). The grievance included a lead abatement document (PE #5- 744, 829, 842, 876, 930; PE #6-954, 982, 1034, 1074, 1115; PE #7-1144, 1203, 1277, 1318; PE #8-1358, 1400, 1434, 1478, 1513) prepared by the taxpayer based on a unit quote cost obtained from a person that performed that kind of work; the taxpayer then counted the number of units and multiplied by the cost per unit because the taxpayer believed there to be lead paint in all 17 the areas and this was his “guess” to mitigate/remediate it (75- 76, 78-79). The income and expense data sheet lists utilities that are “guessed” to be for water (82). The numbers listed on the income and expense data sheet (PE #5-738, 780, 837, 904, 909; PE #6- 966, 1002, 1027, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344, 1389, 1440, 1447, 1503) came from a ledger the taxpayer has for income and expenses (82). The taxpayer was not his own accountant, but he did not name his accountant (83). Snow removal is the responsibility of the tenant under the terms of the leases of all properties, except 965 Lancaster, where snow removal is the taxpayer’s responsibility (181). Some periods exist where the taxpayer is responsible for paying utilities such as: between lease period to clean, make repairs, paint and sand floors when the lease is not renewed; if the tenant turns the utilities off in the winter they are switched to the taxpayer’s name because they have a customary “leave on for landlord”, so pipes don’t freeze; and if the tenant does not pay the water bill, it is the taxpayer’s responsibility because it comes in the taxpayer’s name (192- 193,198). There are approximately 14-21 days between tenancies because the lease terms are typically from June 1 through the middle of May (198). 18 Other sources of income from the properties include late fees; bounced checks; NSF checks charge; and damages a tenant pays and all are reported on the income line (194). Students are often on student loans so they prepay and take advantage of the 3%, 5% or 7% discounts built into the leases (194). The income and expenses (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8- 1344, 1389, 1440, 1447, 1503) used a cash accounting method as opposed to accrual accounting method (194). Each grievance includes a Saber System Band of Investment Form (PE #5-771, 824, 863, 897, 943; PE #6-967, 1003, 1038, 1057, 1093; PE #7-1135, 1172, 1228, 1244, 1308; PE #8-1345, 1390, 1441, 1448, 1504) that the taxpayer filled out and calculated (154, 155, 161, 163, 166-167, 169, 171, 176, 180, 182, 199). City representatives told him not to believe the Saber System, but the calculations were still done (154-155). The taxpayer provided comparable sales (PE #5-767-770, 805-820, 858-860, 898-890, 937-939; PE #6-969-977, 1004-1011, 1042-1050, 1080-1087, 1101-1109; PE #7-1145-1149, 1174-1178, 1219-1223, 1264-1268, 1301-1305; PE #8-1323-1323, 1379-1388, 1405-1414, 1461-1470, 1488-1497) (174, 179, 182). The taxpayer has challenged the assessments on the properties before, but is uncertain as to whether he asserted environmental contamination (183). He completed the Petitions 19 (PE #17-20) alleging excessive assessment because of environmental contamination due to lead (185). All of the properties were constructed prior to 1978 (187-188). The taxpayer is unaware if any of the other properties he owns contain lead paint (185). The taxpayer is unaware as to whether any of the properties had vacancies during the years in question (187). The taxpayer purchased additional student housing, constructed prior to 1978, subsequent to filing the instant Petitions (PE #17-20) (187-188). When purchasing homes constructed prior to 1978, the taxpayer has asked the sellers for information on lead paint and the sellers have indicated not knowing because they didn’t do a test (188). The taxpayer has discussed a possible reduction in sales price for the possible presence of lead with sellers (188). G. RICHARD KELLEY (Taxpayer’s Witness No. 5) has previously done appraisals of residential properties, including ones built before 1978, and in those cases he did straight valuation and did not ask about the presence of lead-based paint, but it is possible that those residential properties contained lead-based paint (320-321, 385-386, 403). Kelley has previously opined values for properties that are in some way contaminated, but lead-based paint was not the contaminant (249-250, 320, 362- 363). 20 The mere presence of lead-based paint on the properties makes them environmentally contaminated (322-323). There are a lot of houses in any community that contain lead-based paint (380). Kelley was told about the lead-based paint when asked to prepare his appraisals (PE #21-25)4, and he later received the Envirologic (PE #21-1916-1923; PE #22-2034-2041; PE #23-2154- 2163; PE #24-2274-2282; PE #25-2392-2402); CRAL (PE #21-1930- 1931; PE #22-2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25-2416-2417); and Marinich (PE #21-1933-1936; PE #22-2057- 2060; PE #23-2176-2179; PE #24-2297-2298; PE #25-2418-2419) Reports that were relied on when making his appraisals (PE #21- 25)(275-276, 257, 307, 368, 385-386). Kelley relied on the taxpayer’s representations that you cannot get liability insurance that covers lead-based paint, and Kelly did not ask any insurance specialists (381). The taxpayer is able to get liability insurance on the properties, but not for lead-based paint and it is unknown if taxpayer’s insurance covered lead-based paint for the valuation years (409). Kelley has observed a general downturn in older houses being able to be sold due to many factors including their condition, such as lead paint (382). The demand for student housing like the taxpayer’s was strong during the valuation years, and is currently stronger in the University area than the 4 Kelley’s testimony focused on the appraisal for 116 Victoria Place (PE #22), since his methodology was the same for each appraisal (PE #21-25) (248, 307-308). 21 rest of the City (385). The general economic trends show increasing competition in the University area that will impact the taxpayer’s business, which Kelley tried to reflect with the proposed student housing project that was not built as of each valuation date, but these economic trends (PE #21-1840; PE #22- 1956; PE #23-2077; PE #24-2196; PE #25-2315) were reflected in value, like all factors (257,332). However, there has been no reduction in rent for the valuation years and, in fact, some rents have increased, due to environmental contamination not being an issue, until now, and that it could be very well that rents will decrease going forward to account for the presence of lead-based paint (329-330,383). Kelley did not ask the taxpayer what rent was being charged now that lead-based paint had been confirmed (384). Even though the student housing projects (PE #21-1840; PE #22-1956; PE #23-2077; PE #24-2196; PE #25-2315) are not yet built they were factored into Kelley’s valuation (257-258, 332, 384). Kelley believes the impact of lead-based paint on rent could be seen over 5 to 10 year period, like the student housing projects (384). Kelley prepared five separate and distinct appraisals (PE #21-25) for each of the five unique student housing properties (241, 253). Kelley opines a value of $1.00 for