County Executive Mark Poloncarz recently announced that he has directed Erie County to file suit against the Federal National Mortgage Association, better known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, better known as Freddie Mac.
Apparently, Fannie and Freddie have not been paying their taxes.
Every time someone sells a house, they must pay a real estate transfer tax. For every $1,000 in purchase price, the seller must pay four dollars to New York State and five dollars to Erie County. On a $100,000 house, the seller pays $900 just in transfer taxes. Unfortunately, this exit fee has not stopped people from fleeing Erie County and New York State.
Fannie and Freddie claims that, as quasi-governmental agencies, they do not have to pay taxes. After all, government agencies receive taxpayer money - they should not be treated like a mere taxpayer.
Welcome to New York State, Fannie and Freddie!
I appreciate Mr. Poloncarz's attention to this matter. If successful, the payoff for Erie County could be over two million dollars. This potential windfall could have quite an impact on the County and its taxpayers. For the average property taxpayer, this two million dollar windfall would likely make Mr. Poloncarz's next demand for a tax increase just significant, instead of large.
Erie County's case against Fannie and Freddie is not unique. Mr. Poloncarz cites Oakland County vs. Federal Housing Finance Agency as precedent for filing the suit which held that while federal agencies are exempt from direct taxes, they are not exempt from state excise taxes. New York and Erie County's transfer tax is considered by most to be an excise tax. The precedent seems pretty clear in this case.
Given the importance of this action and the potential pot of cash to scratch Mr. Poloncarz's spending itch, Erie County should hire the best available legal counsel to pursue the claim. A firm with extensive tax experience. A firm with experience representing governments against governmental agencies. But it didn't.
Mr. Poloncarz instead hired the firm of Cantor, Lukasik, Dolce & Panepinto. This firm advertises that it represents clients in the following practice areas: medical malpractice, FELA (injured railroad workers), Worker's Compensation, labor law, slip, trip and fall, and motor vehicle accidents. Not tax law. Not municipal law. That's mostly late night TV advertising law.
Why was this firm chosen over other firms, perhaps even firms which practice in areas relevant to the case?
Perhaps a clue can be found in the telephone number of the firm chosen. If you ask a random person to recite a telephone number of a law firm, the number that will be recited is 888-8888, the number for Cellino & Barnes, a fine firm that represents their personal injury clients effectively. However, I wouldn't hire them to represent a government in a tax case - and I don't think they would blame me one bit.
Cantor, Lukasik, Dolce & Panepinto are basically an employment, labor union and personal injury firm. Mr. Poloncarz has long been tied to labor unions, with a significant amount of contributions coming from organized labor. It's only natural that when the opportunity to hire a law firm arose, the first telephone number that would come to Mr. Poloncarz's mind is 1-800-WORKERS, the CLDP telephone number. (Notice their telephone number isn't 1-800-TAXPAYERS.)
Was the decision to hire a firm that does not practice tax or municipal law to represent the county in a tax case an effort to reward political donors?
The Panepinto at the firm chosen to represent Erie County is Mark Panepinto, well known at Democrat Party headquarters. He is a frequent donor to the party and its candidates. He has given $1,700 to Mark Poloncarz, $4,000 to Poloncarz's Commissioner of Environment & Planning Maria Whyte, $16,250 to the Erie County Democrat Committee and Jeremy Zellner received $300 for his race for Chairman of the Democratic Party. Partner Mark Cantor has donated $1,750 to the Democratic Party in recent years while frank Dolce donated $1,750 to the Democratic Party and $300 to Maria Whyte. Sean Cooney, an associate at the firm, has given $1,035 to the Erie County Democratic Party, $100 to Maria Whyte, $100 to Mark Poloncarz and $250 to Jeremy Zellner, in addition to $1,200 to Maria Whyte from his "Friends of Sean Cooney" account. Steven Halpern gave $1,200 to Maria Whyte.
In addition to the $30,000 given to Poloncarz, his Commissioners and the Democratic Party as mentioned above, attorneys at CLDP have given thousands to other Democrat candidates and groups.
I am sure that Cantor, Lukasik, Dolce & Panepinto is a competent law firm; you do not grow a successful firm and lucrative client list by being fools. However, they built their practice by being labor and slip and fall attorneys, not tax attorneys. Would you hire a sandwich chef to monitor contracts? Unless, as we now know to be true, that chef was the brother of Mark Poloncarz and he was to monitor contracts at the Erie County Water Authority. Maybe the hiring of CLDP is a continuation of the friends and family program alive and well at the Rath Building.
I do not have a problem with hiring friends and family. Some people come from talented families and have skilled friends. There is nothing wrong with hiring people with whom you have a certain level of comfort, as long as those people are highly qualified for the job. But there is nothing to indicate CLDP is highly qualified to handle a vital tax matter. Even though it appears the case may be a slam dunk, that should not be an excuse to hire a less qualified firm. The taxpayers of Erie County deserve more.
At this point, I do not want to know why Mr. Poloncarz hired this firm to represent Erie County. I think that I already have a good idea why. I would like to know other details. I would like to know if other firms were considered and offered the opportunity to represent the county. If so, what were their qualifications? Was the opportunity to represent Erie County in this matter open to bidders? How will CLDP be compensated for their representation of Erie County? Will it be hourly, or will it be based on a percentage of recovery for this possibly easy case?
These inquiries beg even more questions about legal settlements in general. What cases have Mr. Poloncarz's attorneys settled and for how much? Who were the attorneys representing clients against the County? Were these cases settled as favors to plaintiff attorneys who are also donors to Mr. Poloncarz or those close to him?
In January, I wrote on this website in support of Assemblyman Mickey Kearns' proposal to ban secret settlements in New York State. The majority of lawmakers appear reluctant to support this proposal. Sadly, I am not surprised.
Mr. Poloncarz should be commended for reading the newspaper about what other governments are doing to recover excise taxes from Fannie Mae and Freddie Mac and following suit. This should be a great win for him. However, proceeding in a manner that gives the appearance of rewarding political donors does not make this a total victory for taxpayers. Instead, it appears to be a victory for special interests, with the fortuitous circumstance of also benefitting taxpayers.
Not exactly taxpayers first. But in one of the highest taxed counties in the nation, it rarely is.
Comments? Please email me at email@example.com. I also occasionally comment on Twitter @PRLivingston.