Gotham Gazette Tue, 07 Jul 2020 03:19:07 +0000 Joomla! - Open Source Content Management en-gb (Webmaster) De Blasio Delay Plus Pandemic Means Property Tax Reform Appears Off the Table This Year Mayor de Blasio property tax reform dead

Mayor de Blasio's slow-play on property tax reform has now been compounded (photo: Edwin J. Torres/ Mayor's Offie)

The start of the year 2020 offered what many believed to be the most promising steps in decades to revamping New York's confusing and unfair property tax system. In January, an advisory commission established by Mayor Bill de Blasio and the New York City Council, which was tasked with comprehensively assessing and reevaluating the property tax system, released a set of recommendations. While coming much later than many had hoped, the recommendations were supposed to lead to community conversations around the city and a set of legislative proposals to be acted on at both the city and state levels to make a more rational and equitable system.

But less than four months after the commission released its initial report, the coronavirus pandemic has effectively closed the door on property tax reform this year at the same time the contracting economy re-centers property taxes as the city's most reliable revenue stream.

New York City fiscal watchdog and reform groups say addressing inequities in the property tax is more important than ever, but with the advisory commission's next phase on hold and the State Legislature scaling back its work amid the coronavirus crisis, hope for meaningful changes any time soon has vanished.

“We are seeing first-hand the economic impact COVID-19 is having in New Yorkers who are struggling to get by. At the same time, we must balance the very real needs of the City, which relies on property taxes to fund the essential city services like hospitals and our first responders," wrote Laura Feyer, a spokesperson for Mayor Bill de Blasio, in response to an inquiry about what changes the city was making. She said the city had taken some steps toward relief for property owners facing hardship due to the pandemic but did not say whether there were plans to resume the timeline for the advisory commission's public forums or broader reform.

But property tax reform remains essential, argues Martha Stark, former finance commissioner under Mayor Michael Bloombergn, now serving as policy director of the advocacy group Tax Equity Now, which sued the city and state over inequities in its property tax system. "Given that the city's only mechanism for raising revenue is going to be through the property tax, I don't know how much more urgent it could be to ensure the taxes are done in a way that is fair and that is really reflective of people's values," Stark said in an interview.

De Blasio has been seeking federal relief aid and has implored state lawmakers to authorize $7 billion in emergency borrowing to fill what has become a $9 billion budget gap due to lost revenue from tourism, sales and real estate transaction taxes, and more. In the city's latest projections, property taxes now account for 35 percent of the city's total revenue in the current fiscal year, according to officials in the mayor's office and City Council, compared with 30 percent last fiscal year.

"Especially since we don't know what's going to happen in Washington, we right now are absolutely dependent on whatever resources we can get and property tax is a part of it for sure," the mayor told reporters on May 10, as part of a response to a question about property tax relief for struggling homeowners and landlords.

New York City's property taxes have long been criticized for having an irrational assessment and levy structure that places an uneven burden on low-income communities and communities of color. Homeowners in some of the city’s most booming neighborhoods have among the lowest effective property tax rates, as do some of the most expensive coops and condos, while homeowners in places like the Bronx and Staten Island, which have not seen rapid gentrification, pay a much higher percent of their property's value in real estate taxes. Tenants often serve as a release valve for the high taxes on large rental buildings. With property taxes now making up a larger portion of the city's total revenue, the unequal tax burdens represent yet another example of the pandemic crisis being borne largely on the backs of poor black and Latino New Yorkers.

In 2002, newly-inaugurated Mayor Michael Bloomberg, facing a gap of $7.4 billion over two years due to fallout from the September 11, 2001 terrorist attacks, raised property tax rates. Stark says if the city were to increase taxes, "they are going to actually exacerbate the real estate tax differential for those homeowners," increasing the urgency for reform. De Blasio has given no indication he is looking at property tax rate increases.

Changing New York City's property tax scheme requires action at both the city and state levels, and while ad hoc changes have been made over the past 40 years, the conflicting interests involved in overhauling a system that touches every resident of the state have been a death sentence to prior reform efforts.

The recent momentum came after the Tax Equity Now lawsuit and the Advisory Commission on Property Tax Reform, empanelled by de Blasio and Council Speaker Corey Johnson in 2018, which released its preliminary report in January, giving city and state lawmakers the beginnings of a roadmap to approach wholesale reform. The commission was slated to hold another round of public hearings and produce a final set of recommendations, many of which will require action in Albany.

