Gotham Gazette https://www.gothamgazette.com/component/tags/tag/2795 Sun, 27 Sep 2020 17:47:00 +0000 Joomla! - Open Source Content Management en-gb webmaster@gothamgazette.com (Webmaster) Commission Releases Long-Awaited Recommendations for Fairer City Property Tax System https://www.gothamgazette.com/city/9094-commission-releases-long-awaited-recommendations-for-fairer-city-property-tax-system https://www.gothamgazette.com/city/9094-commission-releases-long-awaited-recommendations-for-fairer-city-property-tax-system m b ncb

(photo: Michael Appleton/Mayoral Photography Office)


A long-awaited report from the city’s Advisory Commission on Property Tax Reform was released Thursday, outlining recommendations for potentially drastic changes to the way residential properties are taxed across the five boroughs.

The report, which contains ten recommendations to update and add equity to New York’s vast property tax system, comes after months of delay and almost a year after the commission, created by Mayor Bill de Blasio and City Council Speaker Corey Johnson, completed its mandated public hearings.

Among the recommended reforms are changing the assessment methods of co-ops and condos, which include some of the city’s most expensive real estate, to reflect their true market values. Another is removing caps on tax increases for small homes, a provision experts say has over time placed a disproportionate tax burden on homeowners in less affluent pockets of the city.

“It’s clear that there are certain properties in New York, in certain neighborhoods that have had a lot of appreciation, where people have lived there for a long time, where their taxes will go up,” said Marc Shaw, the commission chair, during a conference call just after the report’s release. “But by having a fairer system there will also be people that will have their taxes go down and the end result will be a fairer system that everyone will understand.”

Together the recommendations take aim at a limited but significant slice of the property tax, intended to make the system more transparent and rational for residential properties and setting the stage for a new cohort of “winners and losers” -- the common parlance for politicos discussing the sensitive subject of reforming a system that impacts every constituent. With the preliminary report out, commissioners plan to hold a new round of public hearings in each borough with the goal of producing a final report this calendar year. Most of the proposed changes would need approval in the state capital, with few measures the city can take alone.

The report doesn’t tackle commercial and utility properties, which in fiscal year 2019 made up 28 percent of the market value of taxable properties in New York City.

“The Commission’s recommendations are the most significant reforms proposed in forty years and will bring a much needed level of fairness, transparency and simplicity to the entire system,” said Mayor de Blasio, in a statement of notable support. “I thank the Commission for its hard work tackling these issues head on and look forward to their final report.”

Despite promising action on the antiquated and unfair property tax system during his first months in office in 2014, given the significant delays in forming the commission and from the commission itself, it is now unlikely de Blasio will advance a reform agenda for state consideration before 2021, his final year in office. The timeline sets the stage for additional years of public debate at both the city- and state-levels before most changes are likely to be made, if they advance at all.

Announced in 2018 by de Blasio and Johnson, both Democrats, the commission was intended to study the entire system, which covers residential, commercial, and utility properties, and develop proposals that would bring fairness without hurting the city’s $95.3 billion in annual revenue, about a third of which comes from property taxes. The formation of the commission came amid a class action lawsuit by a group called Tax Equity Now New York alleging the tax system results in disproportionate tax burdens for residents that violate constitutional protections and the Fair Housing Act. The suit is ongoing and could impact the final set of recommendations from the commission, as well as the city’s and state’s approach to advancing them.

One of the most significant proposals is adjustments to the property tax classifications, which would change the methodology for assessing the value of co-ops and condos, which include high-value units that are often taxed on a fraction of what they would be if they were classified as small homes.

Under the current classifications, set by state law, small homes are assessed on their sales value, while co-ops and condos are categorized with large rental buildings and are assessed on the gross annual income they would receive if rented. The commission proposes bringing co-ops and condos, along with small rentals (fewer than 10 units) into the same class as small one- to three-family homes, to be assessed on sales price and taxed on 100 percent of the market value.

Another major proposal is changes to assessment caps, which limit the amount property taxes for homeowners can grow over a one- or five-year period. Because of the cap, property taxes on homes in rapidly appreciating neighborhoods can rise slower than their market values. As a result, homeowners in more economically-stagnant areas of the city end up paying a greater percentage of their property’s value in real estate taxes. A 2018 analysis by Citizens Budget Commission showed that homes in the Bronx and Staten Island had larger tax burdens than comparable properties in Brooklyn, Manhattan, and Queens.

To help low- and moderate-income homeowners, the commission has proposed a “circuit breaker,” which would reduce property tax burden with a credit calculated based on the owner’s income. It also recommends creating a homestead exemption on properties which are the primary residence of the owner when the owner meets a certain income threshold.

“Those units occupied by non-primary residents would pay a higher effective property tax rate than primary occupants,” said James Parrott, a member of the property tax commission and an economist at the New School’s Center for New York City Affairs, in an interview with Gotham Gazette. According to Parrott, ongoing efforts in the state Legislature to enact a pied-à-terre tax on expensive second homes, while driven by a zeitgeist for a more egalitarian city, could, if continued, hurt this broader effort to reform the tax code.

“To the extent that the property tax commission is going to change the way properties are taxed in New York, it’s likely that there will be implications for non-resident-owned properties. The ability of the reform effort to balance the changes will be limited if the Legislature approves a pied-à-terre tax separate from property tax reform,” Parrott told Gotham Gazette in December. (Meanwhile, State Senator Brad Hoylman, a Manhattan Democrat, and sponsor of the pied-à-terre tax bill, plans to hold a protest Friday with activists in front of Jeff Bezos’ Fifth Avenue apartment, calling on him to pay over $2.5 million in pied-à-terre taxes.)

Many of the thresholds, ratios, and rates to pursue have not been settled upon in the advisory commission’s preliminary report, partially because more scenarios need to be run using Department of Finance data and evaluation tools, and partially because the commission is seeking more public input to determine the extent to which these recommendations should be applied in order to fulfill the commitment of being revenue-neutral.

“There is going to be winners and losers, so there is no simple answer...and as we start to hold hearings on it, people will get a better sense of how it’s going to affect them individually,” Shaw said. The winners may be those who own a small home in the northern Bronx who have seen their effective tax rate rise every year with the slow growth in market value. Big losers could be the owners of multi-million dollar co-ops in Midtown Manhattan or one- to three-family homeowners in some neighborhoods, Park Slope for example, who saw the values of their homes skyrocket above the statutory assessment cap.

“The city has to be somewhat careful about how it portrays some of this information so that it doesn’t hurt its own case,” he added, referring to the Tax Equity Now lawsuit.

The report recommends transitioning to a new tax system gradually for current owners, a position supported by many tax experts, while newly sold properties would enter the new system at the outset.

“The details of any proposal will be of great significance, and it is important to consider both the short-term and long-term implications of any set of proposals on both taxpayers and the City fiscal condition,” wrote Ana Champeny, director of city studies at Citizens Budget Commission, in an email.

"The Property Tax Commission has worked very hard to make this City's property tax system more fair and easier to comprehend for all,” Speaker Johnson said in a statement. “I look forward to reviewing the Commission's initial recommendations and I thank them for their efforts. There are outstanding issues to address like how the property tax system impacts renters in our City and how to best address luxury housing. This is a work in progress and I'm eager to hear the public's feedback on these recommendations."

