Over the past year, the city has sought to figure out how to solve long-standing problems with the notoriously lopsided property tax system through old-school representative democracy: asking New Yorkers what they think.
After five lengthy public hearings last year, it turns out New Yorkers across the city are in agreement: They all think they pay too much.
With that unsurprising feedback in hand, a commission convened in May of 2018 to tackle the issue continued to brainstorm, but it has yet to put forth any recommendations. It plans to hold another round of hearings in the coming months before issuing a set of proposals, all while a lawsuit that would mandate an overhaul of the system plays out in court.
“The property tax is too goddamn high,” City Council Member Chaim Deutsch declared at a hearing in Brooklyn in October, eliciting applause from a room filled with property owners waiting to share complaints with the commission.
Property tax collection has been criticized for years as opaque and unfair, but lawmakers have long dodged the issue. Mayor Bill de Blasio pledged last year that reform would be a “priority” of his second term, so he set up the commission to finally address disparities, rather than let the lawsuit steer the changes.
“I believe, fundamentally, we will end up with a more straightforward, more transparent, more consistent property tax system for homeowners and co-op owners and condo owners,” he said in February 2018. He placed only one requirement on the commission: that any changes not alter the total revenue property taxes generate for the city, which amounts to $29.6 billion in the current fiscal year.
Just last month, he acknowledged to a caller during his weekly segment on “The Brian Lehrer Show” that the tax system “historically has been very inconsistent across neighborhoods and across different types of residential housing.”
The property tax system perpetuates disparities on virtually every level, and often benefits wealthy owners at the expense of those with less-expensive homes. That seems to fly in the face of de Blasio’s pledge to create a more economically equal city and is the crux of the lawsuit filed in 2017.
“The system is aggressively regressive — shifting the tax burdens away from wealthier homeowners and onto the backs of lower-income property owners and tenants,” argues Tax Equity Now New York, a coalition of developers, homeowners and civil rights groups that filed the lawsuit. “These inequities in the system have continued to widen, penalizing renters, small- and large-business owners, homeowners in slower-appreciating neighborhoods, minorities and various other New Yorkers.”
The mayor personally benefits from the system under a cap that limits how much the assessed value of one- to three-family homes can increase year by year. This provision has benefited homeowners in gentrifying neighborhoods where market values have accelerated in recent years while their tax bills stay relatively consistent. Meanwhile, homes in modest areas where property values haven’t seen the same growth are saddled with proportionally higher tax burdens.
De Blasio and his wife, Chirlane McCray, are being charged $4,196 this year for each of their two Park Slope homes that are worth nearly $2 million a piece. By comparison, the owner of a $515,000 home in Pelham Bay ends up paying roughly the same amount.
Meanwhile, some of the city’s wealthiest property owners get a different kind of break because condos and co-ops are taxed as though they are income-producing rental buildings, meaning the Department of Finance assesses their value by comparing them with nearby rental properties that are often worth much less.
Illustrating this disparity, a 2013 Furman Center analysis found dozens of individual co-op apartments that sold in 2012 for more than the Department of Finance’s estimated market value of the entire co-op buildings.
On top of that, condos and co-ops get an automatic tax break, which came out of a previous reform commission in the 1990s, heeding the call of apartment owners who argued they were taxed unfairly compared with one- to three-family homes.
But the value of many condos and co-ops has soared in the decades since these provisions were put in place, exacerbating the undervaluation of many of the city’s most expensive apartments.
Meanwhile, rental apartment buildings face a higher tax burden.
The city’s leading developers have long called for changes to the system that would reduce this burden, and in public debates on the rent-regulation system — which recently experienced major tenant-friendly changes — landlords and developers continually cited the strain of rising property tax bills as one reason they need to raise rents.
Politics plays a role in the disparities as well.
Looking to appease voters who own their homes, the City Council has historically approved measures that shove the property tax burden from homeowners onto utilities and commercial buildings, some of which are now struggling with retail vacancies.
Despite these inequities, de Blasio has resisted the lawsuit seeking to mandate changes and the city has tried to block it.
And the range of disparities has boiled down to a thorny question for his commission: Who exactly are they looking to lessen the tax burden on, and what political goals are they trying to achieve?
There is no defined policy goal behind the reform operation, nor an articulated direction on which of these disparities the city is seeking to fix. The only goal expressed so far is achieving unspecified changes to reduce inequities while maintaining the overall revenue generated by the city.
Property taxes typically bring in nearly one-third of the city’s total tax revenue. They’re also the only taxes the city controls, and unlike other revenue sources that fluctuate based on market trends and other factors, they are designed to stay relatively consistent year to year — adding to the reluctance of city politicians to disrupt a revenue source they can count on.
A victory for the plaintiffs would mandate wholesale changes, regardless of political sensitivities.