But the first hearing, scheduled for March 12 on Staten Island, was postponed and it is unclear if any make-up for it or subsequent hearings is in the works.

"Virtual hearings would be an independent commission decision, and have not been planned as of now," said Feyer, the spokesperson for the mayor.

A spokesperson for Johnson said his office was in conversations with the administration about the next steps for public hearings.

Parallel reform efforts in the State Legislature have also stalled.

"Property tax reform is not the issue we are dealing with this year," said State Senator Brian Benjamin, a Manhattan Democrat and chair of the Committee on Revenue and Budget, on the Max & Murphy Podcast Wednesday.

"At this point we are really dealing with the COVID crisis. I would imagine that we will fervently look at property taxes next year. I would have liked to look at it more closely this year and that was the energy we were on and then COVID hit and it's really been hard to focus on that," said the senator, who organized a number of public forums and an expert roundtable on property tax reform last fall in anticipation of the 2020 legislative session and the commission's initial report. Benjamin is also a candidate for New York City Comptroller in the 2021 election.

"The time should not be wasted," wrote Andrew Rein, executive director of Citizens Budget Commission, a nonprofit watchdog, in an email to Gotham Gazette. "The Commission's report was a solid start to comprehensive reform."

The commission's initial recommendations took aim largely at inequities in the assessment of 1-3 family homes, small rental buildings, and cooperatives and condominiums. It did little to address commercial and large rental buildings, where the tax burden is often passed on to tenants.

"While there may be general consensus on many of the recommendations, detailed proposals and legislative language are needed to fully evaluate the impact," Rein wrote.

Rein fears the lost momentum might lead to piecemeal changes without a comprehensive approach, which he says could further complicate the opaque and often irrational system. But Stark says there are some steps the mayor can and should take now, amid a crisis known for exacerbating inequities across lines of race and class.

"One-, two-, three-family home owners, owners of rental properties where tenants are struggling to pay rent...are going to be struggling to pay their real estate taxes," Stark said. "This could not be a more appropriate moment for the city to really be addressing especially the many inequities that are within their control."

One thing the city could do is lower the assessment ratio on certain properties to correct the imbalance in tax burden, Stark said. Another is to undertake extensive quality control to ensure that its assessment models are determining property value based on the value of truly comparable properties, which experts point out is often not the case.

A growing chorus of landlords, tenants, and business owners are calling for property tax relief. On May 13, the mayor and the New York City Banking Commission called on the City Council to create a hardship exemption for property owners facing financial challenges due to the pandemic that would eliminate interest on late payments for property taxes due in July on property assessed below $250,000. The measure would require the city to pass a local law, according to a press release from the mayor's office.

"The Council is glad the administration acted on our budget response request and looked at ways to work with struggling property owners. The Council is reviewing these recommendations amid ongoing negotiations with the administration," wrote a Council spokesperson in an email.

In May, a group of industry and civic groups, including the Real Estate Board of New York and the NAACP, called on the city to freeze property tax rates and assessments, reduce interest penalties, and allow owners to pay taxes on a monthly basis.

The lawsuit by Stark's group, Tax Equity Now (which is not a part of the coalition), is an attempt to force property tax reform through the courts. The effort saw a serious setback when it was dismissed in the appellate division earlier this year, but the group is filing an appeal in the state's highest court.

"Part of the reason why we brought our lawsuit is that we didn't think that the political side was going to be able to handle property tax reform,” Stark said. “This has been an issue for 40-plus years and the political side hasn't been able to do anything.”

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

De Blasio Delay Plus Pandemic Means Property Tax Reform Appears Off the Table This Year Thu, 28 May 2020 04:00:00 +0000
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.”

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

Commission Releases Long-Awaited Recommendations for Fairer City Property Tax System Thu, 30 Jan 2020 05:00:00 +0000
6 Years of De Blasio Dodging and Delaying Property Tax Reform availability presser questions

Mayor de Blasio (photo: Demetrius Freeman/Mayor's Office)

Reforming New York’s property tax system has for decades confounded mayors, legislatures, and governors who have struggled with (or avoided) the technical and political consequences of changing a long-standing system commonly described as outdated and irrational. When Mayor Bill de Blasio finishes his second term at the end of 2021, there is a chance he will be leaving office in the same boat.