each of the properties (PE #21-1871; PE #22-1987; PE #23-2108; PE #24-2227; PE #25-2346) for each valuation date and believes that is a fair 22 and equitable value (308). Kelley based his valuation on his inspections of the variably structurally sound properties, although he did not inspect the entire properties and specifically did not inspect the heating plants, plumbing, electrical panels or hot water heaters of all properties; he relied upon the taxpayer’s representations that the properties all contained the same utilities which were replaced around the same time (360-361). The properties are income producing and continue to be rented to students for 11 2/3 months with rent accruing on an annual basis, and the taxpayer has each property for approximately 10 days to clean-up and fix-up for turn-over for the next occupancy (260,328-329). In order to use the properties for student housing, the taxpayer is required to have various zoning certificates which he had during the years under review, and at the time Kelley performed his inspections (267, 269, 335- 336). Of the three approaches to determine value, Kelley only used the direct income capitalization approach rather than the sales comparison approach, or cost approach (PE #21-1851; PE #22-1967; PE #23-2088; PE #24-2207; PE #25-2346) (256, 270, 275, 280-281, 378). Kelley did not use the sales comparison approach, which he almost always used in every residential appraisal he has previously performed, because sales of similar properties 23 are rare due to the City making it practically impossible for an investor to purchase a single-family residence and convert it to rental lodging (270-271, 338-340). Kelley claimed information on the existence and extent of environmental contamination and indemnification agreements was impossible to obtain (257, 270- 271, 339-341, 385, 416-417). Kelley made this claim even though he did not ask for such information because he previously was unable to obtain such information (257, 270-271, 339-341, 385, 416-417). Although Kelley indicated that finding comparables was impossible, when he previously appraised the Altherm property on Solar Street, a part of Oil City in the City of Syracuse, he used the sales comparison approach, using sales of property known to be uncontaminated and was able to determine no indemnification agreements existed (378-379). Kelley never asked the taxpayer about any recent purchases he had made in the University area (401). A large property owner in the area recently sold his properties for, what Kelley recalls as being, 1 million dollars, but Kelley never asked that individual about the sales (366, 407). Kelley is able to use the sales comparison approach in computing land values, and on those occasions did not inquire about any environmental issues or indemnification agreements (293-294, 344-347, 396-397). Kelley valued the properties, as if uncontaminated, by using a hypothetical condition and then deducted the “cost to 24 cure” the alleged contamination (PE #21-1871; PE #22-1987; PE #23-2108; PE #24-2227; PE #25-2346) (249, 255-256). Kelley used the income capitalization approach because a buyer would be interested in the income stream and the expenses associated with the properties (273-274). Kelley used direct capitalization to arrive at estimated net income and then applied the capitalization rate to that to give an indication of value (274). Kelley did not use discounted cash flow techniques, which are more appropriate to a more complex type of property that has irregular cash flow or variable tenant lease terms and multi- tenancies (274, 343). Kelley used a derivation via band-of- investment method to come up with a capitalization rate (PE #21- 1857, 1860, 1863, 1866; PE #22-1973, 1976, 1979, 1982; PE #23- 2094, 2097, 2100, 2103; PE #24-2213, 2216, 2219, 2222; PE #25- 2332, 2335, 2338, 2341) (282, 283). Kelley also did a calculation based on debt coverage ratio (PE #21-1857, 1860, 1863, 1866; PE #22-1973, 1976, 1979, 1982; PE #23-2094, 2097, 2100, 2103; PE #24-2213, 2216, 2219, 2222; PE #25-2332, 2335, 2338, 2341), and Kelley also looked to the Price-Waterhouse- Coopers non-institutional rates (PE #21-1890-1893; PE #22-2008- 2011; PE #23-2129-2132; PE #24-2249-2252; PE #25-2367-2370) (283-284). Using the alternative derivation from debt coverage ratio formula, Kelley came up with a yearly capitalization rate (PE 321-1858, 1861, 1864, 1867; PE #22-1974, 1977, 1980, 1983; 25 PE #23-2095, 2098, 2101, 2104; PE #24-2214, 2217, 2220, 2223; PE #25-2333, 2336, 2339, 2342), which he believes to be appropriate for the properties based on consideration of the band of investment, the debt coverage ratio and the published indices (PE #21-1844-1902; PE #22-2002-2020; PE #23-2123-2141; PE #24- 2243-2261; PE #25-2361-2379) (281-285). Kelley then developed a tax factor to the capitalization rate to get an equitable assessment capitalization rate (PE #21-1858, 1861, 1864, 1867; PE #22-1974, 1977, 1980, 1983; PE #23-2095, 2098, 2101, 2104; PE #24-2214, 2217, 2220, 2223; PE #25-2333, 2336, 2339, 2342) (286). In evaluating the income and expenses, Kelley did not contact any other property owners that rent residential housing built prior to 1978 or those that rent student housing like the tax payer in the University area, although he is aware of an organization of property owners (SOPA), that he could have asked the taxpayer about (334-335, 339, 350). The taxpayer told Kelley that he is well aware of competitive rates (351). Kelley believes that analyzing only the taxpayer and the rates he sets for all of his properties gets a better analysis and is more representative of the market (334, 393-394, 401). However, Kelley did not include the data for the taxpayer’s other 50 properties in his appraisals (PE# 21-25) (351, 384-386, 395). 26 Kelley relied exclusively on the income and expenses as provided by the taxpayer (PE #21-1880-1883; PE #22-1998-2001; PE #23-2119-2122; PE #24-2238-2242; PE #25-2357-2360) without attempting to stabilize them over the four years under review, because he decided the taxpayer sets his rates competitively and knows and responds to the market’s controlling factors better than anybody and that taxpayer is a major factor, if not the major factor, and essentially sets the market (258-259, 337, 349-352, 377, 386-387, 392-394). In order to test the income and expenses information, Kelley discussed it with the taxpayer and inquired as to how the taxpayer runs his business and his accounting methods, and was satisfied the income and expenses were legitimate without auditing the statements (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134, 1171, 1228, 1243, 1307; PE #8-1344, 1389, 1440, 1447, 1503) or asking for any back-up data (337). Even though he was satisfied that taxpayer’s statements (PE #5-738, 780, 837, 904, 909; PE #6-966, 1002, 1037, 1056, 1092; PE #7-1134-1117, 1228, 1243, 1307; PE #8-1344, 1389, 1440, 1447, 1503) properly reflected things, Kelley imputed expenses (PE #21-1858, 1861, 1864, 1867; PE #22-1974, 1977, 1980, 1983; PE #23-2095, 2098, 2101, 2104; PE #24-2214, 2217, 2220, 2223; PE #25-2333, 2336, 2339, 2342) that were not reported because standard practices provide that such additional expense 27 allowances are appropriate; he assigned a