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Dec 09, 2019

State Lawmakers Step Into Overhaul of NYC Property Tax System

One state senator called the New York City property tax system “a monstrosity.” A former city finance commissioner said it’s unconstitutional and should be placed under court order. And the owner of a long-established Harlem newspaper said it’s threatening the survival of small businesses across the city.

They all agreed in an animated Dec. 4 roundtable discussion, however, that the city’s much-maligned property tax framework is decades overdue for a comprehensive legislative fix. How to tax condominiums and co-ops, protect homeowners and small businesses from unexpected tax spikes, and unravel the complexities of assessing market value are among the unresolved questions facing the city government and state legislators as they examine the first major changes in the system in almost 40 years.

New York state senators, flexing their fact-finding muscles under Democratic control of the upper house, are using the roundtable to help craft a tax reform plan in the 2020 legislative session, which begins in January.

The four-hour brainstorming event was convened by state Sen. Brian A. Benjamin (D), chairman of the Senate Budget and Revenues Committee, who conducted a months-long series of community forums on the subject across the city’s five boroughs. The tour confirmed for him, he said, that the system is confusing, complicated, and unfair.

It will take more than “another Band-Aid or patch,” Benjamin said, calling for changes that will make it fair for everyone and minimize leaving winners and losers in their wake.

“We know that the New York City property tax system needs to be fixed, but we want to talk with the people impacted by it, to learn what we can so we can address this problem thoughtfully,” he said as the discussion got started.

Participants clashed over whether the state Legislature, the courts, or the city itself would be best situated to devise the reforms.

“You don’t want judges telling you how to set up your taxes, and I really don’t think you want Albany to tell you,” Sen. Liz Krueger (D), chair of the Senate Finance Committee, said, referring to a legal challenge to the city system.

Martha Stark, a former city finance commissioner who is policy director of the group that filed the lawsuit, Tax Equity Now New York (TENNY), defended the litigation route. A trial court ruling on the group’s lawsuit “will offer us the best guidance” on what should be the top reform priorities. An appellate court ruling on the case, Tax Equity Now LLC v. New York City, is pending.

40 Years Since Major Changes

Jeffrey Golkin, a longtime property tax lawyer who teaches at New York Law School, told the senators that he was “exhilarated” to hear their willingness to tackle real property tax reform after nearly 40 years without basic changes.

“You folks in the state are the key,” he said. “You don’t need a judge and his principal law clerk to solve it. The answer is in the legislature.”

The city Finance Department lacks the resources to do the assessment job properly and has problems, as they are limited to following a mechanistic process, Golkin said. He heads Jeffrey Golkin Partners, which he said handles thousands of property tax appeals a year.

One of Golkin’s clients, the New York Amsterdam News—a 110-year-old Harlem newspaper that has owned its building since 1930s—had to take out a mortgage last year to meet its property tax bills, Elinor Tatum, publisher and editor in chief, told the state senators.

This year the newspaper saw its property tax assessment double despite having no rental income from the building, Tatum said. Its tax bill was reduced in a settlement, but the paper incurred substantial legal fees in the process, she said. Tatum pointed out that property her family owns in the Lower East Side, with a rental income roll, inexplicably has a lower effective tax rate.

“How many small businesses are going under, that are no longer in business after generations, because of their real estate taxes?” she asked.

With Democrats in control after the 2018 elections, the state Senate is willing to work with the city and its property tax advisory commission to ensure that “people pay their fair share and assessments are transparent,” said Sen. Brad Hoylman (D).

Session Starts in January

A city Advisory Commission on Property Tax Reform is expected to release recommendations by the end of this year, according to city officials. But changes in state law will likely be required to act on them.

“Regardless of how the city report turns out, there are common-sense reforms that we are looking at,” Benjamin told Bloomberg Tax.

The commission was named by Mayor Bill de Blasio (D) and City Council Speaker Corey Johnson (D) in 2018, after the council was blocked in a bid to join TENNY, a coalition of real estate interests and civil rights groups, in a 2017 lawsuit alleging that the system’s disparities have rendered it unconstitutional.

That case remains pending, awaiting an appellate court ruling on whether it should go forward. The city, in its appeal of a lower-court’s refusal to dismiss the lawsuit, argues that the legislature and not the courts should determine how to change the much-criticized system. The appeal was argued in mid-October.

At stake is the structure of a system that, with nearly $30 billion a year in tax collections, makes up nearly half of the city’s revenue. The city property tax framework has been widely maligned as opaque, confusing, and riddled with disparities and inequities.

City Revenue Dependence

Sen. John C. Liu (D), who called the system “a monstrosity that no one really understands,” noted the role property tax plays in city budgeting.

“We have to look at direct fiscal impact of changing assessment rates,” he said. “The question is how to lower tax rates without a huge hit to revenue.”

The city commission hasn’t met publicly since February, but has been working behind the scenes to formulate its recommendations—meeting “more than regularly,” as one member put it a few weeks ago. Once the recommendations come out, the mayor and the council are expected to use them to forge a reform proposal to submit to the state legislature. The last time the legislature made a change in the system was 1996, when co-ops and condos were lumped together with residential rental properties.

The legislature hasn’t comprehensively revamped the system since 1981. Benjamin, backed by Senate Majority Leader Andrea Stewart-Cousins (D), has been exploring the issues as part of a drive to provide relief to middle-class homeowners.

The legislative landscape changed after the 2018 elections, when the Democratic Party added the state Senate to its longstanding Assembly control. One of the results was a sweeping change in state law governing the city’s rent regulation system, viewed as a landmark victory for tenants and a loss for landlords.

Source:  Bloomberg Tax

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