Even though de Blasio argued his path is preferable to a court-mandated reform, his 11-member commission has showed little urgency in pushing through its recommended changes. A similar commission convened in 1993 — whose recommendations were never actually implemented — released a report within four months after it was assembled, while this commission has yet to release anything more than a year after it was convened by the mayor and City Council speaker.
This year, the commission blew past its own tentative February timeline for releasing a preliminary report. City Hall spokesperson Marcy Miranda said changes would be made “after thoughtful consideration and careful deliberation” and estimated the commission would release recommendations this calendar year.
Even with a specific plan, the vast majority of changes would require approval in Albany — a heavy lift in a place where de Blasio lacks strong relationships. Moreover, any reform plan that lowers property taxes on some will hit others with higher tax bills — a political liability that bogged down efforts to make changes in years past.
The current system emerged from a 1975 court decision in a lawsuit that challenged the town of Islip on Long Island over its practice of assessing homes at a fraction of their full value — a measure commonly used throughout the state at the time.
A judge agreed the system was in violation of state law and tasked state lawmakers with overhauling the existing method for collecting property taxes. Broad changes were considered, but in the end, the state Legislature simply legalized the practice of fractional assessment, and codified many of the existing disparities.
“Change is really hard, and change when some people are going to end up feeling like they may have to pay more, is really hard,” Deputy Mayor for Housing Vicki Been said in an interview in December, before she assumed her current role at City Hall. “But on the other hand, there reaches a point in any system when the inequities are just too great.”
Been stepped down as co-chair of the commission in May, after being named deputy mayor. The mayor has not named her replacement.
A series of public hearings last fall offered few simple solutions to the system’s vast inequities, but did illustrate the difficulties of reforming a system few people actually understand but everyone seems to think deals them the short end of the stick.
Each hearing lasted hours, with attendees offering detailed profiles of their own property tax bills. Owners described the strain of having their taxes rise far faster than incomes, and others expressed confusion over year-to-year changes in their bills, questioning the convoluted process through which the city’s finance department reaches the final amounts.
Many expressed concerns about the ability of longtime residents to stay in their neighborhoods as property taxes appreciate far above their modest incomes.
“There are many old-timers that bought back in the day, took on old buildings, these buildings have now gone up [in value] many multiples of times,” said one brownstone owner in central Harlem.
At one of the commission’s public hearings in Manhattan, the owner of a small rental building on the Upper West Side said she’s been squeezed by property taxes that have risen as much as 8 percent a year, while apartments in her building, most of which is rent-stabilized, have seen minimal rent increases. For small owners like herself, she said, high property tax bills mean either pushing costs onto tenants, or if that isn’t possible, selling the building altogether.
“Why are we taxed like these ultra-luxury, single-family mansions?” she asked.
Some offered unorthodox solutions, such as one Sheepshead Bay resident who questioned why property taxes exist at all, and argued for them to be abolished entirely.
“I think it’s very wrong to be paying for something that’s already yours, whether it’s a house or a toothbrush,” he said.
One speaker took a more cautionary tone, offering a reminder to fellow attendees that any updates that result from the hearings will make at least some segment of property owners very unhappy.
“We have to be careful about what we ask for, when we ask for ‘fairness,’” a Brooklyn single-family homeowner warned. “We may get it, and we won’t like it.”
That challenge is one reason proponents of the lawsuit argue serious reforms have little chance without a legal mandate to make changes. Oral arguments on the suit are expected to happen in the fall.
Martha Stark, a former finance commissioner and director of policy for the Tax Equity Now New York coalition, notes that similar efforts to reshape the system through city-appointed commissions have failed in the past.
The 1993 commission convened under the Dinkins administration completed a report similar to what the current commission is working to finish, detailing what a series of comprehensive reform plans might look like. But ultimately, no major changes were ever adopted.
Former Council Speaker Melissa Mark-Viverito announced a commission to evaluate the issue in April 2014, saying the body would “spearhead changes to the city’s outdated tax code and create a more equitable and transparent” system. But that commission never materialized, and Mark-Viverito ended up leading a separate effort to evaluate economic development-related tax breaks.
Been said she’s optimistic the current commission will have more success, pointing to a range of factors, including the ongoing lawsuit, that have made it so issues within the existing system are “just coming to a head.”
“People are worried about the way in which the property tax system is changing the nature of the city,” she said. “At a time when the affordability of housing is front and center, when tax incentives more generally are front and center, and when there’s just a lot of attention to how our neighborhoods are changing as a result of gentrification, I think it’s a perfect storm coming together of attention to these issues.”
Stark, however, views the current reform commission as ending up with a similar fate as past attempts.
“If in fact reforms could be implemented [without a legal mandate], one has to ask the question of, why haven’t they been?” she asked. “What about this commission is any different? What makes them think their recommendations are going to be taken seriously?”
Published in Politico Aug. 12, 2019