Gotham Gazette https://www.gothamgazette.com/component/tags/tag/2531 Sat, 07 Dec 2019 16:43:56 +0000 Joomla! - Open Source Content Management en-gb webmaster@gothamgazette.com (Webmaster) State Senate Looks Ahead to Complicated Task of Property Tax Reform https://www.gothamgazette.com/state/8969-state-senate-property-tax-reform-albany-new-york-city https://www.gothamgazette.com/state/8969-state-senate-property-tax-reform-albany-new-york-city sen br be3

Wednesday's Senate roundtable (photo: @NYSenBenjamin)


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

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

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

“The system as it currently exists was a temporary fix that was quickly outdated...Another bandaid or patch, in my opinion, will not fix this system.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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

***
by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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State Senate Looks Ahead to Complicated Task of Property Tax Reform Thu, 05 Dec 2019 05:00:00 +0000
An Old, Unfair System: New York City's Property Tax Conundrum - Part III - The City's Bottom Line https://www.gothamgazette.com/state/8716-old-unfair-system-new-york-city-property-tax-conundrum-part-iii-revenue-city-budget https://www.gothamgazette.com/state/8716-old-unfair-system-new-york-city-property-tax-conundrum-part-iii-revenue-city-budget 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.

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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 https://www.gothamgazette.com/state/8713-old-unfair-system-new-york-city-property-tax-conundrum-part-ii-classes https://www.gothamgazette.com/state/8713-old-unfair-system-new-york-city-property-tax-conundrum-part-ii-classes maybdb rem

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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by Ethan Geringer-Sameth, reporter, Gotham Gazette
     

Read more by this writer.

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An Old, Unfair System: New York City’s Property Tax Conundrum - Part I - Taking on the Difficult Task Wed, 31 Jul 2019 04:00:00 +0000
The Fading Promise of Property Tax Reform https://www.gothamgazette.com/130-opinion/8586-the-fading-promise-of-property-tax-reform https://www.gothamgazette.com/130-opinion/8586-the-fading-promise-of-property-tax-reform may bdb cc speaker corey jo

(photo: Benjamin Kanter/Mayoral Photo Office)


Despite promising that in his second term he would take on the challenge of property tax reform, Mayor de Blasio appears to be shying away as many leaders have done many times before.

New York City government is extremely dependent upon its property tax, which will generate roughly $30 billion this coming fiscal year, more than any other single revenue source. Not surprisingly, New Yorkers gripe about their property taxes almost as much as about the subways.

The laws and methods used to determine and assess the tax on individual properties are extremely complex and inequitable, but reforming them is a daunting task that will inevitably make some property owners unhappy. For that reason, elected officials have long avoided tackling the problem.

The current New York City property tax system was created in 1981. A lawsuit brought by law professor William Hellerstein in 1975 challenged the legality of the property tax system state-wide as violating the constitutional requirement that all similar properties be taxed equally.

After several missed deadlines, rejected proposals, and a last-minute override of Governor Carey’s veto, a new law was passed that divided properties in New York City into four “classes,” set different percentages of the value of each class of property to be assessed (assessment ratios), limited the amount of total property tax levy to be derived from each class (class shares), and provided for phase-ins and limitations on the growth of tax revenue from different classes so that no one property or type of property would experience a dramatic increase in value and taxation as the new system was phased in.

Thirty-eight years later, New York City looks quite different, property values have soared, and there have been many unintended consequences of the design of the property tax system.

Limitations on phasing in growth in value mean that properties within the same class are often taxed at very different effective rates and the limitations on class shares of the tax levy mean that different classes are shouldering disproportionate amounts of the burden of the growth in overall property value.

One of the most egregious outcomes is that co-ops and condos -- for which the market was very different in 1981-- are in the same class as rental properties and are assessed, not on their market value, but as if they were only generating rental income. The result is many high-end apartments assessed at far lower amounts than their real value; whole residential co-op and condo buildings in some parts of Manhattan are taxed at less than the actual sales prices of individual apartments in the building.

