Published: Autumn 2009
ACTION COMMITTEE FOR
REASONABLE REAL ESTATE TAXES
The Action Committee for Reasonable Real Estate Taxes was formed in 1990 to work for property tax fairness for all New York City tax payers. It has long been acknowledged that housing cooperatives and condominiums pay far more than their fair share of property taxes. In 1996, as an interim measure toward correcting this inequity, an abatement program was instituted providing qualifying home owners in New York City cooperatives and condominiums with property tax abatements of 25% for those whose homes are assessed at and average of $15,000 or less and 17.5% where the average assessment per unit is higher. Condominium unit owners receive the abatement directly via their property tax bills. In cooperatives, where the abatement is credited toward taxes on the entire building, the Department of Finance annually provides a list of abatements and exemptions which the cooperative must credit to the appropriate apartment prior to the end of the fiscal year.
This abatement program was designed to provide for interim relief while the City developed a permanent plan for property tax fairness. But to date this plan has not been forthcoming. Instead, the abatement program has been repeatedly extended and is currently in force through June 30, 2012.
The Action Committee for Reasonable Real Estate Taxes continues to press for tax reform. If the new city administration should decide to address this issue, the Action Committee will seek to organize strong grass roots support for a plan that deals fairly with all New York City tax payers and that acknowledges the home owner status of New Yorkers who make their homes in housing cooperatives and condominiums.
At CNYC’s 29th annual Housing Conference on Sunday, November 15th, James Rheingrover, chairman of the Action Committee and tax certiorari attorney Eric Weiss will lead a workshop answering questions about property taxes.
The Action Committee for Reasonable Real Estate Taxes will hold a meeting on Wednesday evening, February 3, 2010 to review the NYC property tax assessments for proposed for fiscal year 2010/2011, and to plan next steps in the long crusade for property tax fairness. CNYC urges all those interested in its success to be represented at this meeting of the Action Committee.
PREPARING YOUR BUDGET
Most cooperatives and condominiums have the calendar year as their fiscal year and typically set increases in carrying charges (maintenance) to begin in January. Budget planning generally take place in November. In these difficult times, when some shareholders and unit owners have lost jobs or failed to receive expected raises or bonuses and may be living at the edge of their incomes, boards must tread the very fine line between ensuring sufficient funds to meet their cooperative or condominium’s obligations and not unduly burdening those who must pay, As the new budget is presented, the board can enlist the cooperation of building staff and residents in trying to control costs. CNYC offers the following suggestions to help with this process:
LABOR -- Benefits increases for members of Local 32BJ of the Building Service Employees Union were negotiated in the commercial contract and are therefore known. Effective January 1, 2010, there is a benefits increase of $16 per week per 32BJ employee, $12 to the health plan and $4 to the pension plan.
Salary increases for 2010 are more of a challenge to predict, since they will be the subject of contract negotiations in the course of the year (see page 7 of this Newsletter). The 32BJ contract negotiated in April of 2006 was innovative in staging salary increases at intervals. The most recent increase took effect on October 21, 2009. It is possible that the new contract may continue this precedent, with smaller increases in April and October, rather than one annual increase as the contract takes effect and on subsequent anniversary dates. What is virtually certain is that some increase in labor costs is to be anticipated in 2010.
FUEL costs hit unprecedented highs in 2008 and then dropped suddenly a year ago and have been fluctuating since that time. A prudent board will budget for some increase over last year’s actual – if only because a cold winter is predicted. But in our city full of overheated buildings, considerable savings can be made by fine tuning your heating system, sealing drafts and leaks throughout the building, inviting residents to consider plastic internal storm windows for windy exposures, encouraging the wearing of sweaters, and instructing staff to heat to no higher than 70º – 72º.
ELECTRICITY – Con Edison recently obtained a rate increase. This budget line should also be increased, but again, encouraging building staff and residents to conserve electricity can help you finish the year below budget Staff can install energy efficient lighting and other energy saving devices throughout work areas, laundry rooms and common areas. The Play room, the gym and even the lobby and hallways can use fluorescent lighting, and where appropriate even more efficient LED lighting can be installed. Residents can be encouraged to conserve too, reminded of the benefits of flattening the demand curve by running appliances late at night or in the middle of the day, unplugging appliances when they are not in use, turning off lights and air conditioners upon leaving a room, buying energy $mart appliances and equipment.