With the latest delay in recommendations from the city’s Advisory Commission on Property Tax Reform, formed by de Blasio and City Council Speaker Corey Johnson in 2018, it is becoming increasingly doubtful the mayor will be able to make a full-fledged push for reform in Albany, where much relevant power resides, before his final year in office. If history is any indication, lawmakers may take years to work changes through the halls of the State Capitol. That would leave the bulk of whatever reform is passed, if any, to be implemented after de Blasio has left City Hall.

Yet de Blasio has been discussing the need for a concerted reassessment of the property tax system since he first took office as mayor in 2014 -- when he appointed Jacques Jiha commissioner of the Department of Finance. But the first concrete public steps he took toward carrying one out only began in his second term, four years later, when he empanelled the advisory commission in partnership with the City Council, and only after a lawsuit was filed against the city alleging the system disproportionately burdened certain racial and other demographic groups.

Now, as the calendar turns to 2020, a series of postponements and delays are pushing the prospect of a city property tax reform agenda and essential accompanying advocacy in Albany closer to the periphery of de Blasio’s tenure.

When de Blasio appointed Jiha in April 2014, four months into his first term, the incoming commissioner was asked by a reporter if he shared the view that the city’s property tax system is unequal or unfair. Jiha said, “It’s a major issue. We have a lot of unfairness and inequity.” He promised, “[W]e’re going to look into every aspect taxes in New York to see what can be done. It’s a big project...If there are discrepancy and inefficiencies within the system we’re going to have to try to minimize them.” Acknowledging action in Albany would be needed, he said, “But our goal is basically to try to minimize to some extent the – as best as we can, to try to minimize the inequities...equally situated people should not be treated differently. That’s our goal.”

De Blasio then called it “a big, sprawling area of concern” and promised, “we’re going to look at it very closely.”

“Part of why we wanted a finance commissioner with Jacques’ experience and insight is to take a whole look at the tax system of this city and look at ways to make it clearer, more transparent and more equitable,” the mayor added. Jiha is a veteran economist of city and state government, who most recently served in the private sector as COO and CFO of Earl G. Graves Ltd., a multimedia firm.

“Some of that we can achieve locally. Some of that can only be achieved with Albany’s help. But first we have to come to an analysis of what is going on and what’s a better way to approach it. And then when we feel we’re on that firm ground, then we’ll start discussions with Albany,” de Blasio said then. The Department of Finance under Jiha has been preparing to assist in such an analysis by building models and cross-referencing datasets, according to a spokesperson.

Around the same time as Jiha’s appointment, then-City Council Speaker Melissa Mark-Viverito announced a Council commission to look at the issue, which quickly transformed into a task force on commercial tax breaks. Two members of the task force told Politico in 2016 they believed the de Blasio administration pressured Mark-Viverito to abandon property taxes. “My sense is the administration said that that was something that really needed its own conversation, that they'd work with them on, and haven't,” one of them reportedly said.

Property owners and tenants alike have lamented the system for years as they’ve observed real estate taxes fluctuate inconsistently across neighborhoods, property types, and tenancies.

The city’s property tax system is multifaceted and dizzying. Some aspects are controlled by the city, but many others are dictated by the state. State law determines the method for valuing different properties, while the Mayor and City Council have discretion over the tax rate. The city’s Department of Finance calculates a property’s assessed value based on the state’s methodology using data gathered by the city. Experts, elected officials, and everyday city residents have sought changes to each of these stages to make the system more fair and transparent.

Despite its complexity, the city did not move quickly to begin evaluating the issue and by the end of the mayor’s first term, he was only promising action in his second. “This one's exceedingly thorny and it has to be navigated. The pieces that can be decided administratively and legislatively at the city level, plus the pieces that have to be decided in Albany – that's a very careful balance that has to be struck,” he said in April 2017, adding shortly after, “I think it's something that has to be addressed, but it's not realistic to address it this term.”

It was at a news conference on an unrelated topic during his reelection year, and de Blasio was responding to questions about the scant action on property tax reform in his first term. “We didn't do it because we had to work on a lot of other priorities that were crucial and necessary and available to be acted on, versus this, which I knew would be a very involved, difficult process that would take the energies of our budget director, our first deputy mayor, our finance commissioner, and a whole lot of other people,” he said.