What is to be done? In April 2017 a group of frustrated real estate developers and landlords joined with individual property owners and supportive civic and civil rights groups (including Citizens Budget Commission, which I led at the time and filed an amicus brief) to file a new lawsuit, Tax Equity Now NY LLC vs. City of New York, et al. alleging the current property tax system discriminates against primarily people of color who are low-income renters and homeowners. The lawsuit was filed in the hope that, as had happened in response to the Hellerstein case, city and state leaders would respond with urgency and determination to develop a reformed taxation system.

Instead, both city and state defendants have strenuously resisted the suit, moving to dismiss it on the grounds that the plaintiffs aren’t directly impacted and/or that the state defendants aren’t responsible. The City also infuriated City Council members who wanted to intervene on behalf of the plaintiffs by opposing their application to file a separate brief.

The motion to dismiss was filed in June but it took until September 2017 for the judge to rule that the case could proceed and until February 2018 to rule that the Council members could not intervene in the case. The City filed an appeal and all further action in the case is on hold until that appeal is decided.  

At a breakfast hosted by the Association for a Better New York the day before he was re-elected in November 2017, I asked Mayor de Blasio whether he was going to take on property tax reform. He answered directly and forthrightly that the system needs to be more fair and transparent but that we cannot afford to reduce substantially the revenue it generates and that relying on the judicial system to resolve the problem would be a mistake.

He estimated that it would “take a year or two” to bring all the stakeholders together and come up with the needed reforms and that it would require being “blunt” about the challenges. He said: “I am ready to do it….When I say something that definitively, I mean it…We will create tax reform.”

It took until May 31, 2018, more than a year after the Tax Equity Now case was filed and now a year ago, for the Mayor and the City Council Speaker Corey Johnson to announce the formation of an Advisory Commission on Property Tax Reform. Co-chaired by former city Housing Commissioner Vicki Been, then faculty director of the NYU Furman Center, and former First Deputy Mayor and then Interim COO of CUNY Marc Shaw, the commission was charged to “develop recommendations to reform New York City’s property tax system to make it simpler, clearer, and fairer, while ensuring that there is no reduction in revenue used to fund essential City services.”

No deadlines were specified, but the commission was instructed to conduct at least 10 public hearings.

All the public hearings and meetings were recorded and are available online. The last one was held this past February 28. Yet there is still no word on what the commission will recommend or when it will publish its report. The state legislative session is almost over so it is too late to achieve any changes this year and Been has become a deputy mayor with a lot more on her plate.

So the mayor’s promises notwithstanding, an opportunity to rationalize our property tax system and make it more fair has been missed and the commission looks more like a stalling device than a sincere effort to make tough decisions. Who wants to make New York property owners unhappy during a presidential campaign? As was the case four decades ago, it appears that we will need a lawsuit to compel elected officials to make tough decisions.

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Carol Kellermann was president of Citizens Budget Commission from 2008 through 2018.

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Have an op-ed idea or submission for Gotham Gazette? Email opinion@gothamgazette.com

 

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Have an op-ed idea or submission for Gotham Gazette? Email opinion@gothamgazette.com

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The Fading Promise of Property Tax Reform Tue, 11 Jun 2019 04:00:00 +0000
Cuomo's Budget Priority Balancing Act https://www.gothamgazette.com/state/8397-cuomo-s-balancing-act-on-budget-priorities-congestion-pricing https://www.gothamgazette.com/state/8397-cuomo-s-balancing-act-on-budget-priorities-congestion-pricing gov cuomo long island no tax

Gov. Cuomo on Long Island (photo: governor's office)


Before Democrats reclaimed the state Senate last year, Governor Andrew Cuomo spent years triangulating with the Democratic-controlled Assembly, two factions of Senate Democrats, and the Republican Senate majority. The arrangement allowed him a heavy hand over the legislative and budget agendas in Albany and gave him the ability to claim credit and deflect blame as he saw fit (though critics didn’t always buy his explanations). Progressive legislation regularly withered on the vine unless it had Cuomo’s imprimatur, usually accompanied by some form of mutually beneficial compromise with rogue Democrats and Republicans.