WATER & SEWER rates are scheduled to increase by at least another 11% in June. These fees are based on water use measured by water meters (or calculated based on a frontage formula). CNYC testifies each spring at the hearings that the Water Board conducts prior to setting these rates. CNYC have objected to the double digit increases that have been imposed in each of the last four years We understand that the Water Board must establish rates that cover all of the costs of operating our complex water system, including the building of a third tunnel to bring water to the city from upstate reservoirs (the existing tunnels are more than 100 years old), ensuring water purity, maintaining the intricate system of aging pipes below the streets, and servicing bonds issued to help fund the system. These elements are important to the quality and availability of our water, and CNYC considers it appropriate that water users pay for them.
However, what we object very strongly to is a growing amount – currently some $60,000 – contractually paid by the Water Board to the City’s General Fund – used for legitimate city purposes, but not the purpose for which it was levied as part of the water rate. Along with many other organizations, CNYC strongly contends that funds collected from water ratepayers should not be diverted to other purposes. We failed in 2009 to bring about this equitable change. We will continue in 2010 to try to have this obligation eliminated. If we are successful, the 11% increase can be reduced by at least 2% - 3%. Nevertheless, it is appropriate to budget for the 11% increase, while, again encouraging building residents and staff to conserve water.
INSURANCE costs generally fluctuate cyclically, but have been consistently high since the events of September 11, 2001 made us so much more aware of the vulnerability of strong structures. In recent years, rates seem to have stabilized or even gone down somewhat. Consult your own insurance broker for insights about how to budget for insurance 2010.
PROPERTY TAXES are based on assessed valuations which the City revises each year. Current law requires that the assessors treat cooperatives and condominiums as if they were comparable rental properties. Assessments are phased in over a five year period. This mitigates the impact of tax increases in a time of rapid rises in the rental market (remember, we are supposed to be assessed as rentals). Currently in the second year of a down market, we should be able to anticipate lowered assessments when the tax rolls are opened on January 15, 2010. How much of a reduction is hard to predict, and of course, that reduction will be mitigated by the five year phase-in of assessments from prior years.
But the complications of assessments are only the first part of our property tax story. In June, as the City completes its budget process, it is supposed to set the rate that will be applied to taxes for the next fiscal year, which begins on July 1st. Last spring, the rate was not established in time to be applied to the July property tax bills. Instead, the prior fiscal year’s rate (13.053%) was applied to the new assessments for July and October tax payments. The tax rate for fiscal 2009/10 has not yet been set, as the City needed Albany legislation in response to its request to adjust the distribution of the tax burden among the four classes of taxpayers. The tax fixing should occur in November, and the new rate is likely to be higher than the 13.053% that we paid in July and October. If this is the case, January and April bills will include what amounts to a surcharge to make up for the differential. This needs to be factored into your budget decision for taxes for the first half of 2010.
The taxes in the second half of the calendar year, will be subject to the new assessments for fiscal year 2010/2011. There is reason to hope that these assessments may be lower (see above), but, unless the economy shall have improved greatly by June, the tax rates is likely to rise again to help the City meet its mandate of a balanced budget. Fortunately, the property tax abatement program for qualifying home owners in NYC cooperatives and condominiums (see Action Committee on page 3) is in place for fiscal 2011. All things considered, cooperatives would be wise to increase their budget projections for the July and October 2010 property tax payments in 2010.
At CNYC’s 29th annual Housing Conference on Sunday, November 15th, Stephen Beer will present an afternoon workshop on The Budget, Abe Kleiman will have a morning class on Reserves, and several workshops will consider energy conservation measures, large and small that can help your cooperative or condominium save money. Consult the Conference brochure, which is inserted opposite page 10 of this Newlsetter.