With the public hearings yet to be scheduled and, ultimately, the need for a set agenda first from de Blasio and the City Council that is then approved by state legislators and the governor, it is unclear how the new reforms will shake out and who the winners and losers will be.

“I look forward to reading the commission’s report, and I hope they have recommended the kind of change that the home and business owners in the city need,” wrote State Senator Brian Benjamin, a Manhattan Democrat and chair of the Senate’s Committee on Revenue and Budget, in a text message before the preliminary report was released. Benjamin has held public forums and an expert roundtable on the subject in 2019, in preparation for possibly pursuing state level reform this year. But, like many others, he has previously expressed frustration by how long the city commission was taking to formulate its report and has questioned whether any change would be possible in the 2020 state session, which runs until June.

Shaw was able to confirm, in broad strokes, the fate of some well-known property in booming Park Slope. When asked by a reporter on the call whether de Blasio’s famously low property taxes would go up or down under the proposed reforms, he said, “Under this reform effort, the property taxes on the mayor’s house will go up significantly.”

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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Commission Releases Long-Awaited Recommendations for Fairer City Property Tax System Thu, 30 Jan 2020 05:00:00 +0000
What to Watch for When the City's Property Tax Commission Finally Issues Its Report https://www.gothamgazette.com/city/8987-what-to-watch-for-when-city-property-tax-commission-finally-issues-report https://www.gothamgazette.com/city/8987-what-to-watch-for-when-city-property-tax-commission-finally-issues-report bay ridge vnb

(photo: Michael Appleton/Mayoral Photography Office)


“To be the fairest big city, you need a fair tax system. For too long, New York City taxpayers have had to grapple with a property tax system that is too opaque, too complex, and just feels unfair,” Mayor Bill de Blasio said in May 2018 after announcing the creation of a commission to examine the issue. “New Yorkers need property tax reform, and this advisory commission will put us on the road to achieve it,” he said.

When the New York City Advisory Commission on Property Tax Reform releases its final report, promised by the end of the year, it has the potential to upend the city’s methods for collecting real estate taxes, impacting its most stable source of revenue -- supporting roughly a third of the current $94.4 billion budget. The result is expected to be recommendations to create a more rational and equitable system, and with it a new field of winners and losers.

Commission Chair Marc Shaw told Gotham Gazette last week that the report would be “out soon,” at which point a slew of public debates will be triggered before the hard work of policy-crafting begins for city and state lawmakers. Much of the city’s property tax system is governed by state law. De Blasio has promised to push for reform once he receives the report and the next state legislative session begins in January.

“This commission is coming back this year with recommendations,” the mayor said in a July WNYC radio interview. “Two things then happen. Some [recommended changes] will be part of city law, which means they can be voted on by the City Council, and then I decide of course whether to sign or not, and the other [changes have] to be done by state law.”

“The state legislative session begins in January,” de Blasio continued. “We’re coming up to the point where these things are going to be put on the table and resolved.”

The commission was created by de Blasio and City Council Speaker Corey Johnson in May 2018 as a way to lay the groundwork for reforming a system described as byzantine, illogical, and unequal -- and one that is largely controlled by state law. It was also partially a response to a lawsuit filed against the city and state calling the property tax system unconstitutional (the suit survived a motion to dismiss, which is currently being appealed).

The commission held a series of public meetings throughout the first half of 2018 to hear from experts and solicit recommendations. Since February, the commission has been working out of public view as it attempts to tackle a complex problem.

“It deserves some care. There is no single easy or obvious way to create a fairer system,” a spokesperson for Johnson told Gotham Gazette in May. But the spring turned to summer, then fall and now winter, with no commission report.

"Property taxes were a top issue in the Mayoral race and Mayor de Blasio committed then to establish a property tax commission to address the inequities with the current property tax system,” said Staten Island Assemblymember Nicole Malliotakis, de Blasio’s Republican challenger in the 2017 mayoral race, in a statement Wednesday asking for the results of the commission. “People across the five boroughs testified over a year ago and he promised that his commission would present a report of its findings and recommendations before the end of the year.”

Everyone feels the effect of property taxes, from small-home owners to local businesses to landlords and tenants. For almost all property owners -- and those who pay property taxes through rent -- property taxes have risen every year over the past two decades with the relatively stable growth in the real estate market. Almost everyone feels they are too high, even those who pay relatively little.

The property tax system, by and large, is a creature of state law, which dictates the criteria for valuing property in each of its statutorily-designated “classes:” small homes, apartment buildings, utilities, and commercial property. But the city controls the rate at which taxes are levied and the Department of Finance comes up with the formula for determining a specific property’s value based on the state’s broad requirements. Experts say each of these steps comes with flaws the commission could address.

“The Advisory Commission’s recommendations for property tax reforms should reduce inequities in property tax burdens both within and across the existing tax classes, while improving the system’s transparency and simplicity,” wrote Ana Champeny, Director of City Studies at the Citizens Budget Commission, in an email to Gotham Gazette.

With the promise of the commission’s non-binding recommendations, state legislators have been spurred to consider potential changes they may be facing, with some beginning to prepare their staff, committees, and constituents for potentially groundbreaking shifts. But the commission, which is mandated to avoid recommendations that would diminish city revenue, may also offer a reality check to local officials who have historically tried to insulate themselves from the political fallout of raising taxes or cutting services.

At the heart of the issue is inequity across the system. State law divides properties into categories, each to be valued and levied differently, based on the outdated logic of the way land was used when the current system was enshrined in the 1980s. A system of assessment limitations created at the state-level to shield property-owners from rapid market value growth, who would otherwise see their taxes skyrocket, has over the decades distorted the relationship between assessed value and market value.

In perennial attempts to ease the tax burden on particular constituencies, politicians have created a labyrinth of abatements and exemptions that experts say makes understanding one’s real estate taxes virtually impossible for everyday New Yorkers.

“Bottom line is right now owners of multi-million dollar brownstones are paying less in property taxes than people in my district who live in a two family attached house. If that’s not a tale of two cities, I don’t know what is,” wrote City Council Member Justin Brannan, a Brooklyn Democrat representing Bay Ridge, Dyker Heights, and Bensonhurst, in an email, with apparent reference to Mayor de Blasio’s 2013 campaign slogan.

The phenomenon Brannan describes is likely the result of multiple intertwined issues. The one experts point to most frequently, and which was raised at several commission meetings, is the inconsistent methodology with which different state-defined categories of property are valued.

In Class 1 are 1-, 2-, and 3-family homes, which are assessed on their market value (their actual or estimated sales price). In Class 2, are rental properties, valued based on the income they earn in a year. In Classes 3 and 4 are utilities and commercial properties, assessed based on the utility costs or net income, respectively.

Oddly, co-ops and condos -- which include some of the city’s most expensive apartments -- fall into Class 2 with rental property, valued based on the annual income “comparable” apartments receive in rent, even though they more closely resemble Class 1 properties, which also tend to be occupied by the owner.

What recommendations could be on the table?

>Property Classifications and Value Assessments
Among the suggestions most frequently raised by experts are to rationalize the classification of property types and to assess taxes based on market value (which is not often the case now), with a mechanism of relief for property-owners with low or fixed incomes. But changing that formula will mean some New Yorkers will see their taxes rise, including those who already feel constricted by tax collectors.