That year he was harried by a lawsuit, filed that April by a coalition of finance experts, civil rights groups, and development associations, challenging the city and state taxation practices as unconstitutional, alleging they disproportionately harm New Yorkers in less affluent neighborhoods. One of the most serious problems the coalition points to is the state’s method of assessing co-ops and condos, based on estimated rental income rather than sales price -- often vastly undervaluing some of city’s most expensive property and leaving others to foot the bill.

De Blasio also faced mounting pressure from his Republican challenger, Assemblymember Nicole Malliotakis, who made real estate tax reform a central issue in her campaign.

While calling such an undertaking a “huge, huge effort” and tempering expectations of a “quick fix” the mayor told reporters at the April 2017 news conference, “I'm telling people I'm going to do it. And if you look at my batting average of what I say I'm going to do, I do what I say I'm going to do.”

Just one day before voters elected him to his second term, on November 6, 2017, de Blasio appeared at an Association for a Better New York event, where during an audience question-and-answer session, then-president of Citizens Budget Commission Carol Kellermann asked de Blasio about the lawsuit and his plans to address property tax reform in his all-but-certain second term.

If reelected, de Blasio said, "we’re going to get to work on this in a very big and focused manner...there is no question that this current property tax system is broken in many ways." He criticized the push to put property tax reform into a judge's hands through the lawsuit, adding, "I’ve said it very clearly, we’ll gather all the stakeholders. It will probably take a year or two to complete this work. It will certainly take both city and state legislation. But here are the ground-rules that I see going forward: a wildly inconsistent system has to be made more consistent. I hear from people across different neighborhoods how blatantly unfair their property tax bills are and literally the way they change from neighborhood to neighborhood that makes no sense per se. Obviously people live in condos, co-ops versus single-family homes, the disparities there. There are so many issues that we have to get under the skin of that are really thorny, and really difficult."

"But were going to have to be blunt about it, we’re going to have to really be open about some of the tough choices, and then further we have to protect our revenue levels," the mayor continued.

He said that at a number of town hall meetings he had held, New Yorkers had raised the issue of property taxes to him, "Usually from a homeowner point of view."

"I say to them look, it’s going to be a massive undertaking," de Blasio recounted. "We will come up with a more consistent, more transparent, more fair system. But I want to put a caveat on it. We can’t reduce our revenue substantially. If we do that and I look at people in the eye and say if we’re going to reduce our revenue substantially it might feel great at first. But then we can’t have the same number of police officers, or we can’t sustain early childhood education, or we can’t provide the same sanitation services. Do you want that?...They say no, I don’t want to lose of those services."

He went on to say in closing, "I am ready to do it, it will take a lot of time and energy but I am ready to do it. And it’s not the kind of mission a lot of people want to take on in public life. But I’ve said it, because I mean it. And I will just say this one personal plug. When I say something that definitively, I mean it. I said we’d do pre-K, I said we’d do 200,000 affordable apartments; you know, I said we would bring down stop-and-frisk. You name it we’ve done it. We will create a property tax reform that will end up with a better and fairer system for this city." 

Commission Formed, Report Delayed
Another six months later, in May 2018, a reelected de Blasio and still-new City Council Speaker Johnson announced the advisory commission to look at every dimension of the issue and recommend changes to balance the system without reducing city revenue. Its mandate is to issue a preliminary report and a final report with recommendations, gathering feedback at public hearings.

When de Blasio and Johnson announced a handshake agreement for the next city budget the next month, Johnson intimated that the commission’s goal was to have recommendations by the state legislative session beginning in January 2019. “The work will continue throughout this year and hopefully we’ll be able to bring a product to the state legislature in next year’s legislative session with some recommendations on fixing the property tax rebate,” he said at the June 2018 press conference.

The commission held its first public meeting in July 2018 and nine others over nine months, though the mayor didn’t sign the executive order formally empowering the body until December.

Since then, the commission has postponed releasing recommendations several times. While officials say they are getting closer, several steps remain before the administration sees the recommendations, puts its own stamp on an agenda, and takes it to state lawmakers.

Spokespeople for both de Blasio and Johnson told Gotham Gazette in May that the commission would be holding more public hearings in the second half of 2019 and produce a final report with recommendations by the end of the calendar year. A spokesperson for the mayor’s office confirmed last week that the additional public hearings had not taken place and wouldn’t be scheduled until a preliminary report was published. Commission Chair Marc Shaw told Gotham Gazette on December 4 that the preliminary report would be “out soon,” without specifying a new timeline.