WORD TO THE WISE
It has become the practice in many New York City cooperatives (and an occasional condominium) to use the property tax abatement program to facilitate bringing in additional revenue for the building through an assessment. Cooperatives impose a per share assessment on all shareholders in the same month that they distribute abatements and exemptions to qualifying shareholders. For them, there would be only minimal difference from any other month’s maintenance bill. For investor and sponsor owned units the impact is more significant.
By depending upon this assessment method to balance its budget, the board has been fixing maintenance charges below the proper level to meet its needs. If the abatement program were modified or if it were not extended at all in June of 2012, these assessments could become very burdensome to the shareholders. CNYC strongly urges its members to begin planning now to incorporate into maintenance the sums that have been brought in through assessments parallel to the abatement. By beginning with your 2010 budget, you can phase out this assessment practice over a three year period.
COMPARATIVE STUDY OF
2008 OPERATING COSTS
Every year since 1980, CNYC has compiles a Comparative Study of Operating Costs, based on information in the annual financial statements of participating cooperatives and condominiums. This annual Study provides a framework for determining how well one’s own building is operating.
The Comparative Study examines operating costs in seven categories: East Side cooperatives, West Side cooperatives, condominiums, large cooperatives outside of Manhattan, small cooperatives outside of Manhattan (in recent years, virtually all of these have been in Brooklyn) , small cooperatives in Manhattan and loft buildings. With the exception of lofts, all data is presented as dollars per-room per year. Loft data is presented as dollars per 250 square feet per year, for reasonable comparison with the room count in the other categories.
The Study begins by showing the current tax assessment, mortgage balance, and carrying charges (maintenance) for each participating cooperative. Only carrying charge information is available for condominiums, as property taxes are paid by each individual unit owner.
The central portion of the Study shows amounts spent the various aspects of operating the building, namely 1) labor, 2) heat, 3) utilities, 4) repairs, supplies and maintenance, 5) interest other than mortgage interest, taxes other than property taxes and permits, 6) insurance, 7) property management, 8) administrative costs, 9) water and sewer fees, 10) property taxes – in cooperatives and 11) debt service – in cooperatives. Whenever possible, the cost of elevator maintenance and of legal and accounting costs are separated out and listed as well.
The Study goes on to present a ten year recap of summary statistics, calculating the averages and medians for each operating item and the percentage of a total operating budget devoted to each category.
When the Comparative Study is sent to member cooperatives and condominiums whose information is included, the cover letter reveals that building’s code number. This coding system protects the anonymity of participants.
The Comparative Study of 2008 Operating Costs is currently being prepared and will be sent to all CNYC members and subscribers. CNYC members and subscribers are welcome to copy pages of the Comparative Study of Operating Costs and to share information within their cooperative or condominium. Additional copies of the Comparative Study can be purchased from the CNYC office for $25.
PROTECTING YOUR IDENTITY
We’ve all heard horror stories about fraud that’s committed on us in stealing a Name, address, Social Security number, credit cards. Victim of identity theft often suffer irreparable losses, particularly when time elapses between the identity theft and the realization that it has occurred. Following is some excellent advice that made its way to CNYC by e-mail, the identity of its author long since vanished into cyberspace. .
1. Do not sign the back of your credit cards. Instead, put ‘PHOTO ID REQUIRED.’
2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the ‘For’ line. Instead, just put the last four numbers. The credit card company knows the rest of the number, but anyone who might be handling your check as it passes through all the check processing channels won’t have access to it.
3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks! You can add it if it is necessary. But if you have it printed, anyone can get it.
4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place.
5. Carry a photocopy of your passport when traveling either here or abroad.
Here’s some critical information to limit the damage in case your credit cards and social security card are stolen :
6. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them.
7. File a police report immediately in the jurisdiction where your credit cards, etc., were stolen. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).
But here’s what is perhaps most important of all:
8. Call the three national credit reporting organizations immediately to place a fraud alert on your name. They are 1) Equifax: 1-800-525-6285, 2) Experian (formerly TRW): 1-888-397-3742, and 3) Trans Union: 1-800-680 7289. Also call the Social Security fraud line number 1-800-269-0271.