Many experts want to see classification changes with co-ops and condos in Class 1, where they would be evaluated based on sales price. Doing so would require a change in state law.

Then there is the way the city identifies comparable properties for the purpose of estimating value, which is done by the Department of Finance. Some of the inequities of the system may be helped by adjusting the department’s criteria for determining whether a property is comparable to another.

>Annual Assessment Increases and Circuit-Breakers
State law also imposes limits on the amount the assessed value of a property can grow over a one- or five-year period, which can result in inequity within a given tax class. In areas experiencing acute gentrification this can mean property tax rates lag behind the market value. Studies have found homeowners in the Bronx and Staten Island pay a much higher effective tax rate than the owners of similar property in Manhattan, Brooklyn, and Queens.

Many want to see the state eliminate those “caps and phase-ins.” But doing so could have consequences for homeowners with low, fixed, or even middle incomes -- especially in up-and-coming neighborhoods -- who purchased property when prices were low. To help them keep their homes when the market leaps, a number of experts and elected officials have called for “circuit-breakers,” which offer relief by mitigating property tax liability based on a household’s annual income.

Champeny said circuit-breakers are a more efficient and targeted form of relief than many of the piecemeal abatements and rebates currently in place.

But while contributing to inequities across the system, caps and phase-ins also provide a degree of stability, which is important to maintain the city’s largest revenue stream. When a small home experiences market growth that outpaces the statutory limits on assessment growth over a few years or decades, the assessed value will continue to increase even if the market slows. This provides a buffer for the city during periods of economic contraction. Eliminating caps and phase-ins without undermining the city’s fiscal stability will be one of the challenges the tax commission faces.

“The city’s fiscal health has benefited from the stability inherent in the structure of the current system,” Champeny wrote. “Proposed changes should not adversely impact the long-run stability and reliability of the tax as the City’s primary revenue source.”

>Adjusting the Tax Rate
The city under Mayors Bloomberg and de Blasio has harnessed the skyrocketing price of real estate to increase property tax revenue without changing the tax rate. One way to deal with potential fluctuations in property taxes, either as a result of market changes or changes in the law, is for the mayor and City Council to adjust the tax rate, which has been frozen since 2009.

The Citizens Budget Commission supports a system that favors residential over commercial property and utilities, which Champeny says can be achieved with differential assessment methods or through different tax rates. Class 1 should be saddled with the lowest tax burden (as measured by market value), followed by rental buildings, utilities, and finally commercial properties, she recently said in testimony to the state Senate.

If co-ops and condos are moved into Class 1, like many advocates and elected officials want, over half of the city’s roughly 3 million taxable residential units will fall within it. That new arrangement, along with any changes to the way co-ops and condos are valued, will have implications for the city’s tax rate if it is to maintain its current levy.

>Considering Tenants
Property-owners are not the only ones squeezed by the system. Often the property tax burden for rentals is felt by both landlords and tenants. Some advocates and elected officials want to make sure tenants are considered when lawmakers approach reform.

“Tenants of rent-stabilized units need guarantees that savings will be passed on to them if property taxes decline on rental properties,” Brannan wrote. There are roughly 2 million tenants in about 1 million rent-stabilized apartments in the city.

“Lessening the burden on rental properties can only help the city’s considerable challenge in preserving affordable housing,” he added.

Property taxes make up about 30 percent of the operating cost of rent-regulated units and increased assessments contribute to the rising cost of housing, according to a spokesperson for the Partnership for New York City, an advocacy group for the city’s business community. Kathryn Wylde, the Partnership’s President and CEO, supports reclassifying rent-regulated housing to reduce the tax liability of those properties.

Suing for Reform
The city’s commission is not the only thing compelling lawmakers to act. The aforementioned lawsuit filed by Tax Equity Now New York, a group led by former Department of Finance Commissioner Martha Stark, is challenging the property tax system on constitutional grounds.

“The property tax system is in need of a complete overhaul that should be guided by legal principles enunciated by the court. While the Commission may come up with some good ideas, without the court's guidance those ideas may fail to garner the support of those who need to enact any changes,” Stark wrote in an email to Gotham Gazette.

“The system is unconstitutional, illegal, and discriminatory,” she wrote, “the court is in the best position to offer the parameters for an overhaul that balances these fundamental issues.”

[Read: State Senators Look Ahead to Complicated Task of Property Tax Reform]

[Read: An Old, Unfair System: New York City's Property Tax Conundrum]

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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What to Watch for When the City's Property Tax Commission Finally Issues Its Report Wed, 11 Dec 2019 05:00:00 +0000
State Senate Looks Ahead to Complicated Task of Property Tax Reform https://www.gothamgazette.com/state/8969-state-senate-property-tax-reform-albany-new-york-city https://www.gothamgazette.com/state/8969-state-senate-property-tax-reform-albany-new-york-city sen br be3

Wednesday's Senate roundtable (photo: @NYSenBenjamin)


A roomful of top experts on New York’s property tax system -- an opaque topic that nonetheless touches every New Yorker, property-owner or not -- gathered for a roundtable discussion convened by state lawmakers Wednesday in downtown Manhattan. They were assembled at the hearing by State Senator Brian Benjamin, a Manhattan Democrat and chair of the Senate’s budget and revenues committee, to discuss solutions to the antiquated and unequal levy system that many want to see tackled in 2020, however overdue the action would be.

The issue has been a political “hot potato,” to use one lawmaker’s words, since the current property tax system was established through state law 40 years ago. Lawmakers, analysts, property owners, and others are now looking ahead to the next legislative session in Albany, which begins in early January, where a number of the issues raised Wednesday are promised to be on the table.

“What I have found so far as chair of this committee...is that the real property tax system is confusing, it’s complicated, and it’s not entirely fair,” said Benjamin, in opening remarks. The roundtable Wednesday followed a series of six public forums held by Benjamin’s office in all five boroughs over the past three months.

“The system as it currently exists was a temporary fix that was quickly outdated...Another bandaid or patch, in my opinion, will not fix this system. This system is broken at its core,” he said.

Wednesday’s conversation, which included economists, lawyers, and tax policy veterans, also unfolds in the context of a lawsuit challenging the system on the grounds that it imposes taxes disproportionately without regard to true market value -- a case that has the potential to drastically shake-up the property tax landscape.

At the same time, interested parties are awaiting the final report of an advisory commission established by city officials to comprehensively examine the entire system and make recommendations. The commission’s report, which was promised this year, would undoubtedly have implications for state legislators going into session in January. Wednesday’s roundtable was a kind of parallel effort by Benjamin to ready his committee for the technical and political heavy lifting it will face next year.

Other senators present Wednesday, all Democrats, included Liz Krueger, Leroy Comrie, Brad Hoylman, Robert Jackson, Zellnor Myrie, Andrew Gounardes, and John Liu, the former New York City Comptroller. For those legislators, in all but Comrie’s district in Queens, the effective tax rate on small owner-occupied homes is below the citywide average, according to an analysis of FY 2017 data by Tax Equity Now.

“This is by far one of the biggest issues I hear from my constituents,” said Gounardes, who represents parts of southern Brooklyn.

Among the biggest problems facing the state’s troubled system is that owners of similar properties can pay drastically different taxes. A 2018 study by the Citizens Budget Commission found that homeowners in the Bronx and Staten Island pay a higher percentage of the market value of their homes than they would in other boroughs, even though their homes tend to be worth less.