replacement reserve of $0.50 per square foot (259-260, 292-292, 337). The rate of $0.50 per square foot is the highest percentage in his reported $0.10 to $0.50 range, is more than 10% of expenses, and he admitted most people would try to keep their replacement reserves between that, and believes that if someone else was of the opinion that the median would be more appropriate then it could be (291-292, 259-260, 337, 372-374). Kelley claimed that he is not double-counting expenses even though he imputed a management cost on top of the common costs (PE #21-1858, 1861, 1864, 1867; PE #22-1974, 1977, 1980, 1983; PE #23-2095, 2098, 2101, 2104; PE #24-2214, 2217, 2220, 2223; PE #25-2333, 2336, 2339, 2342), and could not recall what the taxpayer’s common costs included (375-376). The fluctuation in the taxpayer’s expenses from year to year were normal---116 Victoria Place reflects repairs and supplies (PE #22-2000) going from $4,201 in 2001 to $1,251 in 2002 (377-378). Kelley calculated the net income by deducting the expenses from the income, and then applied the equitably assessed capitalization rate to the net income to arrive at a figure representing the value for the property (PE #21-1858, 1861, 1864, 1867; PE #22-1974, 1977, 1980, 1983; PE #23-2095, 2098, 2101, 2104; PE #24-2214, 2217, 2220, 2223; PE #25-2333, 2336, 2339, 2342) (287-288). He ultimately opined a value for the 28 property as improved and then deducted the land value calculated based on sales comparison to arrive at value for the improvements (PE #21-1868; PE #22-1984; PE #23-2105; PE #24- 2224; PE #25-2343) (295). Such an analysis resulted in a negative value for the improvements at 116 Victoria Place (PE #22), which he rejected, because any appraiser would reject that as being an inaccurate reflection of value (295). Such a result was based on the taxpayer’s accounting practices, and the calculation resulting in a negative value for the improvements, he, therefore, opined a value of $50,000 (PE #22-1984) without doing any additional calculation or analysis (295-296). The Red Book created the detrimental condition model to explain how to apply environmental contamination to specific situations, and Kelley has previously utilized it, and it is discussed in his appraisals (PE #21-1853, 1903-1908; PE #22- 1969, 2021-2026; PE #23-2090, 2142-2147; PE #24-2209, 2262-2267; PE #25-2328, 2380-2385) (276-277). Kelley is unaware of any alternative competing models available to appraisers (279-280). The Red Book does not use the word lead or lead-based paint, but Kelley has not seen any treatise or information, relied on by appraisers, that excludes lead from metals, and lead is in fact a metal (322, 405-406, 408). He determined there is a detrimental condition on the properties based on the lead test 29 results (PE #21-1916-1923; PE #22-2034-2041; PE #23-2154-2163; PE #24-2274-2282; PE #25-2392-2402) (382). The chart in The Red Book (PE #21-1903-1908; PE #22-2021- 2026; PE #23-2142-2147; PE #24-2262-2267; PE #25-2380-2385) uses the sales comparison approach, and Kelley did basically what that analysis said when he reduced the value, but he applied the chart to the income capitalization approach (411). The chart in The Red Book (PE #21-1903-1908; PE #22-2021-2026; PE #23-2142- 2147; PE #24-2262-2267; PE #25-2380-2385) shows that if using income capitalization approach, which is not the way The Red Book (PE #21-1903-1908; PE #22-2021-2026; PE #23-2142-2147; PE #24-2262-2267; PE #25-2380-2385) directs one to deal with a lead paint issue, one would affect the net operating income divided by the capitalization rate (411-412, 415). The chart says the approach to value focuses on the impact that the detrimental condition has on income both short-term and in perpetuity and then to apply the risk to the capitalization rate, discount rate or both, so according to the chart what really should be showing is how lead paint would affect both the capitalization rate and discount rate in the future, but Kelley did not follow that formula (411-412, 415). Kelley essentially used the diminution in property value approach applied to the sales comparison approach listed in The Red Book (PE #21-1903-1908; PE #22-2021- 2026; PE #23-2142-2147; PE #24-2262-2267; PE #25-2380-2385) and 30 applied that diminution to the market value he determined utilizing the income capitalization approach (412-413, 415). The two charts in The Red Book (PE #21-1903-1908; PE #22-2021-2026; PE #23-2142-2147; PE #24-2262-2267; PE #25-2380-2385) say to set the market value of property without detrimental condition present then test the market data in the area to see what the value would be without contamination present and then arrive at diminution in value (415-416). Kelley believes that prudent, well-informed people would have an investigation done of the presence and extent of contamination before purchasing property like these; the taxpayer took the risk before he knew the situation, but he is a lot more prudent today than he would have been in 2001, although he has purchased properties in the same area recently and paid more than $1.00 (342, 401). Kelley believes that a knowledgeable purchaser of a group of properties on University Hill back in 2001 through 2004 would have the properties tested to determine the presence or non-presence of any contamination and the extent (421). The lead paint contamination was not known until documented (409). The 2008 lead-based contamination was documented by Envirologic (PE #12-1916-1923; PE #22-2034-2041; PE #23-2154- 2163; PE #24-2274-2282; PE #25-2392-2402); the 2008 cost to mitigate was estimated by CRAL (PE #21-1930-1931; PE #22-2054- 31 2055; PE #23-2174-2175; PE #24-2295-2296; PE #25-2416-2417); the 2008 restoration costs were estimated by Marinich (PE #21-1933- 1936; PE #22-2057-2060; PE #23-2176-2179; PE #24-2297-2298; PE #25-2418-2419) (257, 307, 330-331). There is nothing indicating tests were performed January 1, 2001, 2002, 2003 or 2004, nor did Envirologic address years 2005 through 2008 and the extent of contamination in 2001 was unknown (331, 333, 410). Appraisers do have a duty to analyze whether an outside expert Report is reasonable, and whether it is rational to rely on such a Report (369, 371). Kelley analyzed the cost of preparation of estimates by the three (3) entities; the cost of discovering the alleged contaminate is included in the cost to cure (299, 369). Kelley used the removal cost from the CRAL estimate (PE #21-1930-1931; PE #22-2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25- 2416-2417) and the restoration cost from the Marinich (PE #21- 1933-1936; PE #22-2057-2060; PE #23-2176-2179; PE #24-2297-2298; PE #25-2418-2419) estimate (299-300). He added the costs to obtain the estimates to those estimates to get the total cost to cure for each of the properties (#PE-21-1869; PE #22-1985; PE #23-2106; PE #24-2225; PE #25-2344) (300-301). Kelley doesn’t know if CRAL (PE #21-1930-1931; PE #22-2054-2055; PE #23-2174- 2175; PE #24-2295-2296; PE #25-2416-2417), and Marinich (PE #21- 1933-1936; PE #22-2057-2060; PE #23-2176-2179; PE #24-2297-2298; 32 PE #25-2418-2419) estimates were the cheapest and most cost effective, and he did not ask and does not know if the taxpayer had, or would be seeking, any other