These special proceedings, brought pursuant to Real Property Tax Law, Article 7, seek to reverse a determination of the Respondents Board of Assessors and Board of Assessment Review of the [*2]City of Ogdensburg ("City") which denied requests for exemption from real property taxes for eleven properties owned by Petitioner, the Association for Neighborhood Rehabilitation, Inc. ("ANR"). The Ogdensburg City School District ("School") was permitted to intervene and actively participated in this litigation. All eleven Petitions were joined for trial.

ANR alleges it is entitled to the exemptions as provided in Real Property Tax Law §420 - a(1)(a) which states:

"Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association as hereinafter provided shall be exempt from taxation as provided in this section."

A non-jury trial was held on September 15, 16 and 17, 2008. In addition to the testimony presented and the exhibits admitted, consideration has been given to Petitioner's Proposed Findings of Fact and Conclusions of Law dated February 23, 2009; Proposed Findings of Fact and Conclusions of Law submitted by the Respondent City dated February 23, 2009; a Post Trial Memorandum of Law submitted by the Respondent School dated February 23, 2009; a Reply Memorandum of Law in Further Support of Petitioner's Application dated March 16, 2009; a Reply Brief of Respondent School dated March 16, 2009; and, a letter memorandum on behalf of the City dated March 16, 2009.

At trial, Petitioner withdrew its Petition in regard to 9 Rennselaer Avenue, a vacant lot.

FINDINGS OF FACT

1. ANR is a New York Not-for-Profit charitable corporation, organized pursuant to §501(c)(3) of the Internal Revenue Code.

2. It was the owner of the following properties in the City of Ogdensburg which are the subjects of this action:

a. 1031 Washington Street, a single family residence,

b. 1045 Washington Street, a single family residence,

c. 619-715 Champlain Street, Montgomery Street, Kendrick Street, (Gaslight Village), 2,3 or 4 bedroom apartments,

d. 1320 Green Street (St. Peter's Square), senior and disabled apartments,

e. 231 Lake Street, (Barrett's Mills), apartments

f. 832-834 Ford Street, single room occupancy,

g. 627 Ford Street, single room occupancy,

h. 314-316 Hamilton Street, single room occupancy,

i. 213 Patterson Street, a warehouse; and

j. 110 Ogden Street, the main office. [*3]

3. ANR properly and timely filed an application in 2004 seeking a tax exemption for its properties which was denied by the City's Assessor. Following a denial of its grievance by the Board of Assessment Review, these special proceedings pursuant to Article 7 of the R.P.T.L. were timely and properly commenced.

4. ANR accomplishes its stated purposes by buying and rehabilitating properties and then renting them to a target population. They apply for grants and loans from a variety of sources and then operate the properties in accordance with guidelines and regulations promulgated by the funding entity. As a result of the particular program funding a project, some properties are rented solely to low income elderly or disabled, and others are rented to persons with mental illnesses or chemical dependency or some other disability.

5. ANR funds and operates a food pantry to provide emergency rations to tenants until they can receive assistance from the Department of Social Services.

6. Some properties, notably the single room occupancy facilities, are staffed by case managers, whose salaries are partially funded by the Mentally Ill, Chemically Addicted Program ("MICA") of the Office of Mental Health. They are available to tenants to direct them to appropriate community supports services. ANR does not directly counsel or provide social services to its tenants, but does work cooperatively with a range of service providers to assist its tenants. The services which are available to ANR tenants are the same as are generally available to any county resident.

7. 1031 and 1045 Washington Street are both single family dwellings which were rehabilitated with assistance from the Development Authority of the North Country ("DANC") which sets the maximum rents that can be charged. Although prospective tenants are screened for income eligibility, the rents charged in 2004, although established using Department of Housing and Development ("HUD") guidelines, were at or about market rents. There was no proof of any particular ancillary social services provided to the tenants at either of these properties.