Another is the differential assessment formula used for different classifications of property, a vestige of the politically fraught landscape that created the current system, which now means the owners of some of the city’s most expensive co-ops and condos pay among the lowest real estate taxes.

The arithmetic used to levy taxes is complex. It involves four classes of property, each of which is valued differently and taxed on a different percentage of that value. To complicate matters, the rate at which the assessed value can climb in each property class is uniquely capped. Over time, the caps can lead to tax rates that lag behind the growth in market value, especially in booming neighborhoods.

Adding to the opacity of the system is a regime of abatements, rebates, and exemptions that obfuscate the logic behind a particular tax rate.

“The problem with the property tax is...nobody understands it, but nobody thinks they’re benefiting from it either. You have a really crazy system if nobody is actually patting themselves on the back and saying, ‘Wow, I’m getting away with paying much less,’” said Martha Stark, the former commissioner of the Department of Finance under Mayor Michael Bloomberg. Stark is the policy director of Tax Equity Now, the group that brought the lawsuit against the city and state.

That case survived motions to dismiss by both the city and the state, which are now appealing the lower court’s determination. Stark said the courts could decide whether the suit can move forward in as little as a matter of weeks.

While it may be months before the lawsuit is resolved, officials say the city’s advisory commission may be coming out with its report soon, though no timeline has been provided.

In a statement to Gotham Gazette, Marc Shaw, chair of the commission and senior advisor at the CUNY Institute on State and Local Governance, wrote, “This is an enormously important issue for our city, and we want to get this right. We have made significant progress on the majority of the issues we believe are needed for reform, but a few do remain. Those issues need to be resolved before we release any report. We expect to have a preliminary report out soon for the public to review.”

A spokesperson for Mayor Bill de Blasio, who signed the executive order creating the commission, said the administration does not have an update on the commission’s status.

Many of the experts in the room agreed that a starting point for reform should be that each class’s baseline assessment be a property’s market price, which in some cases is estimated based on sales of similar properties. Under the state’s current assessment methodology that is not always the case.

For the past four decades, the state has placed 1-, 2-, and 3-family homes in Class 1, where their assessed values are based on the sales price of the property. By contrast, larger residential buildings fall into Class 2, where they are valued based on the annual income they receive in rent. But co-ops and condos, which are often owner-occupied and comprise some of the city’s most expensive properties, also fall into Class 2. As a result, it is not uncommon for a co-op that sold in the millions to be valued at a few hundred-thousand dollars or less, based on estimates of so-called “comparable” apartments nearby. (A number of experts said Wednesday that the way the city identifies comparable apartments is also flawed, at times going far afield to find them without adjusting for variables like the differing land values in a region or whether they have comparable amenities.)

Complicating the politics further is the fact that in many areas incomes have not kept pace with the market value growth of property. That means people who purchased homes when prices were low often struggle to keep up with property taxes when neighborhoods gentrify. Several of the state senators present, all of whom represented districts in New York City, expressed concern that moving to a fully market-based system could mean some long-term homeowners will see a sudden rise in property taxes so great they would not be able to keep their homes.

“When I say the system should be based on market value, the starting point should be a real market value that people recognize. How one then decides what taxes someone is going to pay is very, very different. If you want to consider a person’s income afterward you could do that,” said Stark, responding to the concerns.

Jeff Golkin, a veteran property tax lawyer, warned against making changes too quickly, especially in real estate where the return on investment is often registered in the long-term. “You can’t take away rights that people have now. You can’t take people who are protected now and throw them into the fire,” he said, “...so change has to be done in a transitional grandfathering type of mechanism.”

Another issue is the size of the levy after a property’s value is determined. While state law dictates the tax assessment, the city controls the tax rate.

Roughly a third of the city’s budget comes from real estate taxes, the single largest revenue stream. Since fiscal year 2009, City Hall has kept the tax rate frozen, but rising market values and annual reassessments have allowed revenue from property taxes to increase year over year. The city’s advisory commission, created jointly by Mayor Bill de Blasio and Council Speaker Corey Johnson, was mandated to make recommendations to reform the system without diminishing the revenue it generates.

One analysis found that under Bloomberg the city budget rose 31.6 percent above inflation. In 2002, his first year in office and as the city was reeling from the effects of the 2001 terror attacks, Bloomberg raised the property tax rate by 18.5 percent. Since de Blasio took office, the city budget has grown over $20 billion.

“I think that there is a real need for some fiscal responsibility, not just on the state level but on the city level. The city should not be able to levy themselves out of fiscal responsibility every year,” said Comrie, who previously served in the City Council.

“At some point you can’t keep burdening folks who can’t pay. Most people in my district are on fixed income, they’re not getting Wall Street bonuses every year,” he said.

Senator Krueger summarized the feelings of many of her constituents. “Please God, give us a system that we can understand,” she said.

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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State Senate Looks Ahead to Complicated Task of Property Tax Reform Thu, 05 Dec 2019 05:00:00 +0000
An Old, Unfair System: New York City’s Property Tax Conundrum - Part II - Deep and Complex Inequities https://www.gothamgazette.com/state/8713-old-unfair-system-new-york-city-property-tax-conundrum-part-ii-classes https://www.gothamgazette.com/state/8713-old-unfair-system-new-york-city-property-tax-conundrum-part-ii-classes maybdb rem

(photo: Edwin J. Torres/ Mayor's Office)


This is part two of a three-part series. Read part one - Taking on the Difficult Task - here. (Skip to part three - The City's Bottom Line - here.)

Elected officials and their critics alike have decried the complexity and inequality of the state’s property tax system. They say it is layered and non-transparent, and produces disproportionate tax burdens for various populations because of technical factors that are difficult for taxpayers to understand. These can lead owners of similarly valued properties in different parts of the city to pay drastically different annual property taxes.

The rising value of a homeowner’s property can belie the struggle they may face to stay afloat and keep their homes when property tax payments also climb. For those who own rental property, when the tax burden goes up it is often passed on to renters in the form of higher rents and fees on apartments that are not rent-regulated.

The Advisory Commission on Property Tax Reform was emplaneled by Mayor Bill de Blasio and City Council Speaker Corey Johnson, both Democrats, in 2018 to examine these issues and develop recommendations to reform the system, which could implicate both city and state policy, without reducing the city’s largest revenue stream.

On the table are aspects like the way different properties are classified and assessed by the state, how statutory restrictions on tax rate growth interact with market forces, and how the city sets the tax rate. These factors have had consequences for communities of color, low-income New Yorkers, seniors, and residents in some, but not all, boroughs.

As it was in 1981, when the current system was wrought out of practices that extend to the early days of the American republic, the issue today is a political flashpoint. Property taxation affects every resident in the state, and members from nearly every interest group and political party have called for its overhaul. But some of the most outspoken critics of the system, especially certain homeowners who see their taxes go up every year, may end up responsible for an even greater share of the levy if changes are made.

Four decades ago, in Hellerstein v. Assessor, Islip, the courts found New York’s property value assessment methods, which had been in practice for roughly 200 years, to be in violation of state law. Homes were being assessed with great variability on a fraction of their sales price, while business owners were footing a much larger bill for their commercial properties. Rather than adjusting practices to assess the full value of homes, lawmakers in Albany changed the rules to allow government assessors to continue favoring certain types of property over others.