“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,” Shaw said.

“We expect to have a preliminary report out soon for the public to review,” he said. A spokesperson for Johnson said on December 16 that that projection was still the case, without giving a specific date.

At a press conference before the last full-body Stated Meeting of the year for the City Council three days later, Johnson said, “It’s not going to happen before the end of this year. It’s my hope that it’s going to happen in January. I actually feel pretty comfortable with where things are and I continue to talk to the commissioners.”

Once the commission releases its recommendation, there remains the task for city officials to mold them into a viable policy agenda. “After the Commission shares its report with the Mayor and Speaker Johnson, they will both review the report and its findings, and will decide how to best advance reforms,” said Marcy Miranda, a de Blasio administration spokesperson, in May.

Postponing the report’s release will have implications for the prospect of reform in Albany. The state legislative session only lasts from early January to early June this year, and is typically dominated by the state budget, as well as a long list of priorities from Governor Andrew Cuomo and the two legislative majority conferences. If the city property tax commission doesn’t hold public hearings on its initial report until 2020, which is now the earliest it can, it will push the city’s advocacy efforts later into the session leaving any wishlist items from the advisory commission on less sure footing.

“There’s been a constant pushing of the timeline. We get one timeline and we try to make decisions around that. Then that gets pushed off. Then we keep hearing it’s coming soon...I don’t know the definition of ‘soon,’” said state Senator Brian Benjamin, a Manhattan Democrat and chair of the Senate’s committee on budget and revenues.

Assembly Member Sandra Galef, a Westchester Democrat who chairs the Assembly’s committee on real property taxation, believes some of the recommendations will be controversial and will have to be negotiated through multiple committees, which can delay them or seal their fates if the discussions start too late.

The session ends in June and it is not typical for lawmakers to return to the Legislature later in the year outside of exceptional circumstances, leaving any outstanding items to be taken up in 2021. Because many experts, including some members of the commission, have agreed some of the most drastic but necessary reforms will have to be phased in over a period of years, it is likely many of the potential state-level changes will be implemented under de Blasio’s successor.

“I think it’s highly unlikely it will get fixed this legislative session because the issue is so complicated, but there is a possibility that it can be tackled during the 2021 legislative session,” Johnson said Thursday.

Independent of the constraints of Albany’s political calendar, the de Blasio administration says it has been making strides to improve some of what it can control, including the precision with which it values property.

“Under the leadership of Commissioner [Jacques] Jiha, the Department of Finance has made significant investments in staffing, data analytics, and technology to improve data collection and ensure the agency is using the most accurate data to provide fair valuations,” wrote Miranda, who now represents the city’s Department of Finance, in an email.

The DOF under Jiha has for years been preparing its analytical infrastructure for the eventuality of a comprehensive, system-wide evaluation, which has dramatically enhanced the advisory commission’s ability to explore solutions, according to a person with close knowledge of the commission’s work.

“These improvements have been made with New York City residents in mind, as the agency works to create efficiencies and increase accuracy and transparency in residents’ property tax values,” Miranda wrote.

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

Ben Max contributed to this article.

6 Years of De Blasio Dodging and Delaying Property Tax Reform Sun, 29 Dec 2019 05:00:00 +0000
City's Property Tax Reform Delay Threatens Promise to Pursue Essential Changes in Albany ocean bayside apt

(photo: Michael Appleton/Mayoral Photography Office)

It is taking more time than promised for the city’s property tax reform commission to come out with its initial and final reports with recommendations for changes to the antiquated and unfair system, a delay that threatens to undermine the de Blasio administration’s footing in Albany, where many of the changes would need to be made.

The Advisory Commission on Property Tax Reform, created by Mayor Bill de Blasio and City Council Speaker Corey Johnson in 2018, was expected to issue a preliminary report with recommendations this past summer, followed by a round of public hearings and a final report by the end of the year, to serve as the city’s basis for advocacy in the state capital. But officials now say the commission’s preliminary report will be published “soon,” staking out an indefinite wait that may pose a challenge to achieving a city-driven reform agenda in the 2020 state legislative session, which begins in January.