8. Gaslight Village consists of three apartment buildings on Champlain Street ("Phase one"), Montgomery Street ("Phase two") and Kendrick Street ("Phase three"). It contains a variety of two, three and four bedroom apartments. Construction was funded by the Homeless Housing Assistance Corporation ("HHAC") which is run by the New York State Office of Temporary Disability Assistance ("OTDA"). OTDA permits rent charges of no more than 30% of income, although most tenants pay less. Tenants are screened for income eligibility and must be deemed to be at risk for homelessness. Rarely are tenants evicted for exceeding minimum income standards, although there was at least one instance where a tenant married which made her household income too high to permit her to stay in her apartment. The total rent received per unit is at or near market rent.

9. ANR has two case managers on staff who are partially funded by the Homeless Intervention Program ("HIP"). HIP case managers refer tenants to available community resources, provide [*4]budgeting help and conduct apartment inspections to assist in personal hygiene issues.

10. St. Peter's Square at 1320 Green Street was rehabilitated by ANR using funds provided by the United States Department of Agriculture ("USDA"). Tenants must be low income elderly or disabled. Rents are subsidized by the USDA, although the total rents received approximates market rent. This project is subject to periodic audit and inspection by USDA's Rural Development Office.

11. 231 Lake Street, (Barrett's Mills), is a three-story apartment house consisting of two, one-bedroom and four, two-bedroom units. It was rehabilitated by ANR using funds provided by the New York State Rural Preservation Company. The one-bedroom units are utilized under the Single Room Occupancy program and the other four apartments are regulated by the funding sources which dictates the rent to be charged. All of the total rents at Barrett's Mills are at or near market rents.

12. 832-834 Ford Street, 627 Ford Street and 314-316 Hamilton Street are all single room occupancy buildings. ANR's Single Room Occupancy Program ("SRO") is designed to provide shelter for a wide variety of needy populations, including the mentally ill, chemically dependent, ex-offenders, victims of domestic violence and the physically disabled. Many fall into several of these categories. Tenants are usually referred from and through the Department of Social Services, Domestic Violence programs or local mental illness treatment facilities. Tenants are screened for income eligibility and usually pay rent based upon DSS allowances or some other government income such as Social Security Disability. ANR provides on-site managers and MICA case managers to refer tenants to appropriate services and to assist them in budgeting, procuring adequate food and other daily living needs. Tenants are required to abide by fairly strict rules of behavior which are enforced by on-site security personnel. SRO is considered a transient living arrangement and most tenants move on to other more appropriate permanent housing, if possible, with the average stay four to six months.

13. 213 Patterson Street is a warehouse used to store furnishings of tenants and maintenance equipment for all the properties. 110 Ogden Street is the main office, housing employees where tenants can pay rent or access the referral services available. These buildings are used in direct support of the main mission of ANR.

14. Although tenants of all ANR properties might be referred to appropriate social services, participation in any particular program is not required in order to maintain a tenancy.

15. No officer, member or employee of ANR received pecuniary profit as a result of the business of ANR other than salaries which were appropriate for the services rendered in St. Lawrence County. The fact that a director's spouse might have provided contract services or that a former director improperly billed expenses does not rise to the level of finding that ANR was operated as a guise for the making of pecuniary profit by the individuals running the program.

Respondents argue that ANR does not actually provide services to its tenants, but merely refers them to other appropriate sources. They further argue that any landlord is in the business of preventing homelessness by providing housing and because the total rents received by ANR approximates market rents it should be treated no differently than a for-profit rental property owner.

Interestingly, both sides rely upon the Court of Appeals decisions in Matter of Adult Home of Erie Station, Inc. v. Assessor and Board of Assessment Review of City of Middletown, 10 NY3d 205 (2008), in their arguments. In that decision the Court reviewed the tax exemption status of two property owners in the City of Middletown - Adult Home of Erie Station, Inc. ("AHESI") and Regional Community Action Program, Inc. ("RECAP").

