Same old, same old: Property-tax reformers pan commission’s report
Landlord-backed Tax Equity Now will move ahead with lawsuit
The industry coalition suing to force changes in New York’s City property tax system is not impressed by a city commission’s long-awaited recommendations for fixing it.
Tax Equity Now policy director Martha Stark said the overdue, 72-page report is devoid of any new proposals to push the reform process forward.
“After the period of time that the commission took, I did expect to see more of a detailed report with real recommendations,” Stark told The Real Deal. “I didn’t expect it to be preliminary and subject to further hearings.”
Stark noted that the report’s 10 recommendations hewed mostly to general fixes that have been talked about for years.
“These are things people know; there’s not anything new in there,” the former city finance commissioner said.
In fact, Stark noted, the report is similar to one the city issued in the early 1990s — the last time lawmakers made a serious push to tackle the thorny property-tax system.
Tax Equity Now, which includes such major developers as RXR Realty and the Durst Organization, sued in 2013, asking the courts to declare the current system in violation of the state constitution. That would compel Albany and City Hall overhaul the tax system, lest the court do it.
The de Blasio and Cuomo administrations are fighting the lawsuit, which was allowed to proceed by a state Supreme Court judge. The Appellate Division is weighing the defendants’ appeal.
The report issued late Thursday — which Mayor Bill de Blasio had said would be finished by the end of last year — came 18 months after the mayor and City Council Speaker Corey Johnson announced the formation of an advisory commission to write it.
The panel was tasked with developing recommendations to make property taxes “simpler, clearer and fairer.” Previous administrations have done the same, though the last in-depth review by a government-appointed commission was released in 1993, as Stark noted.
That report failed to spark reform, as many politicians are averse to the idea of raising anyone’s property taxes. So the property owners’ coalition will continue to pursue its lawsuit, Stark said.
The latest report was originally supposed to be delivered this past summer, and the responses from the mayor and council speaker Thursday showed tepid support for its recommendations. Johnson called it a “work in progress.”
The report proposes requiring owners to pay property taxes based on true market value rather than assessed value. It also recommends eliminating the co-op and condo tax abatement in favor of a partial exemption for homeowners making below a certain income.
An overhaul of the city’s property-tax system, however, will require approval from both city and state governments. Nothing is expected to be passed this year.
The eventual reform is supposed to be revenue-neutral, but some properties will end up paying more and others less. And that will affect residential and commercial sales and rents.
“Any time you introduce structural tax reform as it relates to real estate, it does impact where transactions are taking place, who’s buying or selling,” said Ariel Property Advisors’ Michael Tortorici. “The jury’s still out. The market will be paying very close attention to this on all fronts.”
The recommendations, if carried out, would almost certainly increase taxes on single-family homes in gentrified areas. Owners of multifamily properties are optimistic that their taxes will be reduced, which could translate into lower rents.
Warburg Realty CEO Frederick Peters said when it comes to home sales, any tax increase will likely be passed on to sellers, who will have to reduce prices to offset the hike.
“What most buyers are concerned about other than their down payment is their monthly payment,” Peters said. “If something like this substantially increases their monthly payment on the tax side, then they’re going to want to see that leveled out by a reduction in the monthly payment on the cost of the property.”
He said it probably won’t take long for the market to adjust. He pointed to the mansion and transfer taxes the state made effective at the start of July.
“The mansion tax change certainly has had some impact on who pays what, but it has basically already gotten baked into the realities of the new marketplace,” Peters said. “People aren’t really talking about it anymore.”
Despite its length, the report was thin on how major tax classes should be treated.
Benjamin Williams, an attorney with Rosenberg & Estis’ property tax department, said the report largely “glosses over” large residential rental buildings and office buildings. He pointed out that the report recommends taxing apartment buildings of 10 units or fewer based on sale prices, but treating a slightly larger building, say, 12 units, the same as a huge one — based on prospective rental income.
“They don’t have any discussion about how taxes are going to be equalized between the tax classes,” he said.