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Time’s up! These changes must be made to NYC’s unequal property tax system, reform group says

TENNY says the clock is ticking for the latest assessments

Mayor of New York City Eric Adams and TENNY's Martha Stark (Photo Illustration by Steven Dilakian for The Real Deal with Getty and Stark Patch Legal)
Mayor of New York City Eric Adams and TENNY's Martha Stark (Photo Illustration by Steven Dilakian for The Real Deal with Getty and Stark Patch Legal)

With the city’s deadline for finalizing property tax assessments looming, a real estate-supported  group is calling on a state court to force New York City to change how some values are calculated. 

Tax Equity Now New York on Wednesday filed a motion for summary judgement in its lawsuit against the city, asking the court to force it to change how it assesses one-, two- and three-family homes, as well as some of the most sought after addresses. 

The group argues that the court needs to act quickly: The city is required to notify property owners by Feb. 20 if their assessment has increased. TENNY claims the city shouldn’t be using the same methodology to assess some of the properties after a court ruling last year.  

Last March, the state’s highest court revived TENNY’s eight-year-old lawsuit seeking to force the city to fix what it describes as an inequitable property tax system. The group alleged that the city disproportionately taxes communities of color, stemming from how it assesses certain properties. The court agreed that the group had sufficiently made its case that the city had violated the federal Fair Housing Act, and state law governing how certain properties are assessed. 

At the time, the panel of judges held that the state’s Real Property Tax Law requires the city to adjust an assessment ratio that TENNY argues results in properties in gentrifying areas enjoying lower tax rates than properties that are not rising as fast in value. The assessment ratio is the fraction of market value that the city uses to assess properties, which is further reduced by caps on how much assessments can increase. 

The judges held that state law requires the city to change the assessment ratio to account for how these caps (applied later on in the process of calculating a tax bill) suppress the assessments of properties that have seen spikes in value. 

Judge Jenny Rivera wrote in the March opinion that it was within the city’s purview to adjust how condos and co-ops are assessed. Under the current system, they are often assessed as if they were rent-stabilized buildings. That ultimately results in less expensive condos, co-ops and multifamily buildings, unfairly shouldering a higher tax rate than they otherwise would, according to TENNY.

Each class of buildings is assigned a percentage of the city’s property tax burden to bear, so if taxable values are suppressed, the tax rate is increased to meet that percentage. If pricier co-ops were assessed at higher values, the tax rate would drop for class two buildings. 

Rivera wrote that the state law “directs the City to ensure that its assessment is based on the property’s fair market value.” 

TENNY argues that this decision was an “unequivocal directive” to the city to change its assessment ratio, as it and single-, two- and three family homes, and to alter how it values condos and co-ops.

The group’s motion points to a number of examples of how ritzy co-ops have been assessed using rent stabilized buildings this year, including 998 Fifth Avenue. The storied pre-war co-op, which boasts such features as jewelry safes built into every apartment, was compared to a rental building at 945 Fifth Avenue, according to an affidavit filed by TENNY’s Martha Stark. 

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At 945 Fifth Avenue,  the average gross income per square foot of a marketrate unit in the building was $68, while the average gross income per square foot for a rent-regulated unit was $26. The city’s Department of Finance assessed the property to have an income per square foot of $61 and a market value of $301 per square foot. 

When using the property as a model for 998 Fifth Avenue, the city assigned 945 Fifth a gross income per square foot of $49, according to Stark. As a result, the Department of Finance assessed 998 Fifth Avenue to have an income per square foot of $43 and an assigned market value per square foot of $241. In other words, an exclusive co-op building had a lower assessment than a rental building with stabilized units.  

“Despite having nearly a year to revise its assessment methodology to comply with this finding, the City has failed to do so,” the motion states. “The practice disproportionately benefits the wealthiest property owners while perpetuating inequities within the City’s tax system.  The City’s noncompliance should not be condoned by this Court.”

The city doesn’t see the Court of Appeals decision as a mandate. Its attorneys believe the lawsuit should be dismissed, saying the Fair Housing Act does not apply to the property tax system.

“TENNY’s position would harm the very taxpayers they claim they are trying to protect — particularly working-class New Yorkers — and create negative fiscal impacts that would jeopardize the city’s ability to provide crucial services,” Liz Garcia, a City Hall spokesperson, said in a statement.  

In a June court filing, the city argues that its administration of the tax system is “a faithful execution of the law and consistent with a valid governmental interest in fair, competent, and expert valuation of real property.” 

TENNY’s motion only applies to the state law claims related to adjusting the assessment ratio and how condo and co-ops are treated. The Fair Housing Act allegations will be addressed separately. 

For years, mayoral administrations, City Council leaders and state lawmakers have acknowledged the need to reform the city’s property tax system, launching task forces to study the problem and pitching ways to approach the problem. But the lack of political will and the fact that a full overhaul of the system will require city and state coordination has stood in the way of significant changes. Adjusting how properties are taxed will almost certainly result in some owners seeing a spike in their tax bills — to right-size the city’s tax burden, means shifting it. Not many lawmakers are clamoring to be the face of those increases.

“People have been waiting a long time so that the tax could become more fair than it currently is,” Stark said in an interview.

Stark said the two changes being sought by TENNY’s motion are steps in the right direction. 

“Is this perfect? I wouldn’t say it addresses everything,” she said. “But it gets us moving.”

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