“This commission is coming back this year with recommendations,” de Blasio, a Democrat, said on WNYC radio in July, responding to a caller. “Two things then happen: some will be part of city law...and the other has to be done by state law. The state legislative session begins in January. We’re coming up to the point where these things are going to be put on the table and resolved.”

In a September letter to the editor in Crain’s New York Business, Deputy Mayor Vicki Been, who previously served as the property tax reform commission’s co-chair before returning to the de Blasio administration, wrote, “The mayor will not wait; he will be in Albany next session pushing for this historic reform.” (The assertion came days after a Crain’s event where Been said it was not “realistic” to achieve property tax reform before de Blasio leaves office at the end of 2021.)

That reassurance now appears far less solid given delays in releasing the preliminary report. Commission Chair Marc Shaw told Gotham Gazette this month that the body had made “significant progress” but a few issues remain that are holding up publication.

A spokesperson for Johnson, a Democrat, told Gotham Gazette the commission still intends to hold hearings to solicit public feedback once its initial recommendations are out, which will influence the final report. But the hearings will not be scheduled until after the preliminary report is made public, the spokesperson said.

With just over two weeks until session begins in Albany, it is virtually impossible that the city will have a comprehensive property tax reform plan to push when the political action and agenda setting gets fully moving (Governor Andrew Cuomo has already begun laying out his 2020 priorities ahead of his January 8 State of the State speech).

Asked about the commission's work and the path ahead at a press conference on Thursday, Johnson acknowledged that it is behind schedule and that the prospects for changes being passed in Albany in 2020 were slim. He added that 2021 would be more likely, and he is hopeful that timeline can be met. Johnson said he is encouraged by what he's seen so far from the commission and looks forward to the next steps.

"I think it’s an important thing and I hope that we make some very significant changes by the time I’m done being speaker,” he said. Like the mayor's, Johnson's term as speaker ends in 2021,

Much uncertainty remains in the city’s timeline for crafting and advancing its property tax reform agenda in Albany’s legislative calendar, which ends June 2 this year. Most of the action in Albany typically takes place in the lead up to the state budget, which is due by April 1 each year. De Blasio typically testifies at a state legislative budget hearing in Albany in early to mid February, at which time he lays out the city’s top state-level priorities, both policy and financial.

“We will have more to say soon,” wrote Laura Feyer, a spokesperson for de Blasio, in an email.

City Council Member Joe Borelli, a Staten Island Republican, has made property tax reform a priority in recent years. “While glad the report is finally moving, I imagine the timeline will make it tough for a deal to come out of Albany this session,” the former Assembly member wrote in a text message to Gotham Gazette.

“Pushing back a session year, considering our NOPV’s must go out early in the year, means that NYC residents won’t see a correction before fiscal year 2022 at best,” he added, referring to the city’s Notice of Property Value, which influences how much is assessed in real estate taxes.

“That’s troubling,” he said.

New York’s current system was written into state law in 1981 and for decades the city’s property taxes have been criticized as onerous and unequal. While the city has control over the tax rate and certain levy practices, state law dictates some of the most fundamental assessment criteria, a number of which contain major flaws, experts and stakeholders say.

Because real estate taxes impact virtually every constituency, changing a system that benefits some at the expense of others has come with political challenges. As the state’s largest municipality, New York City plays an outsized role in any conversation around property tax reform in Albany.

State Senator Brian Benjamin, a Manhattan Democrat, views the city as a key partner in hammering out changes to the system, but as chair of the Senate’s committee on budget and revenues, he has been hampered by the city’s shifting timeline.

“I was originally of the impression that the preliminary report would have been out before I had had a public roundtable with a lot of leading experts. What I thought was happening was that we would have been able to use that time to look at the report and have some comments and thoughts,” he told Gotham Gazette, referring to a forum he held early this month.

“We are not prepared to have, at the last minute, something shoved down our throat,” he said.

Assemblymember Sandra Galef, a Westchester Democrat and chair of the Assembly’s committee on real property taxation, said the issues being discussed by the city advisory commission are not likely to sail through Albany, once recommendations arrive. She told Gotham Gazette she believes a number of the bills her committee may ultimately take up are likely to also have to go through other committees, like Rules, Codes, and Ways and Means.

“It’s not this quick turnaround, and it’s probably controversial, I would assume,” she said of the yet-to-be-seen recommendations.

