After several months of defending a very shaky budget plan for fiscal year 2004, Mayor Michael Bloomberg will likely consider an alternative tax package before the 2004 budget is adopted in early June. One large constituency he and the City Council should keep in mind in raising new taxes is the average New York City renter.
Although homeowners have certainly felt the impact of November’s18.5 percent property tax increase, the impact on renters has been far less clear. Because they earn substantially less than owners, however, and because rental properties are taxed at a higher rate than private homes, renters may over time get hit harder than owners. Thus any increase in taxes, such as raising the city’s personal income tax rate, should be structured to protect the average renter.
Renters, who represent two-thirds of all New Yorkers, pay â€“ often unknowingly -- a share of their landlord’s property tax through their rent. Estimates of their share range from 50 percent or less to 75 percent or more. Many renters will become acutely aware of their share in the next few weeks as the Rent Guidelines Board determines one- and two-year rate increases for the million rent-regulated apartments in New York City. Property taxes represent about 25 percent of a landlord’s expenses, so the new taxes will no doubt force overall costs up dramatically. Non-regulated apartments face a similar, if less predictable, fate.
Renter Property Tax Burdens
Renter household incomes in New York City are substantially lower than owners’. (Median rental household income numbers â€“ which would be lower than average numbers because of the skewed effect of the city’s many high-income renters on average income â€“ are not yet available from the 2000 census.) According to unpublished data from the Independent Budget Office, representing a five percent 2000 Census sample:
- Average owner household income is $78,369
- Average renter household income is $45,243
Outside higher-income Manhattan (where owner household income averages over $173,000 and average renter household income is nearly $66,000) owner income in the other four boroughs is nearly double that of renters:
- Average non-Manhattan borough owner household income is $70,691
- Average non-Manhattan borough renter household income is $37,233
Yet, despite the sharp difference in the income of renters and owners, the increases in their property tax levy will be very close — the estimated increase is an average of $282 for renters (to $1,800), and $330 for owners (to $2,100).
In the Bronx, Brooklyn and Queens, the average renter in buildings with five or more units seems to have a significantly higher property tax burden than the average owner in those boroughs.
According to some calculations based on as-yet unpublished data from the Independent Budget Office, the average renter in the city faces a property tax burden of 3.0 percent of the renter’s total income, while the average owner would pay 2.7 percent. The actual disparity is much larger because an owner can deduct the property taxes from state and federal income taxes, while a renter cannot.
To offset the new burdens of the big property tax increases, the mayor’s November 2002 budget modification promised both renters and owners a huge personal income tax cut for 2004 â€“ nearly 40 percent over a few years -- premised on commuters paying the same tax rates as residents. That dream has shattered. Several fiscal monitors’ reports, most recently the State Financial Control Board’s March report, have dismissed the Bloomberg commuter tax proposal as politically unrealistic.
Recent press coverage has focused on the so-far failed negotiations between the mayor and the city’s unions over $600 million in concessions. But a bigger problem is replacing the revenues anticipated in the commuter tax dream -- over $900 million, as pointed out in the March 31, 2003 Independent Budget Office report, “Analysis of the Mayor’s Preliminary Budget for 2004.” So, with an increase in residents’ personal income tax rates now much more likely than a big cut, the structure of such an increase should, in fairness, protect lower-income renters.
The mayor and the council can protect renters in two ways. One, they can choose a personal-income tax increase that exempts lower-income New Yorkers from any rate increase. One of the options listed in the Independent Budget Office’s recent “Budget Options” report raises $600 million from a new top rate that would affect only those with an income over $250,000 a year. Another option is exempting lower-income households from any personal income surcharge â€“ a progressive strategy the City Council has used in the past.
Another protection for lower-income renters would be an extension of a tax-increase exemption program like the Senior Citizen Rent Increase Exemption (SCRIE) program — which the council has also supported in the past, but which is reaching only 44,000 seniors now because of the low ceiling on eligibility (a household income of $20,000). The program could expand senior eligibility and also be extended to lower-income non-seniors.
The city desperately needs new tax revenues, but the average renter has already made her sacrifice
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.