If this year’s budget negotiations have proved anything it’s that old habits die hard and Cuomo is unwilling to ease his stranglehold on state government, even when dealing with members of his own party. He’s continued to strongly, and perhaps shrewdly, set the foundation for negotiations. But some of the policies he has prioritized have long been wedge issues between lawmakers representing New York City on the one hand and upstate and suburban districts on the other.

On a few of the governor’s topline agenda items -- congestion pricing, recreational marijuana legalization, criminal justice reforms, and a property tax cap -- that divide has seemed most apparent this year, at times apparently stoked by Cuomo himself, and the governor has sought to leverage the budget deadline to push for their passage. Notably, he has said he’s willing to allow a late budget to accomplish his goals, which would mean that legislators could lose out on pay raises that are contingent on the budget passing on time, giving the governor additional leverage over the process.

While Cuomo has said he finds himself “liberated” by full Democratic control of the state Legislature and the ability to pass legislation that stalled for years, he’s also been overtly antagonistic to his colleagues in the Legislature, particularly in the state Senate, for what he says is them failing to grasp the necessities of governing, sabotaging the deal to bring an Amazon campus to Queens, and hesitating to follow through on several policies that Republicans opposed for years.

Senate Majority Leader Andrea Stewart-Cousins half-jokingly attributed it to “Senate Democratic derangement syndrome,” but many Democratic legislators have been taken aback by Cuomo’s approach, even if most have not been surprised. After an initial sprint of legislative activity that smacked of Democratic bonhomie, the Legislature slowed down as fault lines and a less rosy picture emerged amid negotiations over complex topics and some apparent backtracking.

With news articles and political commentary pointing to the close bond between Heastie and Stewart-Cousins, and the power of the all-Democratic Legislature vis-a-vis the governor, Cuomo appeared to seek to increase his leverage, by having certain Democratic candidates sign policy pledges during last year’s campaign, setting out his “first 100 days” agenda in December, casting blame on Long Island Democrats for not doing enough to keep the Amazon deal on track, and more.

Of late, he’s focused his top priorities on issues that alternately appeal more to New York City Democrats (congestion pricing, criminal justice reform) and suburban Democrats (property tax cap). He’s rallied on Long Island and in the Hudson Valley with Democratic senators, declaring he would not approve a state budget without the annual tax cap made permanent, even though, as Heastie has said, the current cap doesn’t even expire until next year. Meanwhile, he’s publicly told those same Democratic senators, who may be hesitant about criminal justice reform, to pass it in the budget and “blame me.”

It may all, or mostly, work out for Cuomo by the April 1 budget deadline, a major test for all the parties involved, but certainly an opportunity for Cuomo to both deliver on progressive promises and still show he’s in charge.

“This isn't a game of risk, this is real life,” said Rich Azzopardi, senior advisor to Cuomo, of the budget process in a statement responding to Gotham Gazette’s inquiry about the governor’s budget negotiation tactics and whether they were intended to divide Democrats as some have suggested. “If you excuse us, we're going to concentrate on developing a budget that works for all New Yorkers and I believe our partners in the legislature are doing the same.”

“I think for the governor, his decisions about priorities in the state budget are about how can he get things done that he can brag about later and that continue to advance the narrative that he wants,” said Evan Thies, co-founder of Pythia, a political strategy firm, “which is that he is still very much the most powerful person in the state and also on a national level a Democrat that can get things done and who seems to have moved his state to the left.”

Overwhelmingly reelected for a third term in November, Cuomo was emboldened and quick to show how he would approach the newly elected Senate Democratic majority. He rallied with newly elected and returning members of the state Senate on Long Island shortly after the election, pledging to ensure that New York City pays its “fair share” of funding for the Metropolitan Transportation Authority (MTA) even as legislators within the city were hammering him for starving the agency of funding, meddling with its affairs, and letting the city’s subways slide into chaos.