Reflecting the old order, the current system divides properties into four classes, each to be assessed and taxed differently. Statutory caps are in place to ensure property taxes payments remain stable even if market values jump. To help account for variables like income, location, and the condition of housing, tax abatements and rebates are available. As a result of the classification regime’s disparate assessment methods, discrepancies exist among residential properties, with cooperatives and condominiums greatly undervalued for tax purposes compared to other homes despite at times being worth far more.

One- to three-family homes are in Class 1 and are assessed based on comparable sales prices; in Class 2, apartment buildings, as well as co-ops and condos, are taxed based on a market value derived from the annual income earned in rent by similar, nearby units, which is usually lower than the market value based on sales price, according to property tax experts. Even within the classes, statutory caps on assessed value growth have led, more recently, to uneven tax burdens across the five boroughs because of the way the housing market has exploded in some neighborhoods more than others.

An Unfair System
Attempts have been made to address property tax inequities in New York City since the current system was adopted nearly 40 years ago, but they have failed to produce transformative results. The most notable review was led by Mayor David Dinkins in 1993.

Dinkins, a Democrat, empaneled a commission to study the issue, which released a report just days before his term ended. Its most salient recommendation was to bring the treatment of co-ops and condos closer to Class 1 properties, but years of negotiations under his Republican successor, Rudy Giuliani, led only to a temporary tax abatement for apartment owners, according to an Independent Budget Office report. (A piece in the New York Times from 1994 provides an alternative account in which the Dinkins commission made no recommendations because it could not come to a “consensus on objectives,” using the words of one of the commissioners.)

The issue has become a recurring political motif. De Blasio discussed it during his first campaign for mayor and a year later, in 2014, his Commissioner of Finance, Jacques Jiha, said he would undertake a comprehensive analysis before making recommendations to the state for change. Yet it appears the Advisory Commission empaneled in 2018 is conducting the first such review of the mayor’s tenure.

“Fairness” is at the core of the commission’s mission, largely a response to a number of related policy consequences that have become apparent over the years.

>>Property Tax Classes
Legislators in 1981 created a system that would benefit small home owners by placing them in Class 1, maintaining the relatively low assessment rates they had enjoyed for so long, while leaving commercial properties, including apartment buildings, in Class 2 with a larger share of the levy.

At the time, co-op conversions, which started in New York City in the 1920s, had begun to take place at a very rapid rate; between 1978 and 1988, roughly 242,000 rental apartments in more than 3,000 buildings had been turned into tenant-owned cooperatives, according to a New York Times report published in 1988. In order to prevent assessors from considering the value of apartments if they were to be converted, lawmakers placed co-ops and condos into Class 2 and inserted language into the state law requiring they be assessed on the net income they would earn as rentals, as opposed to their sales value.

More recently, however, in an era of acute gentrification and concentrated market value growth, the low rates on co-ops and condos has become a new variation on the unequal assessment theme that sparked the Hellerstein case. As the price of homes in booming neighborhoods has skyrocketed, taxes assessed on co-ops and condos have become an increasingly smaller proportion of their sales value.

Tax Equity Now New York, a coalition of homeowners, renters, and business groups, led by former city Department of Finance Commissioner Martha Stark, filed a lawsuit in 2017 challenging the state laws that lead to disproportionate rent burden. The group claims the neighborhoods with the greatest burdens are less affluent and more likely to be the home of large populations of people of color.

By state law, taxes for homes in Class 1 are assessed on 6 percent of what assessors believe to be their market value, while co-ops and condos in Class 2 are assessed at a rate of 45 percent of market value based on their potential rental income. But the way the city Department of Finance (which is responsible for calculating market value based on formulas set by the state) arrives at that value for the two property types is not consistent.

For Class 2, city finance officials compare co-op values to the income of nearby rental properties, vastly undervaluing what the property would be worth if sold. Because of the age and location of many co-ops, their taxes are often assessed based on comparisons to rent-regulated buildings, exacerbating the value discrepancy. 

Ana Champeny of Citizens Budget Commission (CBC), the fiscal watchdog, gave an example: “You look at the value that [Department of Finance] determined based on state law and it’ll be something like...$600,000, but when you look at how much the person paid when they bought that unit, they would have paid something like $3 million.”

To help address this inequity, CBC argued when it testified before the Advisory Commission in November, simply put condos and co-ops in Class 1 where they belong, and assess them based on sales prices. This would also help New Yorkers understand the system’s complex arithmetic and the outcomes it produces. Because now-distant beginnings created the fractional assessment practices established by the property classification system, the particular tax-related burdens New Yorkers face often feel arbitrary.

“I think that creates a lot more mistrust, too, in the system. Which is why we said you really should put all these homes into one class and you should value them based on sales,” Champeny told Gotham Gazette.

There were a number of bills in the Legislature related to condos and co-ops that lawmakers were apprehensive about taking up because of uncertainty about changes to the classification system, according to Assemblymember Galef.

“We want to see where the commission comes out on that one so those bills won’t be addressed this year,” Galef told Gotham Gazette in May before the legislative session ended. (The Legislature passed, and the governor has yet to sign, a two-year extension of a property tax abatement program for co-ops and condos, but nothing to address the structure of the real property class system.)

When everyone is a stakeholder, though, upsetting the long held fractional assessments would mean some people will have to pay more, and that is likely to include the high value co-ops and condos now enjoying low rates. As in the past, this will inevitably be a difficult pill to swallow.  In a letter to the Advisory Commission in May, City Council Members Steven Matteo, Joe Borelli, and Justin Brannan -- who represent parts of southern Brooklyn and Staten Island -- urged, “First, do no harm to Class 1 and 2 homeowners.”

Responding to a co-op owner who worries about rising taxes year after year, Mayor de Blasio said, “I want to be...really honest with everyone that we cannot end up with a system that reduces our revenue substantially, unless people want to see a change in the services provided by city.”

>>Renters
For residents, the weight of New York’s property classification system is harder to bear the further you are away from the mitigating effects of ownership, which can put serious pressure on renters who can’t cash in or pass on tax burdens to tenants. In a class-action lawsuit filed in 2014 on behalf of African-American and Hispanic renters, the real estate law firm Newman Ferrara claimed that the way the state classifies different types of property has resulted in a disproportionate tax burden being passed on to renters in large residential buildings.

According to a CBC analysis, as of December 2016 one- to three-family homes made up roughly 48 percent of the total market value of New York City property, but were taxed only about 15 percent of the total levy. By contrast, Class 2 properties -- apartment buildings, co-ops, and condos -- made up approximately 25 percent of the market, but were taxed significantly more: nearly 38 percent of the total.

Most of that burden falls on apartment buildings because owners of co-ops and condos often pay such a small percentage of their property value in taxes. To maintain their profit margin, landlords often redistribute the tax burden to tenants (the same is true for commercial tenants, which can put a strain on small business). The 2014 suit alleged, since large apartment buildings are predominantly occupied by African-American and Hispanic tenants, the uneven tax burden they experience is a violation of the Fair Housing Act.

The property tax burden on one- to three-family home owners can be mitigated by the lower share they pay on the property’s value; the tax burden on co-ops and condos is not great because they are assessed on a fraction of their sales price; and much of the tax burden of big landlords can be passed on to tenants. But renters, who make up two-thirds of all occupied units, according to 2017 U.S. Census data, have no outlet to spread their burden.

