The Chief

December 10, 1999

Former Transit, Housing Cops Win Tax Battle

Rule Non-Resident Tax Levied Illegally; $40M Owed

By William Van Auken

Nearly 4,000 former Transit and Housing police officers could begetting a combined tax refund of more than $40 million as the result of a ruling by the state's Court of Appeals.

Those affected by the ruling are cops who reside outside the city and were compelled to pay the equivalent of a resident income tax for the first time after the Housing and Transit Police Departments were merged into the NYPD in April 1995.

Also Applies to EMS

The same ruling upheld the claim of 250 Emergency Medical Service personnel transferred to the Fire Department from the Health and Hospitals Corporation, in 1996.

Under Section 1127 of the City Charter, most city workers residing outside the city are required to pay the equivalent of city income tax as a condition of employment. As employees of public authorities, the former Transit and Housing cops were not compelled to pay the tax fees, but the city held that once they were transferred, the requirement automatically applied.

The unanimous ruling by the seven-member judicial panel overturned two decisions by a lower state appellate court and sent the case back to State Supreme Court to decide damages and interest on the money the workers were wrongly forced to pay in lieu of city taxes.

The total cost to the city could easily be double the $40 million anticipated in repayments to the affected cops, according to Richard A. Dienst, a lawyer representing a group of police officers who challenged the imposition of the tax.

Each Could Get $11G

Because the court found that the Giuliani administration illegally imposed the resident tax, the city might not only be compelled to repay back monies, but also be barred from continuing to tax the former Transit and Housing cops, he said.

Officials estimate that of the 8,000 police officers transferred in the mergers, 3,500 to 4,000 were non-residents. They would receive total average refunds of approximately $11,000 each if the ruling stands.

The decision represents an added fiscal blow to the city, coming in the wake of last summer's repeal by the State Legislature of the commuter tax, which generated nearly $400 million in annual revenues.

Designed to encourage city residency and passed in 1973 during a period of severe municipal belt-tightening, Section 1127 imposed the tax-equivalent payments as a pre-condition for employment with the city. The statute required those seeking employment to sign a waiver, agreeing that if they resided outside the city or moved out of the five boroughs after they were hired, they would make the payments.

The city held that the manner in which the officers became city officers was immaterial, and that once they cashed their first city paychecks, they implicitly accepted the conditions of employment.

But the Court of Appeals rejected this argument. The city statute, it said, "envisioned a voluntary, pre-employment contract between a new employee and the City," entered into by signing a written agreement.

Involuntary Transfers

The Housing and Transit cops, it continued, entered into no such pre-employment contract. "These employees, who had tenured civil service status at their previous agencies, were involuntarily transferred to different departments under the City's aegis," wrote Judge Richard C. Wesley for the Court of Appeals. The officers, he continued, "did not seek City employment, nor did they sign an agreement with the City."

Describing the Housing and Transit officers as "long-serving civil servants," Judge Wesley said they "had few options available to them once informed of the transfer." The city's position, he said, suggested that the cops "were required to quit their employment to protect their rights.

The ruling revived feelings of resentment among some former Housing and Transit cops over the way in which the Giuliani administration carried through the 1995 mergers. A number of those involved on the union side in the talks leading up to the police mergers described the city's attitude toward the tax payments as emblematic of the Giuliani administration's "arrogance" in its dealings with the transferred employees.

"I like to call it the hostage tax," said Sgt. Robert L. Ganley, the former president of the Transit Sergeants' Benevolent Association. "You had to pay or you'd have no job."

Sergeant Ganley, who now works in the Detective Bureau in the Brooklyn District Attorney's Office, brought together a group of officers who retained Mr. Dienst and filed a lawsuit against the city tax requirement. Eventually, hundreds of officers joined the suit.

"'The city said, 'This is what we're going to do, whether you like it or not; go along with it or you're out of a job,'" Sergeant Ganley recalled.

The former union leader said that he had not opposed the merger, but felt that "the methods they used were all wrong." He said that the union was forced to go to court with a separate suit to

protect the defined benefit payments for retired Transit Sergeants.

Had the Giuliani administration adopted a different tack, Sergeant Ganley suggested, it could have saved itself a lot of money. "I believe that if the city had sat down and wanted to negotiate, we could have reached an agreement on paying the tax, as part of getting all of the issues resolved," he said.

Police Officer Timothy L. Nickels, the former president of the Housing PBA, said that his union had opposed the merger and raised the key issue of voluntary versus involuntary transfers in a lawsuit filed before the tax controversy emerged.

"There should be a lot of happy campers out there," said Officer Nickels, who is himself a city resident. "The vast majority of them didn't care for the merger, but this will at least make it a little more profitable."

The former Housing PBA leader said that the tax issue was one of a number of changes that amounted to reduction in benefits for his former members. These included the loss of cash payouts for terminal leave and inferior medical benefits.

"There was no bargaining with this," Officer Nickels said of the tax requirement. "That continues to be their MO. They just slam things down and let the courts hash them out, hoping that the costs don't fall into the lap of this administration."

Meanwhile, the ruling sparked hopes among other police officers living outside the city that they too may be freed from the resident tax yoke. Police union officials reported that many of their members had called in asking about the significance of the decision.

Raises Equity Issue

The court ruling raises a ticklish problem for the unions in that, while benefiting some of their members, it raises the issue of equity for others. "Now you could have two guys, both from Long Island, riding in a radio car together, and one of them is going to be making thousands of dollars more than the other," noted Sergeant Ganley.

The divide already existed, although only between cops hired before 1973, when the resident tax statute went into effect, and other officers. Now, however nearly a quarter of the officers residing outside of the city will be exempted from the payments.

"We plan to explore further litigation as to the Constitutionality of the tax," said Lieutenants' Benevolent Association President Tony Garvey, whose organization was the only police union to challenge the imposition of the city tax at the time of the merger. The LBA represented Transit and Housing Lieutenants both before and after they were merged into the NYPD.

Noting that several previous court challenges to the validity of the tax had been struck down, the LBA leader said he hoped to explore the possibility with other uniformed unions of taking a case to Federal court. A legislative remedy was unlikely, he said. "Who on the City Council would give a home rule resolution for legislation that would deprive the city of that much tax revenue?" he commented.

Mr. Garvey said that, while he did not want to create false hopes among his members, he believes the legal grounds for the tax requirement are shaky. "There are labor laws against kickbacks," he said. "If an employer says to someone applying for a job, 'O.K., you can work here, but you've got to kick us back $2,500 a year,' that's illegal."

The LBA leader said that the tax has long been a sore point with police officers residing in the suburbs. Officers have been on the receiving end of command discipline for failing to make timely payments to the city's Finance Department, while the same department routinely delays payments of refunds.

"What really sticks in people's throats," said Mr. Garvey, is that the payments are based not only on an officer's NYPD salary, but on all personal income. "You could make $10,000 a year with a second job as a plumber, never doing any work in the city, and that money is subject to Section 1127."

The payments are not deductible from Federal income taxes, as the city maintains they are not a tax, but an employee fee, he noted.

The Court of Appeals ruling does not apply to Transit and Housing police officers who made lateral transfers into the city Police Department before the mergers.

The city's sole possible appeal of the state Court of Appeals ruling is to the U.S. Supreme Court.