Cuomo pitched congestion pricing as the chief remedy to MTA problems, insisting it must be done in the budget but offering few details of how it would be implemented. For lawmakers in suburban areas outside New York City and even for those in the outer boroughs, it proved divisive and it appears that any proposal that will be included in the budget will include several key carve-outs and funding set asides for the Long Island Rail Road and the Metro North Railroad. The governor has also called for making it state law that the city and state must split 50-50 any MTA capital plan shortfall not covered by dedicating funding streams like that from congestion pricing.

Cuomo has also launched a campaign to make the state’s 2 percent cap on annual property tax increases permanent, which is currently in place everywhere outside New York City. The cap has been a crowning Cuomo achievement, winning praise from members of both political parties, and renewed multiple times. He’s rallied on Long Island three times in two weeks to push for it and has said he will not sign a spending plan without it, even saying that he’s willing to let the budget be late.

Even the governor’s proposal to legalize recreational marijuana seemed destined to create divisions along regional lines. It gave counties the ability to opt out of allowing sales, and several county executives -- including both on Long Island -- have already expressed intent to do so (something Cuomo said was not helpful in getting legalization passed in Albany). Meanwhile in New York City, which accounts for about a third of all regular marijuana users in the state and would make up an overwhelming part of any legal market, Mayor Bill de Blasio has already taken steps to reduce enforcement and has embraced legalization.

There are several key aspects of legalization to work out, and It’s hardly a surprise that the governor said last week it appeared unlikely legalization would be in the budget, even though he was hoping to tap the revenue from it to fund the MTA. But even Cuomo’s characterization of negotiations was disputed by lawmakers, such as Senator Liz Krueger, lead sponsor of legalization legislation, who said the parties aren’t that far apart. (Cuomo shifted to embracing a pied-a-terre tax for New York City luxury apartments that would replace marijuana funding for the MTA, though that has also hit some roadblocks.)

“You’ll notice a trend in the things that are actually getting done in the budget, which is that suburban Democrats agree with all of them,” Thies said. “They are clearly the new pivotal block in Albany and that is well represented” in the marijuana bill’s opt-out provision, the fact that congestion pricing will pay for commuter railroads and that issues like the tax cap “which may not have universal support within the Democratic caucus, are still being advanced aggressively.”

Criminal justice reform, including banning cash bail and instituting speedy trial and open discovery reform, may be one of the governor’s remaining priorities that does not necessarily have a substantial budget impact. But Cuomo has nonetheless insisted it must pass with the budget -- citing it as an important decision deadline -- despite various concerns being raised by district attorneys and lawmakers from more conservative districts outside the city, and by more progressive lawmakers and advocate who have certain prerequisites for new pretrial incarercation rules.

“I've had 7 years, 8 years with a Republican Senate with half a loaf, half a loaf, half a loaf—and getting these controversial issues and having to compromise everything,” he said in a Monday interview on WAMC radio with host Alan Chartock. “So having a Democratic Senate is most liberating for me because I don't have to take half a loaf and criminal justice is one of those issues.”

On issues like marijuana legalization and the broader criminal justice reform package, Heastie and Stewart-Cousins have not said anything is off the table; rather, they have indicated that both can be successfully approved after the budget and need not be rushed through by April 1. But the budget is where the governor enjoys maximum leverage and he has said that lawmakers can assign him the blame for passing controversial bills because there is no guarantee they will follow through in the post-budget session.

“I'll take the blame,” he said at a March 11 news conference, when asked about the criminal justice reform package and whether it would lead to a backlash for suburban legislators. “When it's in the budget, it allows everybody to say, ‘It wasn't me, it was the governor.’ Let's be honest, right? That's what the budget allows you to do. They all go and they say, ‘Yeah, I didn't support that, but the governor insisted on it.’ And by the way, it will be true. It will be true. Blame me.”