(Homeowners who pay a significant portion of their income in property taxes and cannot immediately benefit from the rising value of their homes without selling them, are also put in a precarious situation as taxes rise annually and the costs of maintaining aging housing stack up. The city’s Third Party Transfer program, which seizes buildings from landlords who are behind on taxes and other fees, has recently come under fire for taking the homes of lower-income, minority property owners.)

The 2014 Newman Ferrara suit was dismissed by a state Supreme Court, which rejected the notion that property taxes could be shared more equitably among the classes as “speculative.”

Short of revamping the city’s entire property tax system, the push to improve conditions for many tenants was a major point of contention in Albany this year, as state rent regulations affecting the city and surrounding suburbs approached their expiration date in June. A concerted push under the new Democratic governing reality resulted in a landmark package of tenant reforms aimed at strengthening protections and closing loopholes in rent regulations like reforming the major capital improvement program, ending vacancy decontrol, and eliminating the vacancy bonus, among others. These regulations affect roughly 2 million tenants in 1 million apartments.

“We made a commitment that the new Senate Democratic Majority would help pass the strongest tenant protections in history,” said Senate Majority Leader Andrea Stewart-Cousins in a statement after the package passed both houses of the Legislature. “The legislation we passed today achieves that commitment and will help millions of New Yorkers throughout our state.”

>>Income
While statutory caps were put in place to keep homeowners’ property taxes from rising too quickly, they have still tended to outpace the growth in household incomes, creating a disparity in tax burden across income levels. A report by the city Comptroller’s Office from September found that between 2005 and 2016 annual property tax revenue grew an average of 6.4 percent a year, while the household incomes of small home, co-op and condo owners rose only 2 percent per year. As a result, the share of income that goes to pay property taxes on those types of homes has risen significantly and is most pronounced among the lowest earners.

The comptroller’s report shows that households making less than $50,000 -- largely retirees whose incomes had been higher when the homes were purchased -- had property tax payments increase from 6.6 percent of household income in 2005 to nearly 13 percent in 2016 (the study does not take into account social security earnings and other non-taxable income for seniors, meaning its findings for this group may be higher than seniors’ true property tax burdens).

“For households at this income level, where there is little or no discretionary income, these increases impose significant constraints and sacrifices on household budgets,” the report reads. By contrast, homeowners with income between $250,000 and $500,000 paid only 2.9 percent of their income in property taxes.

Some advocates have proposed what are known as “circuit breakers” to deal with property tax burdens on lower-income New Yorkers.

A circuit breaker essentially provides a tax rebate for lower-income property owners by reducing state income taxes if property taxes exceed a certain proportion of income, or simply by capping property taxes as a percentage of income. Hellerstein was a proponent of implementing circuit breakers, as was Governor Carey, who included them in his own 1981 proposal, which failed. In November, the CBC testified about the benefits of circuit breakers before the city’s Advisory Commission.

But mechanisms like circuit breakers, which create indirect relief through income tax reductions -- as well as various other kinds of exemptions, abatements, and rate limitations -- when piled on to triage the discrete consequences of New York’s property tax system (exacerbated by the city’s complex housing portfolio), also contribute to the opacity of the system -- one of the main problems the Commission aims to address.

“Homestead exemptions, or elderly or disabled or veterans exemptions...tax abatements and rate limitations and assessment limitations and assessment increase limitations -- it becomes a very complex system and ultimately non-transparent,” John Anderson of the Lincoln Institute for Land Policy noted before the Advisory Commission in February.

But exemptions and other forms of relief are popular among property owners in distress and are something that can be enacted by the city, making them attractive to local politicians trying to court voters. (Borelli introduced a bill to the City Council in 2018 that would give a tax exemption to veterans of Cold War conflicts.)

Disparities exist despite tax credits and other programs intended to ease the burden on lower-income New Yorkers, and they are likely to get worse.

The increase in tax burden identified in the Comptroller’s report was tempered by the rising value of property assets and declining interest rates over the past 20 years, which kept mortgage payments low, according to its authors. But the report notes interest and mortgage payments have begun to rise while property value growth has subsided in many neighborhoods, and phase-ins on co-ops and condos (like statutory caps on small homes) mean that property taxes can continue to rise even after the market stabilizes.

Changes in state and local tax deductions from Washington, D.C. last year mean taxpayers who itemize their deductions may no longer be able to deduct the amount of their property taxes from their federal taxes.

>>Geography
Last September, Citizens Budget Commission released an analysis showing that homeowners on Staten Island and in the Bronx have a higher effective tax rate than the rest of the city, meaning they pay a higher percentage of their property’s market value in taxes despite owning homes that are worth less.

This, the report notes, is the result of statutory caps set in state law on the rate by which assessed values can grow. There are different caps for different categories of property; for small homes the cap is set at 6 percent annually, or 20 percent over five years.

The growth rate cap, intended to insulate homeowners experiencing rapid market growth from dramatic property tax increases, has the effect of shifting the tax burden from booming neighborhoods to ones with more stable housing markets, regardless of the overall value of the homes. The CBC analysis finds only 5 percent of the city’s single-family homes are assessed at the 6 percent target ratio because the caps keep most assessments lower. But Staten Island and Bronx homeowners do not seem to be the beneficiaries of this dynamic.

Council Members Borelli and Matteo, who represent districts on Staten Island, in a 2016 press release said, “Staten Islander’s [sic] on average pay [property taxes on] 98.5% of their actual market values, while average Brooklyn and Manhattan class-1 homeowners pay 88.5% and 87.2% respectively.”

Politicians from Staten Island have been among the most vocal proponents of property tax reform. The borough has a large aging population on fixed income and roughly 70 percent of residents own their homes, according to Census data.

In 2016 Borelli and Matteo, both Republicans, called for a bipartisan commission to look at the economic burdens on one- and two-family homes, including the caps issue. They also called for the Department of Finance to use actual assessors, not statistical models, in order to account for a property’s actual condition (on Staten Island only a tenth of homes were built in the last 20 years). Assembly Member Nicole Malliotakis, also a Republican, joined Borelli in calling for a property tax commission when she ran for mayor against de Blasio in 2017. (Property tax reform and relief was also a central pillar of Republican gubernatorial candidate and Dutchess County Executive Marc Molinaro’s 2018 campaign against Gov. Andrew Cuomo, who this year pushed through a permanent 2 percent cap on annual property tax growth, which applies everywhere outside New York City.)

To address the tax burden inequities, Borelli has called for the Legislature to at least change the law so that caps reset when a house changes hands. Borelli was the prime sponsor of a resolution, co-sponsored by 13 others in the 51-seat Council, calling for the change in January 2018, but it has not been adopted.

He repeated the proposal to the Advisory Commission in September, saying, “The cap is attached to the property, not the owner, and the result creates vast disparities between the city’s wealthy and middle-class homeowners, and among wealthy homeowners themselves depending on when their homes were built and the characteristics of the market.”

>>Race
Tax Equity Now New York, the coalition led by former city finance commissioner Martha Stark, has highlighted some of these inequities in its lawsuit filed against the city and state in 2017. The lawsuit, filed after long-running frustration with elected officials’ apparent unwillingness to act on property tax reform, alleges New York’s property tax system has a disproportionate negative impact on homeowners and renters in less affluent neighborhoods with large populations of people of color.