bidders (371-372). Kelley did not make an adjustment for the fact that the amounts are in 2008 dollars, but the amounts listed for removal and restoration would have been lower in 2001 than that listed in 2008 (347). Kelley believes that it is common sense to adjust, but he didn’t, although he could have (348-349). Kelley used clean-up costs rather than another method, even though it created negative value, because it is appropriate for this type of property to value it using direct capitalization, a simple method, and take off the “cost to cure” (327-328). Kelley’s evaluation relative to the alleged contamination of the properties does not depend on whether there is a requirement that the lead actually be removed, but the value is impacted until the lead is removed, and at that point there would still be a stigma to the property and that stigma is part of the impact of contamination on a property that is still attached as of today (364). Kelley took the values that were indicated each year for the properties and reduced the value by the “cost to cure”, which in every case resulted in a negative value for the five properties because the clean-up costs exceeded the market value as clean, so he adopted a different philosophy known as residual 33 value (304,306,324,327,399,403). The concept of residual value (PE #21-1871; PE #22-1987; PE #23-2108; PE #24-2227; PE #25- 2346) is used because there is intrinsic value in ownership in a limited market where a sophisticated, fully informed buyer willing to assume risks associated with environmentally contaminated property at some level of positive consideration (305). Although arithmetic arrives at a negative value, the implication is that it is not correct because someone would pay $1.00 (305, 399). Under Kelley’s analysis, the taxpayer has gotten bids on each part of removal of lead and reconstruction, but has chosen not to remove because he does not have the money, and the values on the properties could be $1.00 from now until whenever, while the taxpayer is still renting the properties and receiving income (410-411). WILLIAM KIMBALL (City’s Witness No. 1) was retained by the City to appraise the properties in question (428-429, 565-566). His appraisals were not received into evidence because they failed to comply with the requirements of 22 NYCRR §202.59(g) but he was, however, allowed to critique Kelley’s appraisals (8a-10a). Kimball has experience appraising environmentally contaminated industrial property, both land and improvements (569). Kimball has never worked on a case prior to this where 34 lead paint contamination was an issue, and to figure out whether it impairs value, he would rely on the market (570). Kimball is aware of government sponsored lead abatement programs that are on a voluntary, not mandatory, basis to remove lead when small children occupy houses (581-582). Kimball hasn’t seen or heard of any lead paint complications, issues or factors from the market that would warrant any research or due diligence beyond his normal researching of sales and comparables, so he does not feel such research warranted (570). The market told Kimball that lead paint was an insignificant issue; he didn’t make the decision on his own because, as an appraiser, he tries to reflect the market, and the market told him that lead is not a significant issue (588). Since Kimball does not believe it is an issue, he didn’t become overly concerned with the extent of lead paint in the properties or how they compared to each other (584-585). Kimball does not recall seeing any studies or specific information about contamination (431). Kimball has previously seen Phase One Reports for environmental testing in regard to his appraisals, but never one focused on lead because no banks have ever shown or seemed to require it, and such Reports were more comprehensive than the Envirologic Report (PE #21-1910-1923; PE #22-2028-2041; PE #23- 2149-2163; PE #24-2269-2282; PE #25-2387-2402) (582). He glanced 35 at the CRAL Reports (PE #21-1930-1931; PE #22-2054-2055; PE #23- 2174-2175; PE #24-2295-2296; PE #25-2416-2417) before testifying and he has never previously seen such Reports (PE #21-1930-1931; PE #22-2054-2055; PE #23-2174-2175; PE #24-2295-2296; PE #25- 2416-2417) as to cost estimates for remediating lead paint (583). Kimball inspected as much of each of the properties that he possibly could and reasonably get to (429). Most of his clients would require that he inspect the basements (429). Kimball cannot recall any parts of the properties that he did not inspect (430). The properties are former single-family homes that have been converted to income-producing student housing and were generally in average condition and fairly well maintained (430- 431). The interior conditions were average and typical of the local market (431-432). Some of the interiors of the properties had recently been painted and at least one was being painted on the exterior (432). Kimball saw no signs of decline, deterioration or any other problems with the student housing market (455-456). Kelley indicated that the new SU residence halls will have an impact, if built (PE #21-1840; PE #22-1956; PE #23-2077; PE #24-2196; PE #25-2315), but at this time they are only projected (456). 36 Kimball does not rely on the actual historical operating expenses because the market wouldn’t look at it that way and he doesn’t think his clients would agree with that approach; the expenses should be normalized (536). For example, if one used the greatly varying utility expenses in 2003 of $13, then in 2004 of $639, it would directly impact the income and give erratic values from year to year and not make sense (536). He does not think that the fact the income and expense information (PE #21-1880-1883; PE #22-1998-2001; PE #23-2119-2122; PE #24- 2238-2242; PE #25-2357-2360) came from taxpayer, who owns 50 properties, makes a difference because there is always room for question on any individual line and possible errors (536). For example, the numbers could be allocated wrong if some are actually long-term or capital improvements (536). Historical expenses should be normalized to account for inflation when using 2005 and 2006 numbers for valuation years 2001 through 2004, but they were not, so Kimball would make downward adjustments in using comparable operating expenses from 2005 and 2006 (537-538). The leases had lead paint disclosures (PE #5-767-770, 805- 820, 858-860, 898-890, 937-939; PE #6-969-977, 1004-1011, 1042- 1050, 1080-1087, 1101-1109; PE #7-1145-1149, 1174-1178, 1219- 1223, 1264-1268, 1301-1305; PE #8-1323-1323, 1379-1388, 1405- 1414, 1461-1470, 1488-1497) indicating there was no knowledge of 37 lead on the properties, and he did not advise the City that they needed to retain any experts regarding lead or lead paint (682- 683). MARY ELIZABETH MOKRZYCKI (City’s Witness No. 2) is the Program Manager of the City of Syracuse Lead Program (609-610). The Program gets involved either though a referral by the County Health Department or when the homeowner requests an inspection (612). Following the inspection, a proposal is prepared and the job is bid by contractors (612). The Program recommends that the homeowner hire a certified/licensed contractor or be trained in lead safe work practices (623-624). CRAL is with the Lead Program, but has not done any work under the Program (613-615). Lead paint in and of itself is not a hazard (616). Lead paint only becomes hazardous when it starts to deteriorate, flake, chip or peel, and if intact, is not a hazard (624-625). If a soil test was done in 2008, there was no way of knowing if that soil was contaminated in 2001 (628-629). None of the properties in question are going through the City of Syracuse Lead Program (612). INGA BACK (City’s Witness No. 3) is the Program Coordinator of the Onondaga County Health Department’s Lead Poison Control Program (629-630). The Program does many things relative to lead or lead-based paint including surveillance, screening and testing children for lead poisoning (630). 