Dr. Jeanne Zaino, professor of political science at Iona College, described the governor’s strategy as “a masterclass in terms of managing Albany,” which she said has practically become a “one-party city” with Republicans out of power. “It’s brand new territory for [Cuomo], having the Democrats in control and in the past, he was able to triangulate with Republicans,” she said. “In my mind, he’s trying to do a similar sort of dance, if you will, but in this way playing the suburban, upstate Democrats off the more urban downstate on a variety of issues...I think congestion pricing in my mind and the property tax cap are two of the biggest [issues] because they so glaringly pit the two against each other.”

For advocates who have seen the type of horse-trading typified by the state budget process, the governor’s push has raised some concerns. Nick Malinowski of VOCAL-NY noted that legislators from the Hudson Valley and Long Island haven’t been supportive of criminal justice reforms, for instance. “We are very concerned as this moves into budget negotiations that issues like bail, like discovery reform, will be negotiated against other issues like property taxes and pay raises and all these other things,” he said. “That is definitely something we’ve seen in the past with Republicans, Democrats, and Cuomo...From a democracy standpoint, it’s a bad way of doing government.”

Nick Sifuentes, executive director of the Tri-State Transportation Campaign, however, disagreed that the governor’s efforts have been divisive, and credited him for bringing together a “fractious conference” on congestion pricing at least. “It’s the single largest and difficult thing they’ve taken up this year,” he said. “I really feel like the governor has actually generally played a helpful role in trying to get this thing to the finish line….I don’t think this has been a year that the governor has very aggressively played sides off against each other to try and win something.”

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by Samar Khurshid, senior reporter, Gotham Gazette
     

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Cuomo's Budget Priority Balancing Act Wed, 27 Mar 2019 04:00:00 +0000
What's the [DATA] Point? 1981, New York's Property Tax System https://www.gothamgazette.com/state/8081-what-s-the-data-point-1981 https://www.gothamgazette.com/state/8081-what-s-the-data-point-1981 whats the data point


What's The [Data] Point? Episode 59 - 1981 [You can download What's The [Data] Point? wherever you get your podcasts, including on iTunes]

tempsnip

The data point for today is 1981, the year in which the State Legislature enacted S7000A, the landmark bill that formalized the current property tax system for New York City. A response to the Hellerstein case, which found the system was in violation of State law, S7000A essentially codified the status quo.

In doing so, it established a system of property classification, fractional assessments, caps, phase-ins, and class shares that is still with us 37 years later. These structural features and statutory requirements are the root of the system’s inequities and complexities. A home worth $500,000 can face the same tax bill as a home worth $1.5 million, while the value of a condominium unit, according to the City, is a fraction of its sale price. In fact, some buildings have values that are below the sale price of individual units. And commercial and rental property faces a higher average property tax burden than 1-, 2- and 3-family homes.

These inequities and problems have led to repeated calls for reform, including pending litigation. This past May, Mayor de Blasio and Speaker Johnson formed the Advisory Commission on Property Tax Reform. In September, the Citizens Budget Commission, the Regional Plan Association, and NYC Robert Wagner School of Public Service held a panel to discuss the problem, inequities and potential reforms

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!

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by Ben Max, Gotham Gazette
     

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What's the [DATA] Point? 1981, New York's Property Tax System Sat, 17 Nov 2018 05:00:00 +0000
A Misguided Mandate in Reforming the City Property Tax System https://www.gothamgazette.com/130-opinion/8007-a-misguided-mandate-in-reforming-the-city-property-tax-system https://www.gothamgazette.com/130-opinion/8007-a-misguided-mandate-in-reforming-the-city-property-tax-system de Blasio Corey Johnson town hall

Mayor de Blasio & Speaker Johnson hold a town hall (photo: Ed Reed/Mayor's Office)


This May, Mayor Bill de Blasio and City Council Speaker Corey Johnson announced an advisory commission to recommend reforms to New York City’s property tax system. According to its website, the commission is charged with “developing proposals to make the system simpler, clearer, and fairer.” However, it has also been given the mandate to do so in a way that is revenue neutral -- a goal that is both counterproductive and unnecessary.

