Published: Autumn 2013

CNYC and its Action Committee for Reasonable Real Estate Taxes have worked since 1990 for a fair and equitable property tax system for New York City. At this writing, that goal continues to be elusive.

S. 7000-A INSTITUTES 4 TAX CLASSES
In 1981 a property tax system for New York City was established by the State Legislature, which passed S.7000-A by overriding Governor Carey's veto. It created four tax classes in New York City, with owners of one, two and three family homes in Class 1, multiple dwellings in Class 2, utility owned property in Class 3 and everything else in Class 4. Caps were imposed on increases in assessment for the home owners in Class 1, and, eventually, for the owners of 4 to 10 family dwellings, as well.

In 1981 there were few housing cooperatives and even fewer condominiums in New York City. They were grouped with other multiple dwellings in Class 2 and the legislation further required that they be assessed as if they were rental buildings. Over the years, the Department of Finance has developed a variety of methodologies for determining rental comparables, but the growing number of buildings converted to cooperative or condominium status has made this task more and more challenging.

PROPERTY TAX INCREASES
Throughout the 1980s, the City implemented increase after increase in property taxes, as this is the one major revenue source over which it has complete control (State authorization being required for other levies subsequent to the City's near bankruptcy in 1973). Led by the Real Estate Board of New York, a 'tea party' was organized in New York harbor in the early 1990s to demonstrate the frustration of all taxpayers with their ever-increasing property tax bills. The argument was made that New York City was losing businesses and residents as a result of the very high taxes and the lack of predictability regarding increases.

Throughout the 1980s, housing cooperatives and condominiums burgeoned in the City, so that by 1990 a substantial number of New York families made their homes in cooperatives and condominiums, where they faced ever-increasing tax burdens. In 1990, the Council of New York Cooperatives & Condominiums called into being the Action Committee for Reasonable Real Estate Taxes, stating that home owners in housing cooperatives and condominiums paid 3 to 5 times the property taxes of one, two and three family homes of comparable market value. The Action Committee worked to educate co-op and condo home owners to their situation and reached out to the rest of the real estate community to seek equitable solutions together.

COOPS & CONDOS DO PAY MORE THAN THEIR FAIR SHARE OF PROPERTY TAXES
In 1993, Mayor David Dinkins established a blue ribbon commission to investigate the allegations of inequity in the property tax system. The commission's report, issued on December 30, 1993, confirmed that the perception that home owners in cooperatives and condominiums bore far more than their fair share of the tax burden was not only a perception but a reality. It was the final month of the Dinkins administration.

ABATEMENT PROGRAM: AN INTERIM ANSWER
The Giuliani administration took office in 1994. By 1996 the Mayor and the City Council had considered the property tax equity question. At the request of the City, Assembly member Pete Grannis and Senator Roy Goodman proposed state legislation to abate the property taxes of home owners in cooperatives and condominiums over a two-year period, while the City worked on a long term plan for property tax reform. Thus the abatement program was born.

EXTENDED IN 1999
In 1999, in the absence of a long term plan, the abatement program was extended for two more years, with the mandate renewed for the City to develop a long term plan for tax fairness. However, since the legislation had not been passed when property tax bills were prepared, the Department of Finance billed cooperatives and condominiums at the full property tax level on their July and October bills; In January, abatements were restored to the bills and adjustments were made for the prior overpayments.

In February of 2000, Finance Commissioner Andrew Eristoff addressed the annual meeting of the Action Committee for Reasonable Real Estate Taxes. He indicated that the Department of Finance had explored a variety of ways of bringing fairness to the property tax system, but that the recent loss of the Commuter Tax had created so large a hole in the city budget that the only viable plan was to continue the abatement program.

EXTENDED IN 2001
In 2001 the abatement program was extended for three years. Once again, passage didn't come until after property tax bills were due, so July and October bills were high, occasioning cash flow crunches which were exacerbated as mortgage lenders demanded additional escrow if they were paying the taxes.

EXTENDED IN 2004 AND 2008 In 2004 the abatement program was extended for four years; this time, CNYC and the Action Committee pushed hard to ensure that the legislation was passed and signed into law before property tax bills were prepared in June. This was repeated in 2008, when the abatement program was extended for four more years.