AHESI's property is used for the operation of an "adult home." Its rents are based upon a schedule, which was found to approximate market rates, however, only about 10% of residents actually paid that amount. The rest had their rents paid or subsidized by the Social Security Administration or pay rents directly to AHESI at less than market, the actual amount determined by ability to pay.

In upholding the Appellate Division's determination that AHESI did qualify for tax exemption, the Court did not look to the provision of ancillary services to residents as dispositive, but rather that the property is used to provide housing to poor people at below market rents and even though 10% of tenants did pay market rents, the "principal" or "primary" use of the property furthered the charitable purpose of providing housing to the poor.

RECAP did receive market rents for its properties which it used to further its charitable work of helping homeless, alcoholics, drug addicts and other afflicted members of society to become productive and useful citizens. RECAP only rents to people on the condition they participate in programs designed to help them. Those services are not directly provided by RECAP on site and therefore, the city argued, the properties are simply residences collecting market rents and not entitled to the exemption.

In reversing the denial of the exemption by Supreme Court and the Appellate Division, the Court stated that the question is how the property is used, not whether it is profitable, and the provision of housing to people in need of rehabilitative services was clearly an exclusive use for charitable purposes in furtherance of RECAP's stated purposes.

ANR does not fit neatly into either the AHESI or the RECAP fact pattern. The majority of its properties do receive a "total" rent that [*7]approximates market, but the majority of its tenants receive subsidies or have their rent paid by SSI or by a grant from the Department of Social Services. Thus based upon the reasoning in Matter of United Church Residences of Fredonia, Inc. v. Newell, 10 NY3d 922 (2008), the rents must be considered below market.

Unlike RECAP, ANR does not "require" its tenants to avail themselves of social services, although many do. It does, however, provide employees who assist tenants, particularly the SRO tenants, in getting needed services to address their special needs. It also maintains a food pantry. There is little doubt that the population served by ANR would be unable to function in society without the safe and affordable housing and the support provided by making services available in the community known and accessible.

ANR did not carry its burden of proof as to the 1031 and 1045 Washington Street single family residences. There was no proof that the rents received at these properties were below market or that the tenants were subsidized. Nor was there proof that the tenants were required to participate in social services or that they were a part of an under-served group likely to become homeless.

An R.P.T.L. §420-a exemption is unavailable when an officer, member or employee of the property owner receives a "pecuniary profit" from the activity involved, or when the organization is a "guise or pretense for . . . making any other pecuniary profit." (R.P.T.L. §420-a(1)(a). The Respondents argued that two Executive Directors did receive "pecuniary profit" from the operation of ANR. This argument has no merit. One director's spouse was hired as an independent contractor on several occasions. There was no proof that the fees she charged were inappropriate or that the services were not necessary.

Another director improperly used the ANR office for his own private business pursuits and also improperly charged gasoline for his private use. As a result of this, he was apparently terminated and agreed to reimburse ANR for wrongful personal charges. Such improper conduct cannot be deemed to be the type of "pecuniary profit" prohibited by the statute. In any event, the repayment negated any "profit" to him.

With the number of rental units in various location within the city, a central office would certainly be considered "reasonably incident" to providing offices for staff and a place for tenants to pay rents and receive referrals. The high turnover of [*8]tenants in the single room occupancy units and the need to store furnishings, as well as maintenance equipment, also makes the warehouse an integral part of the operation. The fact that the warehouse is on its own lot should not make it any less "reasonably incident" than if some portions of the other properties were utilized in a similar fashion.

2. The Petitioner has failed to meet its burden of proof as to the properties at 1031 and 1045 Washington Street.

Counsel are to settle orders in each proceeding.

SO ORDERED

DATED: June 23, 2009, at Chambers, Canton, New York.

DAVID DEMAREST, J.S.C.

ENTER:

{Decision filed}