For eight years, I had the good fortune to serve as the Press Secretary for the New York City Department of Finance. Every year, between September and February, I would meet at least weekly with the team of senior assessors to try to understand how the market had changed over the past year, what new rules and laws had taken effect, what changes we were making internally, and how all of this would impact property owners. For every change made, some property owners benefitted and others did not.

“Revenue neutral” is a political term that implies that when the City makes a change to the system, it’s not being done to raise your property tax bill, even though it might. If it is unfair now, and the system is changed to be more equitable, virtually everyone will either have to pay more or pay less. When the impact is not neutral for anyone at the end of the day, saying it is just obscures the administration's stated intention that the City does not end up with less money to spend come budget season.

The commission will make its job a great deal easier if it does away with this artificial constraint. Without giving due consideration to the revenue side of reform, commissioners would be free to think about the issues that would result in real equity among property owners. They could explore the option of including owner-occupied co-ops and condos in Class 1 (along with 1-, 2-, and 3-family homes) and valuing them based on their sales price, where most experts have agreed they belong for the past 25 years, without worrying that the change would bankrupt the City. They could even consider more progressive ideas, like valuing investor-owned residential properties as the income producing properties they are.

For people who buy a home to live in, the value is in the sale price of their property. For people who buy a home to use as a rental or an Airbnb, the value is in income-producing capacity of the property. Because investors can capitalize on both, the revenue flows and the appreciation of a property’s market value, they are frequently willing to pay more than the average homebuyer. This, in turn, drives up market values in neighborhoods and makes it more difficult for current residents to buy a home.

Owning a home is the greatest wealth-building opportunity that residents in this country have, and we should make sure our system does not inadvertently inhibit the ability of New Yorkers to own their home just because they would use it differently from an investor.

Without the revenue neutral constraint, the Commission could also give real consideration to reforming the State-mandated tax caps that have created disparities between rich and poor neighborhoods, which are currently the basis for a lawsuit claiming the system is biased against low-income residents and people of color.

These are not the only ideas out there for making the system fair, and the Mayor and the City Council should be commended for creating a commission and for holding public hearings to gather New York City’s collective wisdom to consider for their final proposal. However, neither these, nor any other changes can be seriously considered through a revenue neutral lens.

That is not to say that the City cannot implement a revenue neutral change to the property tax, however.

Assessments are only one input into a property tax bill, and the City’s goal should be to make sure that those assessments are accurate and fair. The other major input into this equation is the tax rate, which can be raised or lowered by the Mayor and City Council as they see fit during the annual budget process. If the Mayor and City Council are serious about holding the line on property tax revenue, they already hold that power. No commission necessary.

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Owen Stone is a government performance and innovation expert who served at the New York City Department of Finance from 2006 to 2014. On Twitter @owenstone.

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Have an op-ed idea or submission for Gotham Gazette? Email opinion@gothamgazette.com

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A Misguided Mandate in Reforming the City Property Tax System Sun, 21 Oct 2018 04:00:00 +0000
City Council Pushes Property Tax Rebate as De Blasio Continues Stall on Broader Reform https://www.gothamgazette.com/city/7671-city-council-pushes-property-tax-rebate-as-de-blasio-continues-to-stall-on-broader-reform https://www.gothamgazette.com/city/7671-city-council-pushes-property-tax-rebate-as-de-blasio-continues-to-stall-on-broader-reform Corey Johnson City Council hearing

Speaker Johnson & Council members (photo: John McCarten/City Council)


The New York City Council has been pushing for temporary relief for lower- and middle-class homeowners in this year’s budget, calling on Mayor Bill de Blasio to fund a one-time $400 property tax rebate that would cost about $187 million in total. Council Members, some of whom are homeowners themselves and could potentially qualify for the rebate, say it’s a much needed measure that could help thousands of New Yorkers reduce their annual tax burden.