In a study conducted by the group, higher tax burdens, especially those identified in the Citizens Budget Commission analysis, were shown to have a disproportionate impact on neighborhoods where racial minorities make up a majority of the population.

At the crux of the issue is the claim that property tax assessments have not reflected true market values, resulting in neighborhoods predominantly of color being assessed 19 percent more than predominantly white ones, the group alleges. Tax Equity Now is seeking changes to the law, not compensation, but has not specified what those changes should be. The suit survived the city’s motion to dismiss in September but is now stayed, pending appeal.

This is part two of a three-part series. Read part three - The City's Bottom Line - here. (Find part one - Taking on the Difficult Task - here.)

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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An Old, Unfair System: New York City’s Property Tax Conundrum - Part II - Deep and Complex Inequities Thu, 01 Aug 2019 04:00:00 +0000
An Old, Unfair System: New York City’s Property Tax Conundrum - Part I - Taking on the Difficult Task https://www.gothamgazette.com/state/8712-an-old-unfair-system-new-york-city-s-property-tax-conundrum-part-i https://www.gothamgazette.com/state/8712-an-old-unfair-system-new-york-city-s-property-tax-conundrum-part-i mayor deblasio clears

Mayor de Blasio shovels snow outside one of his two Brooklyn houses (photo: Rob Bennett/Mayor's Office)


This is part one of a three-part series. Skip to part two - Deep and Complex Inequities - here.

In May 2018, after years of criticism that New York City’s property tax system lacks equity, Mayor Bill de Blasio and City Council Speaker Corey Johnson announced they would empanel a commission of “blue chip” experts to explore the issue. Its tasks are to examine everything from the way different property values are assessed to relief for vulnerable homeowners, solicit input from the public and specialists, and make recommendations for reform.

Because of the laws and practices governing New York property taxes, the recommendations will inevitably include some changes that can be enacted by the city and others that would require action in Albany, both of which would upset a longstanding and largely unchallenged system. Even coming up with recommendations has proven fraught.

The commission was tasked with an important constraint: make recommendations to overhaul a complicated, decades-old tax system without changing the city’s bottom line -- in other words, to make sure that a new property tax system would continue to provide city government with its single largest revenue stream, good for roughly $27.8 billion last fiscal year.

More than a year later, with the 2019 legislative session in Albany well over, the panel has conducted ten public hearings and meetings but has produced no report nor indicated what consensus is emerging on a path forward. Asked about it repeatedly, de Blasio, who was criticized for punting on the issue until his second and final term, has said he expects recommendations by the end of this year.

The property tax system impacts homeowners and renters, landlords and developers -- virtually every one of the city’s 8.5 million residents. Problems with the system are myriad in New York, where real estate dominates and nearly a third of the city’s annual revenue comes from real property levies.

Critics have contended that the property tax system is overly complex and opaque, that property assessments are not reflective of true market values, and that classifications and caps aimed at mitigating rapid property tax increases contribute to disproportionate tax burdens across many populations.

Twelve months before the commission was announced, a coalition led by a former city finance commissioner filed a lawsuit alleging the Byzantine tax structure creates vast inequities and that those disparities are felt most severely by low-income New Yorkers and people of color.

One of the central problems is the vast under-assessment of many owner-occupied cooperatives and condominiums, which have experienced sweeping growth in property values over the past two decades, but are taxed instead based not on their sales value but on the much lower income they would likely make if they were rentals. Homeowners, in general, pay a lower effective tax rate (taxes as a percent of sales prices) than commercial and residential rental property owners, according to the Citizens Budget Commission, a fiscal watchdog.

Another problem is the labyrinth of abatements, rebates, caps, and phase-ins that obscure the causes of rising property taxes, making them hard for residents to trace and understand.

As property values ratchet up in gentrifying neighborhoods, so do the taxes assessed on them, which can put a strain on lower-, middle-, and fixed-income homeowners struggling to keep up with bills and maintenance fees. At the same time, homeowners in places with slower real estate market growth, like Staten Island and the Bronx, see their taxes rise higher relative to home sales prices because of caps that keep tax hikes low when the housing market unexpectedly leaps.

The symptoms of unequal assessment and taxation land harder on different populations of New Yorkers. The coalition behind the lawsuit says these factors lead to higher tax assessments in communities of color than in majority-white neighborhoods. Others over the years have asserted that when landlords’ tax burdens increase, they may be passed on to tenants in the form of higher rent, especially in large apartment buildings with sizable black and Latino populations, critics say.

The most expensive home sold in United States history is a Midtown Manhattan condo that went for $238 million earlier this year to Ken Griffin, the hedge fund manager ranked the 45th richest American by Forbes. Griffin pays taxes on a property valuation of just $9.4 million, or .22 percent of the sales price, according to the Wall Street Journal. By contrast, the owner of a two-family home in the northeast Bronx that sold for $439,000 in the most recent fiscal year pays 1.16 percent of the price tag in property taxes, according to an Independent Budget Office analysis provided to Gotham Gazette.

Yet the owners of both these types of homes -- owned by some of the wealthiest New Yorkers, as well as lower- and middle-income residents -- often say they feel pressure from rising property taxes year after year and are seeking relief. One of the barriers to property tax reform is that virtually all homeowners, whether they are likely under-assessed or not, believe they are getting squeezed by property taxes, which for small homes rose an average of 7.7 percent annually between 2001 and 2017, according to a Citizens Budget Commission analysis. (New York City has been repeatedly exempted from a state cap of 2 percent on annual property tax growth that applies everywhere else.)

There is broad agreement that the New York City property tax system produces inequality, that it hurts a wide range of communities from senior homeowners to renters of color to (some) outer-borough residents. Democrats, Republicans, and others across the political spectrum have called for change. But while the debate over the city’s property taxes crosses partisan lines, efforts to make an unequal system more equal means upsetting some stakeholders.

The complexities in the system have cut out a difficult task for members of the commission launched by de Blasio and Johnson, commissioners who were originally given only a year to produce results. But, as with other attempts to rethink the city’s relationship to its most essential resources, the task of unpacking the property tax system reveals a tangle of practical and political factors that have led to the status quo and make change so challenging.

Hope quickly faded that the commission would put forth recommendations to be taken up before the June end of this year’s state legislative session. During a May interview, Marc V. Shaw, one of two commission co-chairs, told Gotham Gazette that for lawmakers to deal with complicated concepts at the end of the legislative session, “there just would not be time...even if we were prepared. But we haven’t reached the point of making even the recommendations. We’re still sort of in an analysis phase.”

A Difficult Task
“I think all of us that have been working on the commission, knew from the beginning that that was a time schedule that was going to be pretty...difficult to attain...so from our perspective we’re looking at trying to put together a series of recommendations to be available for discussion and debate in the next legislative session,” Shaw said in May. Legislators will return to Albany in January, but the mayor and City Council can evaluate the commission’s work throughout the rest of this year, pending a report.

Shaw, a former first deputy mayor under Michael Bloomberg, is the interim chief operating officer for CUNY. He has been the Advisory Commission’s single (co-)chair since its other, Vicki Been, stepped down when she was appointed Deputy Mayor for Housing and Economic Development in April. The body is made up of fiscal policy experts, business leaders, and city planning specialists, almost all of whom have served in city government in the past.