38 The Department finds out about lead poisoning because they maintain a registry of all blood tests in the County, and if they find children with certain lead levels they intervene and also take requests from tenants concerned about chipping and peeling paint (631-632). If the house meets the criteria, such as being located within the City of Syracuse and has young children living there, then they inspect the property (632). When the Program determines that a property has lead paint, they issue a Notice and Demand under the Public Health Law §1373, and require the property owner to correct the lead hazards within a specific period of time (631). If the property owner does not correct the lead hazards, there are a series of enforcement actions and methods to get compliance (631). Back reviewed the Department’s records on properties with cases of lead-paint and did not see any record of any of the properties having lead paint or ever having had been inspected by the Health Department; no closed, no past, no current cases (633-634). After hearing the foregoing testimony and reviewing the exhibits, the trial court, in the exercise of its power to determine factual questions and credibility of the witnesses, entered its Decision and Final Order of the Court, on March 12, 2009 (7a-20a). The basis of the challenge to the assessments was that each of the properties was environmentally contaminated 39 with lead paint and asbestos (11a). Lead based paint, in and of itself, does not constitute a hazard, and only becomes a hazard when it starts to deteriorate, flake, chip or peel (11a). Where walls painted with lead based paint are intact and there is no risk of being exposed to lead dust5 through inhalation or injection, no such hazard exists (11a-12a). The properties are rental housing for college students (12a). When purchased, the taxpayer was never advised of the existence of lead paint or performed any such testing at that time (12a). Since the properties were built prior to 1978, the taxpayer provided, in the years under review, the required lead based paint notices to the tenants, and in each instance indicated he had no knowledge of any lead based paint and/or lead based paint hazards (12a). The properties were not tested for lead and lead paint until 2008 and at that time lead based paint was found in the properties (12a). While the taxpayer’s estimator, Zinserling, indicated the best way to remediate lead paint is to remove it, its existence may also be abated by enclosure, encapsulation, and wet paint scraping and repainting (13a). The taxpayer has taken no steps to have the lead paint removed and the property then restored, and is not required by Federal (Title 15 U.S.C. §§2681-2692) or State (Public Health 5 The taxpayer did not test for lead dust (111). 40 Law §§1370-1376-a) Law to remove the lead and the lead based paint from the properties (13a). There is no evidence of any lead contamination as of the taxable status dates (14a). There was no evidence that the lead paint represents a hazard to tenants because of peeling, flaking or lead dust on the taxable status dates (14a). The 2008 positive soil test does not prove whether the soil was contaminated on the taxable status dates (14a). Kelley, the taxpayer’s appraiser, relied on income and expense statements provided by the taxpayer, and there was no separate analysis by an accountant, independent or otherwise, testifying to the legitimate nature of the expenses (15a). The trial court, based on the foregoing, concluded that the taxpayer failed to meet his burden to demonstrate that the properties were contaminated on the taxable status dates (17a). While an inference may be drawn that lead paint existed in the properties on the taxable status dates, there is no evidence as to its condition (17a-18a). As such, Kelley’s “cost to cure” analysis was not considered (18a). The trial court also concluded that it could not determine if the taxpayer’s expenses were legitimate, especially since the valuation utilized the income approach (18a-19a). In addition, the management fees and common costs appear to be double counted and the replacement reserves appear excessive (18a-19a). Kelley 41 failed to even consider and weigh accordingly all the approaches to valuation (19a-20a). As such, the taxpayer failed to show through substantial evidence that the City’s assessments were excessive (20a). The Appellate Division, Fourth Department, by Order entered November 12, 2010, unanimously affirmed the trial court’s Order for the reasons stated in the trial court’s Decision (2531) (In the Matter of Roth, et al. v. City of Syracuse, et al., 78 A.D.3d 1590 [4th Dept., 2010]). Following the Appellate Division affirmance, the taxpayer’s claims regarding the remaining 37 properties were discontinued with prejudice (2533-2537). By Order, entered June 26, 2012, the Court of Appeals granted the taxpayer leave to appeal to the Court of Appeals (2538). POINT I MATTER OF COMMERCE HOLDING CORP. DOES NOT REQUIRE A REDUCTION OF THE TAX ASSESSMENTS BASED ON “COST TO CURE”. The valuation of assessed property is essentially a question of fact, and where, as here, the trial court’s determination has been affirmed by the Appellate Division, the valuation must be upheld unless there has been an error of law in the valuation theory, or the evidence does not support the determination (Matter of Consolidated Edison Company of New York v. City of New York, 8 N.Y.3d 591, 595-596 [2007]; Matter of B. 42 Altman & Co. v. City of White Plains, 57 N.Y.2d 904, 905-906 [1982]). It is respectfully submitted that there was no error of law by the trial court herein, and the evidence supports its determination (7a-20a). Therefore, the Appellate Division Order must be affirmed (see Matter of Consolidated Edison Company of New York at 595-596; Matter of B. Altman & Co., at 905-906). The taxpayer claims that the presence of lead paint, in 2008, justifies a reduction of his tax assessments for the tax years 2001, 2002, 2003, and 2004, based on the 2008 “cost to cure”, and that the trial court misapplied this Court’s holding in Matter of Commerce Holding Corp. v. Board of Assessors of the Town of Babylon (88 N.Y.2d 724 [1996]) to deny that “cost to cure” reduction (see The Taxpayer’s Brief, pp. 39-74). This Court, in Matter of Commerce Holding Corp. (88 N.Y.2d at 727), held that because environmental contamination can depress a parcel’s value, it must be considered for tax assessment purposes. In analyzing how to account for the environmental