The Council’s proposal set a $150,000 threshold for households to qualify for the $400 rebate, which would reach roughly 467,000 homeowners, according to the Council’s finance division. The proposal is merely a stop-gap, in lieu of broader reform of the city’s property tax system, which the mayor has promised but has been slow to act on.

At least a few Council members themselves stand to benefit from the rebate, given that the City Council voted in 2016 to increase members’ salaries from $112,500 to $148,500, while at the same time limiting the outside income they can earn, meaning that individual members fall just under the Council’s income threshold for the rebate. Most Council members, like most residents of the city, are renters, but a few do own property according to the latest available disclosures filed with the city Conflicts of Interest Board.

A Council spokesperson said member income was not part of the discussion on the rebate, which would reach about 75 percent of home, coop, and condo owners.

“Middle class homeowners deserve a break, which is why the City Council proposed a $400 refund for them in this year’s budget response,” said City Council Speaker Corey Johnson in a statement. “We know that every little bit counts and felt this refund could help people while we work on the bigger issue - reforming the broken system.”

Council Member Joseph Borelli, a Republican from Staten Island and a homeowner, says he wouldn’t qualify for the rebate since he earns about $6,000 from teaching at College of Staten Island, which he’s allowed to do under the Council’s rule change, which includes exceptions for forms of passive income and a few activities like teaching. That extra income puts him just over the top.

[Related: City Council Members Still Navigating Outside Income Divestment Ahead of Deadline]

Borelli, whose district is largely homeowners and is one of the main proponents of the rebate, isn’t concerned about the optics of Council members potentially benefiting from a rebate that they’re pushing so hard, though he conceded that members could be forthcoming about qualifying for it. “It’s like saying we all receive the public benefit of a new stop sign or a new highway,” he said. “If there’s something that’s done as a public benefit to all taxpayers, if you wanna require people to disclose that they’re going to get a check for 400 bucks in the mail, I’m certainly happy to do that. Also saying I won’t qualify myself.”

He rightly predicted that even members who own property will likely pass the threshold since many file their tax returns jointly with their spouses. “It’s an interesting question, I just don’t have the answer. But it sucks that I won’t be getting it,” he half-joked. “That’s on record, too.”

[Listen: Max & Murphy Podcat: City Council Member Joe Borelli]

Borelli is among the members who were particularly disappointed by the mayor’s refusal to address property taxes in his $89 billion executive budget proposal, released late last month. A joint statement from Borelli and Council Members Justin Brannan, Steven Matteo, Paul Vallone, Barry Grodenchik, and Mark Gjonaj noted that the administration had yet to address “the glaring inequities of a property tax system that charges the owner of a modest home in our districts more than the owner of a multi-million dollar brownstone in Park Slope,” a clear reference to de Blasio’s Brooklyn homeownership, which includes two houses that he currently rents out. De Blasio would not be eligible for the rebate given his $258,750 salary.

“I know we speak for just about every property owner in the five boroughs when we say, ‘C’mon man, give us a break!,’” the Council members concluded.

“[L]ike many of his constituents, Councilman Matteo owns a home,” said Peter Spencer, a spokesperson for the minority leader, also a Staten Island Republican, in an email. “His household income fluctuates, so it would depend on the tax filing year as to whether he would meet the $150,000 threshold. He has been advocating for a property tax rebate for years for all homeowners, to alleviate the financial burden skyrocketing property taxes are having on so many families and seniors.”

The other members on the statement are all Democrats, as are de Blasio and Speaker Johnson, but they represent areas of the city with higher home ownership rates than most other Council members. Grodenchik and Vallone’s offices did not respond to voicemails requesting comment. Reginald Johnson, Gjonaj’s chief of staff, said the Council member owns property but files a joint tax return with his wife, who is a nurse, and would not qualify for the rebate.