As with this year’s session, Galef expects the pre-budget season to see a number of bills advance, as less can be done during 2020’s truncated post-budget period, adjusted due to a change in the election calendar that moved state primaries to late June.

“Once they do their major report they need to come back to us right away, given the fact that we’re out the first week of June. So I would say, if you’re looking for a deadline to get something done, it really has to be pretty much I would think the beginning of May,” she said, “and I don’t know whether that works for their timeframe.”

“It is our hope that the city would be able to provide us with something to look at with enough time to make some solid decisions before we leave,” said Benjamin.

Galef, who said the city is often “very slow in responding” to state legislation, would like to see the city “in some way, come to us with the preliminary report and give us an overview of what they’re thinking just so we start the process.”

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

Note: this article has been updated with Speaker Johnson's Thursday comments.

City's Property Tax Reform Delay Threatens Promise to Pursue Essential Changes in Albany Tue, 17 Dec 2019 05:00:00 +0000
What's The [DATA] Point? $28.8 billion, the State's Four-Year Budget Gap whats the data point

What's The [Data] Point? Episode 86 -- $28.8 billion, with Andrew Rein, Andrew Perry, and Ana Champeny of Citizens Budget Commission [You can download What's The [Data] Point? wherever you get your podcasts, including on iTunes]

regional eco dev$28.8 billion is the cumulative four-year budget gap facing New York State between fiscal years 2020 and 2023. CBC President Andrew Rein joined the podcast to explain how the State should get its fiscal house in order. And for a special treat, CBC's Andrew Perry and Ana Champeny discuss regional economic development and New York City property taxes. Each discussion is a quick 10-ish minutes to get you up to speed on three key topics.

Listen to the conversation and let us know what you think: Ben Max of GG (@TweetBenMax), Maria Doulis of CBC (@MariaDoulis). Listen below or download wherever you get your podcasts!

by Ben Max, Gotham Gazette

Read more by this writer.

What's The [DATA] Point? $28.8 billion, the State's Four-Year Budget Gap Wed, 11 Dec 2019 05:00:00 +0000
What to Watch for When the City's Property Tax Commission Finally Issues Its 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]

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

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 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 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, “ 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.

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

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 III - The City's Bottom Line gov and may deb pro

Mayor de Blasio (photo: Rob Bennett/Mayor Bill de Blasio

This is the third and final part of a three-part series on New York City's antiquated and unfair property tax system, its complications and inequities, the underway task of reforming it, and prospects for the future.

Read part one - Taking on the Difficult Task - here.

Read part two - Deep and Complex Inequities - here.


When Mayor Bill de Blasio and Council Speaker Corey Johnson announced the creation of an advisory commission to come up with reforms to the city’s antiquated property tax system (much of which is controlled by state law), they said their focus would be on fairness while maintaining the city’s largest revenue stream.

The revenue from New York City property taxes was a whopping $27.8 billion last year, roughly a third of the city budget, and it helps fund everything from basic government administration and social services to the mayor’s signature initiatives like universal pre-kindergarten, including the salaries and benefits of hundreds of thousands of municipal workers.

Property owners see their taxes rise every year, squeezing nearly everyone -- though not evenly or fairly. Elected officials across the board have expressed interest in changing the system. But to make a more rational property tax system and still fund extensive city services at or near their current levels, officials will have to navigate the murky waters between the public interest and that of each individual taxpayer.

How skillfully that is done will dictate the political consequences that follow, and whether promised soon-to-be-proposed reforms to the property tax system actually have a chance to pass through the New York City Council and State Legislature.

‘A Substantial Constraint’
“One of the hard things about the whole property tax system: changing things is always going to impact someone else. If you move things for one tax class -- because we’re trying to stay revenue neutral -- it inevitably means changes for a different tax class,” Marcy Miranda, a spokesperson for the mayor’s office, told Gotham Gazette.

Some experts have asked why, if the commission’s purpose is to create a more fair and equitable system, is it constrained by the mandate to leave the city’s revenue untouched?

“It is definitely a substantial constraint. And I think that is being driven more by city fiscal concerns than it is by questions of how to structure the tax and what is the best tax,” Ana Champeny of Citizens Budget Commission told Gotham Gazette.

Roughly two-thirds of the city’s revenue comes from taxes, a little under half of which is property taxes. During a panel discussion about economic growth in New York City in May, former Commissioner of City Planning Carl Weisbrod said the city’s vast provision of social services and recent changes in federal tax policy mean, “increasingly, we are dependent on our own ability to generate revenue.”

