The Tax Woman giveth and the Tax Woman taketh away.
Perhaps even City Finance Commissioner Martha Stark knew what she was doing was more like wishful thinking and simply too good to be true.
In January, to the delight of property owners, Stark’s department admitted they had quietly made a rule change that cut property taxes on many small co-op, condo, and rental buildings. But last month, Stark’s department reversed itself, saying it would send out revised assessment notices that re-imposed the $90 to $200 million in taxes that would have been eliminated. The move to nix the reductions — which were initially introduced allegedly to make the tax system “fairer” — came after objections from the city’s Corporation Counsel lawyers worried about legal challenges from other taxpayers.
The changes involved a reduction in the equalization rate from 45 percent to 15 percent for about 60,000 small-fry, multi-family property owners. The savings for the affected 4- to 10-unit buildings would have been substantial. For instance, if the fair market value of a building was $900,000, its tentative assessment at 45 percent would be $405,000. But at 15 percent, that assessment would now be $135,000.
Based on the current Class Two tax rate for 2005-2006 of $12.396 per hundred dollars of assessed value, this owner would be paying around $16,700 rather than $50,200 — a savings of $33,400 a year.
The picture gets clouded
While Finance consistently declined to reveal the financial implications of the proposed cut, guesstimaters expected the entire group would save somewhere between $90 and $200 million this year alone.
But the legal issue revolved around creating a second equalization rate within a tax class when all such properties must have the same rate. While these small properties — known as 2a, 2b, and 2c — received the equalization cut to 15 percent, every other apartment house, rental, co-op, or condo building in Class Two was adjusted at 45 percent of Finance’s alleged fair market value. There were conflicting opinions about whether there would or would not be a tax revenue shortfall and if there was, who would make it up. Opinions varied as to whether the cuts would lead to revenue that would be lost to the city or paid for by about 130,000 larger apartment buildings.
How it started
Last year, the owners of a number of newly renovated small buildings in Harlem were shocked to discover the buildings received increases in fair market value based on their recently made expensive renovations. (This comes under the heading of Duh!). But rather than paying what they thought was their unfair share of property taxes, they complained to politicians and the commissioner.
Who is going to vote against a tax break in Harlem? No one did, so a new state law reduced the “increases” based on renovations to “one-third” of the current equalization rate for the class. (One-third of the current 45 percent equals 15 percent.)
The department was aware that many of these small properties, whose assessment increases are capped at 8 percent per year with increases of not more than 30 percent over five years, were actually equalized at widely disparate numbers. Over 25,000 were actually equalized between 15 and 45 percent, and some even more. That also means around 35,000 have assessed values equating to less than a 15 percent equalization rate because their market values are simply very, very low.
Not quite elegant solution
For many years, the city has publicly set the assessments for all apartment buildings with four or more apartments at 45 percent of their alleged fair market value. But in practice, experts say, small rental buildings were assessed at about 15 percent of market value. Small co-op buildings were assessed at an average of 30 percent of market value, while condominium buildings were assessed at 40 percent.
At some point last fall, Commissioner Stark must have figured she’d do everyone a favor and simply set all of the small “capped” properties at 15 percent, i.e. one-third of the stated Class Two equalization rate of 45 percent, for the fiscal year that begins on July 1. When he finally explained the sudden roll cuts, Finance Assistant Commissioner Sam Miller said they “piggybacked with the bill we did last year to create a uniform ratio for the renovated properties.”
Unfortunately, to be truly fair and pass the smell test, changes should follow the laws. For instance, the new state renovation law states: “This subdivision shall not apply to the construction of a new building or structure.” In January, Finance applied the 15 percent ratio to these buildings, too.
An inauspicious beginning
There may have been indications Stark knew the plan wouldn’t fly from the start.
The commissioner never said a peep about the tax changes during her yearly release-of-tax-roll press conference on Jan. 17. And when a City Council staff rep asked about these buildings at the time, Stark took her aside privately. Hmmm. Something was up.
Apparently, no one at the city’s Corporation Counsel, Office of Management and the Budget, or the City Council was advised in advance of the equalization cuts, which should have been touted by the commissioner as a centerpiece of tax fairness. Additionally, statistics for the affected buildings were missing from the department’s annual documentation, though individual cuts could be found in a search by property on the department Web site.
Obviously, although “transparency” has always been at the forefront of the commissioner’s public statements, even she must have been uneasy about the news leaking out, which it did in our piece in the New York Post on Jan. 23.
When we began quizzing them for facts and figures, Finance realized there was an error in its computer program and 12,000 properties had been given lower market values than they should have, and these would have to be adjusted upward. Oy.
Alas, when it came time for the mayor to present the budget, the reductions and their legality did come into play. “The Corporation Counsel advised the mayor it would cause a massive litigation backlash on all the Tax Class Twos,” one city official advised us. “[The law] doesn’t say you can have a subclass and give it preferential treatment. [Stark] spent the weekend with the [Finance] lawyers trying to find a loophole.”
“It would have been better if she had spoken to the Corporation Counsel beforehand,” City Councilman David Weprin said.
Stark had been one of a number of Finance officials who spent $127,000 of the city’s tax money spending part of the week at Disney World on the advice of a consultant, learning how to be more customer-service friendly. While she was away, on Feb. 7, a Tuesday afternoon, Finance quietly posted the upwardly revised values on its Web site under a Jan. 15 date — and with no explanation. After we questioned a Finance spokesman, these so-called Notices of Value were yanked off the site Wednesday morning.
On Thursday, Stark had returned to New York, and Finance released a statement saying it was “committed to making property tax assessments as accurate and transparent as possible. Since our recent initiative… may be subject to legal challenge, we will consider other ways to make the tax burden fairer for these property owners.”
Spokesman Owen Stone would not say if the commissioner would seek legislation from the council and Albany, which other sources say will be very complicated. Meanwhile, the higher revised small property assessments and market values, on which property taxes will be based starting in July, were to be posted on the Finance Web site and notices were to be mailed to the affected property owners.
Lois Weiss is a columnist for the New York Post and a contributor to The Real Deal.