EXTENDER PROPOSED IN 2012
In late April of 2012, State Senator Martin Golden introduced legislation to extend the abatement program for an additional four years. On May 2, 2012, Assembly Speaker Sheldon Silver introduced companion legislation in the Assembly. All seemed well on track for timely passage of another extender. But then progress ground to a halt, and late in May it was announced that the City had plans to modify the abatement program.

THE CITY HAD OTHER PLANS
Indeed they did. Finally, on June 18, 2012, three days before the legislative session was to end, at the request of the City, Senator Golden introduced legislation that limited the abatement to a primary residence and up to 2 additional units in the same cooperative or condominium as that primary residence. It also increased the abatement for cooperatives and condominiums with assessed values that average $60,000 per unit or less. The abatement program with these changes were only part of the City's bill which addressed three additional programs as well.

SOME ABATEMENTS WERE INCREASED
CNYC and the Action Committee for Reasonable Real Estate Taxes applaud the increased level of abatement on coops and condos with average assessed value of $60,000 or less per unit. This was very much needed, and will be helpful to preserve the affordability of co-op and condo homes, primarily in Northern Manhattan and in the other boroughs. Even with the three-year phase-in and the three slightly different categories of increase, the modification is easy to understand and easy to implement.

PRIMARY RESIDENCY REQUIREMENT
But CNYC and the Action Committee strongly criticize the imposition of primary residency restrictions on home owners in housing cooperatives and condominiums that are not imposed on the owners of Class 1 properties. Instead of bringing the taxation of cooperatives and condominiums closer to that of home owners in Class 1, this legislation, creates new differences and widens the disparity. Additionally, we anticipated difficulties in implementing this change.

THREE OTHER PROGRAMS ADDRESSED
The same piece of legislation proposed to reinstate the City's J-51 program, which had sunset on December 31, 2011, but severely restrict the eligibility of cooperatives and condominiums for these benefits. It LOWERED the ceiling for eligibility of open market cooperatives and condominiums from $40,000 average assessment per unit, which had been in place since 1992 down to $30,000 per unit.

The 421A program and modifications in City treatment of Subchapter S corporations (using funds diverted from the coop/condo abatement program) completed the provisions of this complicated bill.

DELAYED PASSAGE
State law requires legislation to 'age' for three days before it can be considered (presumably to give lawmakers and their staffs time to read and understand it). Only a 'message of necessity' from the Governor can bypass this aging period. Governor Cuomo declined to issue a message of necessity and therefore it was not brought to the floor before the legislative session ended at 5 pm on Thursday, June 21, 2012. Senators and Assembly members went home to their districts where many were running for election.

ABATEMENT CONTINUED ON TAX BILLS
Meanwhile, the Department of Finance had promised all spring that the abatement would be included in July bills, even if the legislation would not yet have been passed. July bills included the abatement at its 2011-2012 level. This was repeated on the October and January bills.

PASSAGE AT LAST
When the new legislature met in January 2013, the City's bill was reintroduced and became law on January 30th, extending the abatement program through June 30, 2015. The Department of Finance was charged with implementation. In the light of the many changes to be made, DoF announced that it would complete the fiscal year 2012/2013 by having April 2013 bills follow the same pattern as their predecessors. Adjustments would be made on bills for payment on July 1, 2013 at the beginning of fiscal 2013/2014.

VERIFYING PRIMARY RESIDENCY PROVED TO BE A HUGE CHALLENGE
The Department of Finance sought to verify primary residency by using STAR applications and City Income Tax returns, but it found many discrepancies in names, etc. Where there were questions, it mailed a letter to the owner of record of the unit, asking that they confirm that the cooperative or condominium was their primary residence. A bar-coded form was to be returned to a servicing company in New Jersey. Unfortunately, many of these letters were ignored, as were follow-up letters in the spring. July property tax bills took back 50% of the prior year's abatement from any unit that had not confirmed to DoF that it was a primary residence. DoF accepted further corrections through July 22nd and will make final corrections on October bills. Any units now erroneously categorized as non-primary residence can apply for the abatement beginning in fiscal 2015 in July of 2014.

CNYC and the Action Committee for Reasonable Real Estate Taxes continue to press for fairness in our property tax system. At CNYC's 33rd annual Housing Conference on Sunday, November 17th, Action Committee Chair Jim Rheingrover will lead a midday class called Property Tax Update, where answers to your tax questions may be obtained.