De Blasio has repeatedly said that he would launch a commission to look at the city’s property tax system and to recommend fundamental change in how taxes are assessed. Unlike other taxes, the city does not need approval from the state Legislature to amend its property tax rates, which have remained flat over the last few years but have been evenly applied across the city with no accounting for varying property values, while assessments continue to rise, increasing tax bills virtually across the board.

“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,” de Blasio told reporters at his executive budget presentation on April 26. “So, I would argue the best way to address the property tax question is the fix the whole system. Everyone loves a rebate, but it doesn’t fix the root cause, and most rebates are pretty small and then you never see them again. We want to get at the root cause.”

Maria Doulis, vice-president of Citizens Budget Commission, an independent fiscal watchdog, echoed that position while also pointing out that the Council’s interim approach may be flawed. “It’s a well-intentioned proposal,” she said of the rebate, “but it’s too broad a measure to address their concerns.” An umbrella threshold, she said, doesn’t capture the differences in households and property values across the city, so those with a high property tax burden would stand to receive the same benefit as those with a negligible one.

“It’s best to do it with a circuit breaker rather than a flat rebate,” she said, referring to an industry term for targeted property tax breaks based on a percentage of income. “Circuit breakers take into account your income as well as your burden. That’s a better way to do it. Given the complexity and problems with the property tax, I’m not sure adding another wrinkle is the best thing to do.”

Council Member Brannan, who has been advocating for property tax reform since his campaign for office, is a renter but he understands the effect a rebate could have. “I’m a renter, but my landlord certainly would factor that into my rent,” he said.

“Obviously it doesn’t benefit me because I’m a renter but because when I was knocking on doors for nine months in my campaign, that was one of the top things I heard about, was people getting squeezed -- renters too. It all trickles down. Coops, condos, homeowners, everything. It’s a big deal for me. I’m not gonna benefit from it but it’s a big deal,” he added. (CBC’s Doulis said it’s unclear that a temporary rebate would get passed down to renters but that wholesale reform was more likely to have that effect.)

Other homeowners identified in COIB disclosures include Council Members Peter Koo, Jumaane Williams, and Fernando Cabrera.

Cabrera and Williams did not respond to requests for comment. Scott Sieber, a spokesperson for Koo told Gotham Gazette the Council member files taxes jointly with his wife and would not qualify for the rebate. “The rebate is good for all our constituents in the city,” Koo said at City Hall last week.

Council Member Ruben Diaz Sr., a former state senator, said that he has qualified for state property tax credits in the past but has refused to apply for them. “When I was in Albany, they gave credits to property owners and I never took one and I would never apply for it until I retire,” he told Gotham Gazette in the Council chambers last week. “But there are people in the City of New York, homeowners that deserve to take a break on those things. I support the speaker.”

What if he qualified for the Council’s proposed rebate? “I won’t take it,” he said.

The City Council is in the midst of weeks of hearings on de Blasio’s executive budget, while Johnson and others continue to push their top priorities -- the property tax rebate, reduced price MetroCards for people living in poverty, and an added $500 million into reserves -- for inclusion in the adopted budget, which the two sides must agree on by the July 1 start to the new fiscal year.

On the steps of City Hall, Council Member Chaim Deutsch brushed aside any concerns about personal conflicts in pushing for a rebate. “When we’re fighting for issues, a lot of the time we fight for issues that affect us because that’s where we get the experience from, and that’s how we know sometimes how to fight for things,” he said. “Because we as New Yorkers understand sometimes when it’s difficult for a Council member to make ends meet, that we know how difficult it may be for others. So we fight for issues. So you can’t single out one thing over another.”

[Related: De Blasio, City Council Tangle Over How to Spend $1 Billion]

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by Samar Khurshid, senior reporter, Gotham Gazette
     

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City Council Pushes Property Tax Rebate as De Blasio Continues Stall on Broader Reform Mon, 14 May 2018 04:00:00 +0000