Mark Shaw, co-chair of the city’s property tax commission, the initial recommendations from which are expected soon, views the revenue mandate as a gesture to those anxious about the prospect of reforming a system so integral to private and public life in New York.

“The veil of revenue neutrality over the debates for the commission is actually a way of making it clear to any of the interested parties of the public that this is not a back door way of trying to increase property taxes,” Shaw told Gotham Gazette.

But the mayor’s executive order establishing the commission, which reflected an agreement with the City Council, does not mention revenue neutrality, exactly. It only says the commission’s recommendations “shall not result in a reduction of revenue.”

The Frozen Tax Rate
State law sets the property tax classes, along with the assessment standards and growth caps, but the city -- the City Council with the mayor’s approval -- controls the tax rate. Since fiscal year 2009, the mayor (Bloomberg, then de Blasio) and City Council have agreed to keep the overall tax rate frozen. Because of very strong growth in the city’s real estate market, however, property taxes have continued to rise and generate more and more revenue.

This has allowed the city budget to grow significantly over the past two decades. Spending under Mayor Michael Bloomberg reportedly rose 31.6 percent above inflation during his three terms in office. Since de Blasio took office, the city budget has grown by more than $20 billion overall, up to the $92.8 billion expense budget for the current fiscal year. 

“If the tax commission came up with reforms that adjusted the assessed values, the Council and the mayor could set a tax rate that didn’t have a revenue implication for the city, but it might raise the rate,” said Champeny of CBC.

Given how sensitive the subject of taxation is in New York City, raising the tax rate could come with political fallout. “Obviously that would be pretty unpopular if someone were to come in and make that change,” said Miranda from the mayor’s office.

The rates the city sets on the assessed value of the property in each class, known as the “class shares,” are supposed to adjust each year to reflect changes in the market but growth caps set by the state limit how much a class share can increase, according to Champeny. The city has the discretion to redistribute any increases above the cap to other tax classes.

In most years recently, the City Council has requested lawmakers in Albany lower the cap for homeowners, shifting increases onto commercial and utility properties. “The class shares protect [homeowners] slightly but also there’s been sort of this political choice by elected officials in the Council and the state Legislature -- and the mayor to some extent because they don’t oppose it -- to make sure that the levy growth does not fall too much on Class 1,” Champeny said, referring to one- to three-family homes.

“Each annual adjustment doesn’t necessarily shift a lot, but over ten, twenty years, it does accumulate,” she added.

Balancing the Equation
The purpose of the Advisory Commission on Property Tax Reform is to weigh all of these factors -- equity, rationality, what the state controls and what the city can do, the unintended consequences for owners and renters, transparency in the system -- and come up with recommendations for improvement. The result could be the kind of fundamental, planned restructuring of New York taxation that some had hoped would happen following the Hellerstein case in 1975; or piece-meal, band-aide solutions like the ones New York ended up with in the years after.

“We're going to...go at the heart of the property tax problem and have a commission, working closely with the Council, to try and reform fundamentally the property tax to be more fair for everyone,” Mayor de Blasio said in April 2018 when he released the executive budget that year. 

In 1975, Judge Solomon Wachtler, writing the majority opinion, was concerned with the “remarkable powers of endurance” of the practices that prompted the Hellerstein case. Their survival depended largely on the machinations of politicians and officials servicing particular constituencies, factors “none of which are particularly commendable,” he noted in his decision. Over the years, those factors have multiplied and become more interconnected. Any changes of substance now will implicate the entire system, and any balance struck toward making it “more fair for everyone,” as de Blasio said, may not be what everyone wants.

This is the third and final part of a three-part series on New York City's antiquated and unfair property tax system. Read part one - Taking on the Difficult Task - here. Read part two - Deep and Complex Inequities - here.

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

An Old, Unfair System: New York City's Property Tax Conundrum - Part III - The City's Bottom Line Sun, 04 Aug 2019 04:00:00 +0000
An Old, Unfair System: New York City’s Property Tax Conundrum - Part II - Deep and Complex Inequities 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.”

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.”

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 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.

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.”

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.)

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

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 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 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.

by Ethan Geringer-Sameth, reporter, Gotham Gazette

Read more by this writer.

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