The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit..
Please share this information with others and make a copy for your files in case you need to refer to it someday.
FANNIE MAE Borrowing Opportunities Explained
Liquidity, the ready availability of funds, is vital to the success of any business. As our nation—and much of the rest of the world—has experienced a severe liquidity crisis, we have seen businesses fail, jobs lost and properties taken over when loans were defaulted. The federal government has been working aggressively to alleviate this crisis through its various stimulus programs.
We don’t often think of our cooperatives and condominiums as businesses. They are our homes. But one’s home is a major investment, whose value is to be protected. And we must be business-like in operating our cooperatives and condominiums, seeking excellent products and services at reasonable cost, making timely repairs and upgrades to keep our homes safe and comfortable. The availability of funds – for financing of the turnover of units as well as for underlying mortgage borrowing to pay for building improvements – is vital to maintaining the market value of cooperative and condominium apartments and the quality of life of their residents. When funds are not readily available for apartment purchases or for mortgage refinancing, home values slide and building improvements are deferred.
During much of the last year, the reluctance of lenders to make money available for these purposes aggravated the financial crisis. Happily, a number of lenders are now making loans, but they are still often hesitant to lend for the purchase of units in recently converted buildings or those with a significant sponsor presence since they want to be able to sell the loan on the secondary market.
Banks that make mortgage loans and cooperative share loans don’t generally hold these loans in their portfolios. Rather, in order to maintain their liquidity, they seek, whenever possible, to sell these loans on the Secondary Mortgage Market, to Government Sponsored Enterprises (GSE’s) like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). As the financial crisis deepened, both Fannie Mae and Freddie Mac were placed in conservatorship, which contributed to market turmoil.
In late 2008, Fannie Mae released updates to its Projects Standards Underwriting Criteria, the criteria which lender’s use to evaluate whether a condominium or cooperative project meet Fannie Mae’s lending guidelines. These guidelines, together with lender interpretation, along with a certain amount of misinformation have made the evaluation of loans to cooperative and condominium projects for individual financing even more rigorous.
Fannie Mae’s Selling Guide and Lender Announcements, the documents containing its lending criteria, including the Project Standards criteria, can be found on the internet at www.fanniemae.com. For new construction, or newly converting condominium communities, lenders can evaluate the development using the Lender Full Review; a manual process, or they may enter the project into Fannie Mae’s Condo Project Manager (CPM); an on-line condominium evaluation utility. Under the Lender Full Review process, no individual, other than sponsor/developer may own more than 10% of the units and at least 70% of the units must be sold, or under bona-fide contract of sale, to purchasers who intend to occupy their unit as their primary residence or second home. A project entered into Condo Project Manager which meets all other required criteria will certify as acceptable at a contractual pre-sale of 51%. For a new cooperative to qualify, at least 80% of the shares attributable to the dwelling units must be sold, or be under contract, to individuals who intend to occupy the unit as their primary residences. Other than the sponsor, no single entity may own more than 10% of the shares.
This set of standards does not deal realistically with the complexities of the conversion industry in New York City, where the transition from rental property to cooperative or condominium status with 70% of residents owning their units can take decades. Our system of non-eviction conversions, where rental tenants in large numbers often opt not to purchase their units often necessitates long term ownership by a sponsoring entity.
Fortunately, Fannie Mae understands this situation and provides exceptions, at both the loan and the project level, to its rigid guidelines through its lending partners when the risk has been determined to be acceptable. In addition, Fannie Mae negotiates lender-specific agreements with its lenders which provide flexibility to the standard guidelines. One such variance, long-known as the New York City “Pilot”, applies specifically to Cooperative Share Lending and has been available since the mid-1990’s to lenders approved to originate cooperative share loans Alternatively, a cooperative or condominium can, through a Fannie Mae-approved lender, become formally approved by Fannie Mae, ensuring that unit loans from such buildings will be eligible for sale to Fannie Mae.
CNYC is hopeful that these project approval options will continue to provide the liquidity that the co-op and condo market needs.