contamination, this Court, in Matter of Commerce Holding Corp. (88 N.Y.2d at 732), enumerated six factors to be considered: extent of contamination; estimated cleanup costs; present use of the property; owner’s ability to obtain financing and indemnification in connection with the purchase; potential liability to third parties; and stigma associated with contamination. This Court, in Matter of Commerce Holding Corp. 43 (88 N.Y.2d at 731-733), indicated that there was no per se rule on how to account for environmental contamination for assessment purposes. The trial court held that lead based paint, in and of itself, does not constitution a hazard, and only become a hazard when it starts to deteriorate, flake, chip or peel (11a; 624- 625). There is no hazard with intact lead based paint walls, where there is no risk of being exposed to lead dust6 through inhalation or injection (11a-12a; 616). The properties are rental housing for college students (12a; 17). The taxpayer, when he purchased the properties, was never advised of the existence of lead paint or performed any such testing at that time (12a; 12-13). Even though the properties were built prior to 1978, the taxpayer’s lead paint lease notices, in the years under review, indicated that he had no notice of any such condition (12a; PE #5-753, 764, 801, 857, 890, 920; PE #6-963, 997, 1028, 1068, 1129; PE #7-1160, 1189, 1212, 1256, 1292; PE #8-1343, 1373, 1425, 1460, 1524; 76-77, 82, 84, 148, 150-151, 156, 165-166, 168, 170, 172, 174, 181-183). Lead based paint was found in the properties in 2008 (12a; 89, 106). The taxpayer’s estimator indicated that the best way to remediate the lead paint is to remove it (110, 122-123); but it may be remediated by enclosure, encapsulation and wet paint scraping and 6 The properties herein were not tested for lead dust (111). 44 repainting (13a; 611). The taxpayer has taken no steps to remove the lead paint, and is not required to remove it (13a; 43, 104, 110, 139, 143, 184-185, 205, 610; Title 15 U.S.C. §§2681-2692; Public Health Law §§1370-1376-a). There was no evidence of any lead contamination as of the taxable status dates (14a; 77-78, 89, 106, 331, 333, 410). There was no evidence that the lead paint represents a hazard to tenants because of peeling, flaking or lead dust on the taxable status dates (14a). In addition, the 2008 positive soil test does not prove whether the soil was contaminated on the taxable status dates (14a; 628-629). The key element, in the case at bar, that differentiates it from Matter of Commerce Holding Corp. (88 N.Y.2d at 728) is that the properties herein were not proved to be environmentally contaminated on the taxable status dates (17a-18a). Therefore, the taxpayer’s repeated attempts (see The Taxpayer’s Brief, pp. 39-74, and A1-A21) to place his properties under the Matter of Commerce Holding, Corp. (88 N.Y.2d at 728, 731) umbrella to obtain reduced to assessments are “off base”. In Matter of City of Syracuse IDA (Alterm, Inc.) (20 A.D.3d 168, 171-172 [4th Dept., 2005]); and Matter of Northville Industries Corporation v. State (14 A.D.3d 817, 818-819 [3rd Dept., 2005]), condemnation awards were to be reduced by the cost to remediate the existing contamination. In the case at 45 bar, there was no contamination to remediate or condemnation award to offset, therefore, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 42, 53) on the Records in Matter of City of Syracuse IDA (Alterm, Inc.) (20 A.D.3d at 171-172) and Matter of Northville Industries Corporation (14 A.D.3d at 818-819) is misplaced. In Matter of Bass v. Tax Commissioner (179 A.D.2d 387 [1st Dept., 1992]), the building in question had such significant physical and functional impairments due to asbestos, that almost any work done to the building was so economically impacted that a reduction of the assessment reflecting a pragmatic adjustment to the economic realities of the building was necessary, even though the owner undertook to voluntarily remove the asbestos. In the case at bar, there were no significant physical and/or functional impairments because of lead paint, throughout fully rented properties that required its removal, to allow the properties to be fully utilized (17). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 4, 42) on the Record in Matter of Bass (179 A.D.2d supra) is misplaced. In Matter of Northville Industries Corp. v. Board of Assessors of the Town of Riverbend (143 A.D.2d 135, 137-138 [2nd Dept., 1988]), the full cost of compliance should have been deducted from the tax assessments because the property owner was required, by law, to remediate in a certain manner. The taxpayer 46 herein, however, was not legally obligated to remediate the lead paint, and has taken no steps to remove it (13a; 43, 104, 110, 139, 143, 184-185, 205, 610; Title 15 U.S.C. §§2681-2692; Public Health Law §§1370-1376-a). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, p. 44) on the Record in Matter of Northville Industries Corp. (143 A.D.2d at 137-138) is misplaced. In University Plaza Realty Corp. v. City of Hackensack (264 N.J. Super. 353, 355, 624 A.2d 1000, 1001 [1993]), the cost to voluntarily remove asbestos was allowed because the property owner demonstrated that the asbestos had significantly affected its lease negotiations and vacancy rates. In the case at bar, the taxpayer failed to demonstrate that the lead based paint significantly affected its lease negotiations and occupancy, rather his properties were fully rented and there was no rent adjustments (17, 257, 332, 384). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 5, 46, 63) on the Record in University Plaza Realty Corp. (264 N.J. Super. at 355, 624 A.2d at 1001) is misplaced. In Matter of Atkin v. Board of Assessors of the Town of Greece (19 Misc.3d 1125(A), 2007 N.Y.SlipOp. 52552(U) [Sup Ct Monroe Co 2007]), the court indicated that because the property therein was not capable of productive use and could not generate substantial income, the Matter of Commerce Holding Corp. (88 47 N.Y.2d at 724) valuation methodology would be proper. However, in the case at bar, the properties were capable of productive use and were generating substantial income (11a; 17). Therefore, the Matter of Commerce Holding Corp. (88 N.Y.2d at 724, fn. 5) valuation methodology is not appropriate, especially since no contamination was shown to exist on the taxable status dates (17a-18a). The taxpayer’s attempt (see The Taxpayer’s Brief, pp. 60- 62) to equate the presence in the properties of lead paint, in 2008, to the stigma of Solvay Process chemical waste beds or a superfund site in Minnesota is misplaced. This Court noted, in Allied Corp. v. Town of Camillus (80 N.Y.2d 351, 355 [1992]), that the Solvay Process property is a singular type with a novel past and an uncertain future which does not equate with the properties herein. In addition, the properties are not superfund sites (cf., Westling v. County of Millie Lacs, 543 N.W.2d 91, 92 [Minn. 1996]). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 4, 60-61) on the Records in Allied Corp. (80 N.Y.2d at 355) and Westling (543 N.W.2d at 92) is misplaced. The properties are rented to college students and there are no children residing in the properties (17). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, p. 47) on the 48 Record in Adams v. Rizzo (13 Misc.3d 1235(A), 2006 N.Y. SlipOp. 52135(U) [Sup. Ct. Onon. Co., 2006]) is misplaced. The taxpayer did not sustain his burden to show contamination on the taxable status dates (17a-18a). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 5, 42, 45) on the Record in Matter of Alexander’s Department Store of Valley Stream, Inc. v. Board of Assessors (227 A.D.2d 549, 550- 551 [2nd Dept., 1996]) is misplaced. None of the information relied on by the taxpayer’s appraiser, G. William Kelley (Taxpayer’s Witness No. 4), reflected lead paint contamination on the taxable status dates (PE #21-25). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, p. 53) on the Records in Matter of Ames Department Stores, Inc. v. Assessor of the Town of Greenport (276 A.D.2d 890, 891 [3rd Dept., 2000]; and Matter of Welsh Foods, Inc. v. Town of Westfield (222 A.D.2d 1053, 1055 [4th Dept., 1995]) is misplaced. There was no evidence of the taxpayer’s awareness of the lead paint or that young children resided in the properties as of the taxable status dates (13-14, 17). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, p. 50) on the Record in Chapman v. Silber (97 N.Y.2d 9, 20-21 [2001]) is misplaced. 49 The case at bar does not involve condemnation of real property, but rather review of tax assessments (10a). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 41-42, 61-63) on the Records in Criscuola v. Power Authority of the State of New York (81 N.Y.2d 649, 654 [1993]); City of Buffalo v. J.W. Clement, Co. (28 N.Y.2d 241, 257-258 [1971]; Matter of City of New York v. Mobil Oil Corp. (12 A.D.3d 77, 78 [2nd Dept., 2004]) is misplaced. The case at bar obviously does not concern compliance with New York City Codes regarding lead paint (10a). As such, the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 48, 49, 50, 51, 52) on the Records in Matter of NYC Coalition to End Lead Poisoning v. Vallone (100 N.Y.2d 337 [2003]); Juarez v. Wavecrest Management Team, Ltd. (88 N.Y.2d 628 [1996]); D’Agostino v. Forty-Three East Equity Corp. (12 Misc.3d 486, 470 [NYC Civil Ct., 2006]) is misplaced. Since the properties were not tested for lead dust (111), the taxpayer’s reliance (see The Taxpayer’s Brief, pp. 49, 50, 52) on the Records in Harrison & Burrows Bridge Constructors, Inc. v. State of New York (42 A.D.3d 779, 781 [3rd Dept. 2007]); and Williamsburg Around the Bridge Block Ass’n. v. Guiliani (223 A.D.2d 64, 67 [1st Dept., 1996]) is misplaced. The properties herein were not unused contaminated toxic waste sites, but fully occupied residential student housing 50 (17). As such, the taxpayer’s reliance (the Taxpayer’s Brief, 45, 46, 63) on the Record in Mola Development Corporation v. Orange County Assessment Appeals Board No. 2 (80 Cal. App. 4th 309, 95 Cal.Rptr. 2d 546 [2000]) is misplaced. The taxpayer did not prove that the cleanup costs were a process of business necessity. As such, the taxpayer’s reliance on the Record in Weyerhaeuser Co. v. Easter (126 Wash.2d 370, 375-376, 894 P.2d 1290, 1293 [1995]) is misplaced. Kelley indicated that The Red Book sets forth a process to apply an environmental contamination reduction to a specific contaminated property (276-277). However, Kelley did not even follow the methodology set forth therein (PE #21-1903-1908; PE #22-2021-2026; PE #23-2142-2147; PE #24-2262-2267; PE #25-2380- 2385); rather, he applied the sales comparison approach to the income capitalization approach to determine his diminution in value (411-413; 415-416). In any event, since the contamination was not proved to exist on the taxable status dates, The Red Book is irrelevant to the case at bar (17a-18a). In Pan Chemical Corp v. Hawthorne Borough (404 N.J. Super. 401, 414, 961 A.2d 1219, 1226 [2009] and Inmar Associates, Inc. v. Borough of Carlstadt (112 N.J. 593, 609, 549 A.2d 38, 46 [1988]), the courts held that no devaluation for contamination applied when there was no government required cleanup and the property was still in use. Clearly, such a situation exists in 51 the case at bar, justifying no devaluation for lead paint contamination in the taxable status years (13a; 17, 43, 104, 110, 139, 143, 184-185, 205, 610; Title 15 U.S.C. §§2681-2692; Public Health Law §§1370-1376-a). In declining to apply the “cost to cure”, the trial court properly concluded that the taxpayer failed to meet his burden to demonstrate that the properties were contaminated on the taxable status dates; while an inference may be drawn that lead paint existed, there is no evidence as to its condition on the taxable status dates (17a-18a). Therefore, it cannot be held, on this Record, that the Findings (11a-14a) and Conclusions (17a-18a) of the trial court should be disturbed (see Thoreson v. Penthouse, Intl., 80 N.Y.2d 490, 495 [1992]; cf., Stiles v. Batavia Atomic Horseshoes, Inc., 81 N.Y.2d 950, 951 [1993]). POINT II THE TAX ASSESSMENTS, ON THE RECORD, ARE NOT OVERVALUED OR INCORRECT. The assessment as placed by a municipality on a property is presumed to be valid, and the taxpayer has the burden of overcoming the presumptive validity, with substantial evidence that demonstrates a valid and credible value dispute (see Matter of FMC Corp. v. Unmack, 92 N.Y.2d 179, 187-188 [1998]; Farash v. Smith, 59 N.Y.2d 952, 955 [1983]; see also 300 Gramatan Avenue 52 Associates v. State Division of Human Rights, 45 N.Y.2d 176, 179-181 [1978]). The substantial evidence analysis, in this regard, requires the trial court to initially determine whether the taxpayer’s documentary and testimonial evidence is based on a sound theory and objective data (Matter of Commerce Holding Corp. v. Board of Assessors of Town of Babylon, 88 N.Y.2d 724, 732 [1996]). Once the taxpayer meets its initial burden and rebuts the presumption, the trial court must then weigh the entire record to determine whether the taxpayer has established by a preponderance of the evidence that the properties are overvalued (Matter of FMC Corp., 92 N.Y.2d at 187-188). The taxpayer claims that the trial court’s determination that his appraiser’s valuation of the properties, in an uncontaminated state, was not supported by the evidence and was incorrect (18a-20a) (see The Taxpayer’s Brief, pp. 75-80). It is respectfully submitted that the trial court properly held that the taxpayer failed to meet both its initial substantial evidence threshold, as well as any subsequent preponderance standard to rebut the presumption of validity (20a). The taxpayer listed a utility expense, but he was unable to indicate what the utility expense was for (65-66). The common costs (management) “estimates” and depreciation “approximates” submitted to the BAR (PE #5-738, 780, 837, 904, 909;p PE #6-966, 53 1002, 1037, 1056, 1092) were not “estimates” or “approximates” when they were included in the basis for his appraiser, G. Richard Kelley’s (Taxpayer’s Witness No. 4), appraisals (PE #21- 1880-1883; PE #22-1998-2001). The taxpayer took the yearly cost of all of the items, such as snow removal [except 965 Lancaster], landscaping, personnel, vehicles, and office lighting, divided by the total number of properties he owns, to obtain a common costs (management) expense (67-68, 181). The income and expenses lists utilities (PE #5-943) that are “guessed” to be for water (82). The overall calculations of expenses by the taxpayer are simply not reliable. Kelley did not contact any other property owners that rent residential housing in the University area, because he felt that analyzing only the taxpayer’s five properties interrelated to the taxpayer’s other properties is more representative of the market, but he did not include such an analysis in his appraisals (PE #21-25) (334-335, 339, 350, 384-386, 393-395, 401). Kelley did not attempt to stabilize the income and expenses for the taxable status years because the taxpayer essentially sets the market (258-259, 337, 349-352, 386-287, 392-394). Kelley felt that the income and expenses were legitimate and there was no need to audit them, or ask for any backup data, since he discussed with the taxpayer “how he runs his business” 54 (337). Kelley, nevertheless, imputed expenses that were not reported because he claimed that such was appropriate, and assigned the highest replacement reserve possible $0.50 a square foot, which was more than 10% of the expenses (259-260, 291-292, 337). Nonetheless, Kelley noted that if someone else was of the opinion that the median, between $0.10 and $0.50, would be more appropriate, then it could be (372-374). Kelley claimed he was not double counting expenses, even though he imputed a management cost in addition to the common costs, and could not even recall what the taxpayer’s common costs included (PE #21- 1968; PE #22-1984; PE #23-2105; PE #24-2224; PE #25-2343) (375- 376). It was somewhat incongruous for Kelley on one hand to say that the taxpayer sets the market (258-259, 337, 349-352, 377, 386-387, 392), and on the other hand, to indicate that it was necessary to impute expenses (259-260, 291-292, 375-376), because everything was not properly accounted for. When Kelley obtained a negative value for improvements at 116 Victoria Place (PE #22), he rejected the determination and assigned a value of $50,000 (PE #22-1984) without doing any additional calculation or analysis (295-296). William Kimball (City’s Witness No. 1), the City’s appraiser, opined that the actual historical expenses should not be blindly relied upon, but should be normalized (526-538). In 55 addition, since the taxpayer indicated that he charges all repairs as a maintenance expense, Kimball indicated that they may be allocated incorrectly if some of the repairs are, indeed, capital improvements (537). Clearly, Kelley should have independently verified the reasonableness of the expenses, provided by taxapyer, since the natural tendency of human nature is to make the best showing for one’s own side, especially when seeking to reduce one’s own taxes (see People ex rel. The H.B. Clafin Co v. Feinter, 58 App. Div. 468, 472, fn. 3 [1st Dept., 1901]). Kelley factored in proposed student housing that had yet to be built (PE #21-1840; PE #22-1956; PE #23-2077; PE #24-2196; PE #2315) (257, 332). However, he did not ask the taxpayer what rent was being charged now that lead based paint had been confirmed, even though Kelley indicated that the impact of lead based paint on rent could be seen over a 5 to 10 year period (257, 332, 384). Kelley did not fully consider all of the approaches to value: cost; sales comparison; and income capitalization (PE #21-1850; PE #22-1966; PE #23-2087; PE #24-2206; PE #25-2325), and weight them accordingly (366-367). Even though they may be found to be inapplicable or unreliable, each, in the first instance, should be considered (see Review and Reduction of Real Property Assessments in New York, NYSBA 3rd Ed., §1.08, p. 33). 56 One of the reasons Kelley claimed that he did not use the sales comparison approach is because sales of similar properties are rare, due to the City making it practically impossible for an investor to purchase a single-family residence and convert it to rental lodging (270-271). Therefore, based on such a rationale the properties would have significant value because replacements are not readily available. The trial court properly concluded that the taxpayer’s appraiser relied on income and expense statements (PE #21-1880- 1883; PE #22-1998-2001; PE #23-2119-2122; PE #24-2238-2242; PE #25-2237-2360) provided by the taxpayer and there was no separate analysis by an accountant, independent or otherwise, as to the legitimate nature of the expenses, especially since Kelley used the income approach as the valuation method (15a, 17a-19a) (see Matter of Villa Roma County Club, Inc. v. Fulton, 301 A.D.2d 911, 912-913 [3rd Dept., 2003]). In addition, the trial court properly concluded that Kelley failed to consider and analyze all of the approaches to valuation (20a) (see Review and Reduction of Real Property Assessments in New York, NYSBA 3rd Ed., §1.08, p. 33). As such, the trial court properly exercised its power to determine factual questions and credibility (Rushford v. Facteau, 280 A.D.2d 787, 789 [3rd Dept., 2001]), and its determination that the taxpayer did not sustain its burden to 57 show by substantial evidence that the assessments are excessive is, on this Record, correct and should not be disturbed (20a) (see Thoreson v. Penthouse, Intl., 80 N.Y.2d 490, 495 [1992]). The City of Syracuse, like most municipalities, determines its assessed valuations by looking at sales of similar properties---the market. Based on market data, there is no observed negative impact from lead based paint (588). CONCLUSION THE ORDER OF THE APPELLATE DIVISION SHOULD BE UNANIMOUSLY AFFIRMED. /s/JOHN A. CIRANDO HON. MARY ANNE DOHERTY Corporation Counsel of the City of Syracuse Attorney for Respondents/Respondents D.J. & J.A. CIRANDO, ESQS. Of Counsel 101 South Salina Street, Suite 1010 Syracuse, New York 13202 (315) 474-1285 John A. Cirando, Esq. Bradley E. Keem, Esq. Elizabeth deV. Moeller, Esq. and Shannon M. Jones, Esq. Assistant Corporation Counsel Of Counsel Dated: January 7, 2013 RELEVANT ASSESSMENTS AND VALUATIONS 126 Harvard Place 116 Victoria Place Year Assessed Value Petitioner’s Demand at Bar Kelley’s Opined Value Kelley’s Opined Value after cost to cure 2001 $60,000 $20,000 $6,600 $1.00 2002 $75,000 $20,000 $35,500 $1.00 2003 $65,000 $20,000 $46,500 $1.00 2004 $65,000 $25,000 $53,000 $1.00 960 Lancaster Avenue Year Assessed Value Petitioner’s Demand at Bar Kelley’s Opined Value Kelley’s Opined Value after cost to cure 2001 $60,000 $20,000 $58,000 $1.00 2002 $75,000 $20,000 $54,500 $1.00 2003 $65,000 $20,000 $48,000 $1.00 2004 $65,000 $25,000 $44,000 $1.00 965 Lancaster Avenue Year Assessed Value Petitioner’s Demand at Bar Kelley’s Opined Value Kelley’s Opined Value after cost to cure 2001 $60,000 $20,000 $49,000 $1.00 2002 $75,000 $20,000 $47,500 $1.00 2003 $65,000 $20,000 $29,000 $1.00 2004 $70,000 $25,000 $44,000 $1.00 125 Victoria Place Year Assessed Value Petitioner’s Demand at Bar Kelley’s Opined Value Kelley’s Opined Value after cost to cure 2001 $60,000 $20,000 $44,500 $1.00 2002 $75,000 $20,000 $38,000 $1.00 2003 $65,000 $20,000 $44,000 $1.00 2004 $70,000 $25,000 $46,500 $1.00 Year Assessed Value Petitioner’s Demand at Bar Kelley’s Opined Value Kelley’s Opined Value after cost to cure 2001 $60,000 $20,000 $40,000 $1.00 2002 $60,000 $20,000 $13,500 $1.00 2003 $60,000 $20,000 $18,000 $1.00 2004 $60,000 $20,000 $36,000 $1.00