Spokespeople for both the mayor and City Council told Gotham Gazette the Advisory Commission is now planning to release a preliminary report in the coming months and hold another round of public hearings in the fall to solicit feedback. In a July 19 WNYC radio interview, Mayor de Blasio said the commission would produce a final report by the end of the calendar year, in time to be taken up in the next state legislative session.

City Council Member Keith Powers, a Democrat who represents a Manhattan district with a mix of property, is concerned the timeline doesn’t allow for much flexibility to work in Albany’s tight calendar. The timeline “puts you rolling right into January’s legislative session,” and just before state budget negotiations begin, he told Gotham Gazette. “You just may lose a little steam if you don’t have a bill early next year, and you know agencies miss deadlines all the time.”

In the meantime, the Legislature is waiting to hear from the commission. “It just kept coming up where we may be modifying some bills, or not doing some bills, because of the commission and not knowing what their positions are going to be,” Sandy Galef, chair of the Assembly’s real property tax committee, told Gotham Gazette at the end of May. “So yes, I would say it’s holding back some ideas.”

It appears important that the city has its ducks in a row before the January to June state session begins, giving a report and decisions by the mayor and Council enough time to work their way through Albany’s political corridors. Complicating matters further is the fact that 2020 is an election year for the entire state Legislature. Albany lawmakers sometimes try to get around dealing with especially thorny issues in conspicuous ways by packing them into state budget bills, which are due by the April 1 start of the new fiscal year.

Many of the reforms will focus on the state Real Property Tax Law, which sets standards for property tax assessment, among other things, and will require the state Legislature and governor to act. Once the commission produces its final report and city leaders make their opinions known, proposals will have to be negotiated in Albany, which in the past has proven fatal to serious property tax reform.

“We’re involved but at this point I view it as local home rule,” Galef said in May before the legislative session ended. Much if not all of what the city will ask of the state will come through the City Council, even if some of it is through non-binding measures.

Some tax programs were set to expire this year, like tax relief for property owners who install green roofs, which the Legislature extended and the governor signed notwithstanding the city property tax commission’s progress. “Even if the commission does the report at the end of the year, by the time they get authority from the state, there may be a lot of time in between,” Galef said.

That prospect does not sit well with Powers. “I think that any commission or body that’s working on this needs to understand that there are real people who are waiting for this relief,” he said, noting he has heard from constituents who are anticipating the commission’s recommendations.

The Status Quo
The complexities the commission is now grappling with are the result of a system with antique origins, one which has not been comprehensively updated and seldom reviewed over the past four decades. New York State’s current property tax apparatus is the outcome of a judicial ruling that shook up the prior system in the mid-1970s, and subsequent legislative action that mostly put it back into place in the early ‘80s.

In 1975, the Court of Appeals, the state’s highest tribunal, sided in favor of Jerome Hellerstein, an Upper West Side lawyer representing his wife, Pauline, who had sued the Town of Islip for assessing the property value of the family’s Fire Island vacation home -- and every other property on its roll -- at only a fraction of its market value, in violation of state statute (and, apparently, in their own interests). The law, at the time section 306 of the Real Property Tax Law, stated, “All real property in each assessing unit shall be assessed at the full value thereof.”

hellerstein fire island houseThe Hellerstein Fire Island home (image courtesy of Walter Hellerstein)

For nearly 200 years prior, however, property taxes for homeowners in New York State were assessed on only a fraction of the “full value,” based on what assessors “deemed proper,” “not ‘according to their best information and belief, of its value,’ ‘but according to the usual way of assessing,’” an 1852 Court of Appeals decision reads. The decision, in 1852, noted, “the usual method is to estimate property at less than half its value.”

The discretion given to assessors meant commercial and apartment building owners in 1975 paid taxes on a much larger fraction of the market value of their property than homeowners. According to an account published by the city’s Independent Budget Office, reports at the time of the Hellerstein court decision found even the tax burden from similar homes in different neighborhoods could vary, with homeowners in New York City’s lower-income communities paying more than homeowners in more affluent ones.

The Hellerstein decision upended centuries of property tax assessment practices and sent New York’s political world into a spin. For six years, officials in Albany battled over the implications of the decision with some, like Democratic Assembly Speaker Stanley Fink, arguing for the fractional assessment practice to be codified into law, fearing the effects homeowners would feel if their property taxes were to rise rapidly.

There was panic that “fiscal chaos” would ensue if wholesale changes were made to the way the properties of people and businesses were assessed across the board, according to Judge Solomon Wachtler who wrote the majority opinion in the Hellerstein case. A report from the New York Times during that period quotes Edwin Margolis, counsel to the Assembly majority, saying, “The goal is not to shift the burden from residential to industrial or commercial, but simply to keep the status quo.”

The Legislature achieved that goal in 1981 after overriding a veto by Governor Hugh Carey, a Democrat. Instead of meaningfully changing assessment practices, the new legislation removed the “full value” language from the law and established a system in New York City that separated properties into four different categories, each to be taxed on a different portion of the full market value, mirroring the de facto practices assessors had been using all along.

The system placed one- to three-family homes into Class 1; apartment buildings, co-ops, and condos into Class 2; utilities into Class 3; and commercial properties into Class 4.

“The law was set up in such a way that each class of property would continue to pay roughly the same share of the levy” as they did at the time the law was passed, according to Ana Champeny, a property tax expert at the Citizens Budget Commission.

This “is the property tax system that we essentially currently operate under,” said Shaw, the commission chair. “That just gives you a sense that it’s always been a complicated system from the beginning.”

Before the 1981 law codified the current system, a number of other proposals had been floated and a bipartisan commission was even set up, the Temporary State Commission on the Real Property Tax, to review the state’s practices. That commission suggested that as an alternative to moving toward assessment by class, the state could mitigate the shift in tax burden from businesses to homeowners by implementing homeowner assistance programs.

But the political might of homeowners won out over the interests of commercial property owners, as well as over the will of the governor and a sizable minority in the Assembly. As part of the 1981 legislation, lawmakers enacted caps on the amount assessments could increase annually and over a five-year period, further protecting homeowners against rapid rises in property taxes in the event they be more accurately assessed going forward.

The resulting system, in a nutshell, is one where one- to three-family homes, which are more often occupied by their owner, are assessed based on the comparable sales prices of the property, while commercial and rental properties are assessed based on the income those businesses could generate.

One catch to this, which has been a recurring sticking point in perennial calls for property tax equity, is that co-ops and condos like Griffin’s are assessed on the income that would be made if they were rental apartments, rather than the sales prices of owner-occupied homes most observers say they more closely resemble. Another has been the caps on how much the assessed value of a home can increase, which more recently has led to owners of homes in booming neighborhoods paying relatively low property taxes compared to other homeowners in more economically stagnant parts of the city.

“What we’re facing is looking at how to do a reset of the property tax, given all of those problems, to make it a fairer system now,” said Shaw.

This is part one of a three-part series on the property tax system in New York City and potential for changes to it that may be on the horizon. Read part two - Deep and Complex Inequities - here.

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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An Old, Unfair System: New York City’s Property Tax Conundrum - Part I - Taking on the Difficult Task Wed, 31 Jul 2019 04:00:00 +0000