Publication Date: Summer 1997
SHAVES PROPERTY TAX RATE FOR CLASS 2
This year's tax-fixing ritual operated in fits and starts. The City was
able to conduct all of its budget negotiations in record time and actually
had a budget in place a few days before the June deadline. But the actual
fixing of taxes was delayed until August, as the City waited for necessary
State legislation modifying the distribution of the property tax burden
in New York City among the four tax classes. See Tax
The State law caps increases in any class' portion of the tax burden
at 2.5%. Its effect on Class 2 properties -- which include cooperatives
and condominiums -- was an almost negligible decrease. Taxes on the commercial
sector were increased to compensate for the limited increase for Class
1, which is one-, two- and three-family homes.
At its August 26th meeting, the City Council set tax rates for the four
classes of property in the City, as shown on the chart below. To determine
the taxes payable in fiscal 1998, the tax rate is multiplied by the tax
assessment. Because of this tax-fixing delay, when the City sent tax bills
in June for payment in July, it calculated the tax due by using this year's
assessment and last year's tax rates. Adjustments will be made on the
next tax bill, including the recalculation of the property tax abatement
for homeowners in cooperatives and condominiums.
In the case of cooperatives, the Department of Finance will send to the
designated contact of all buildings that qualified for the homeowner exemption
a list that breaks down the abatement into precise dollar amounts attributable
to each apartment (see page 3). In the case of condominiums, where each
owner receives a separate tax bill, adjustments will appear on their next
LEGISLATION FACILITATES CONDO BORROWING
Legislation enabling condominiums to borrow money by pledging future
income was passed by both houses of the State Legislature in the hectic
final days of the legislative session, rekindling hopes that New York
condominiums would no longer have to delay necessary repairs and improvements
until funds had been raised through carrying charges and assessments.
On July 15, the Governor had vetoed a prior version of this legislation,
much to the surprise of CNYC and the State Bar Association committee that
had drafted the bill. CNYC immediately reached out to its members for
letters and calls to the Governor to ask him to reconsider the matter.
Fruitful discussions with the Governor and his staff soon produced modifications
that satisfied the objections to the original legislation. S. 5751 /A.
8619-A was then sent to the legislature as a Governor's program bill.
With this stamp of approval, sponsors Roy Goodman and Dan Feldman were
able to secure swift passage in both houses.
The legislation provides a specific statutory foundation for the incurrence
of debt by a condominium and enables condominiums to provide lenders with
meaningful assurances that such loans will be repaid. It helps a condominium
that is five years past conversion to opt to mitigate the cost of needed
improvements by borrowing to make timely repairs, and then increasing
carrying charges to provide for monthly loan payments. A majority vote
of unit owners is required to approve such borrowing.
CNYC will alert members as soon as the Governor's signature
enacts this important bill into law. Its passage puts condominiums
on significantly firmer financial footing. But, New York's
arcane condominium law still needs a considerable amount of
revision. Attorney General Dennis Vacco has appointed a task
force to review and rewrite the New York State Condominium
Act. CNYC Board Chairman Stuart Saft is co-chairman of that
committee. Mr. Saft will present a workshop at CNYC's 17th
annual Cooperative Housing Conference on Key Issues in New
York Condominiums Today.
GOVERNOR'S "STAR" PLAN MODIFIED
The State budget for fiscal 1998 includes the "STAR" program
proposed by Governor Pataki, which grants homeowners a reduction in the
portion of their taxes that goes for schools.
When the governor first proposed this program, condominiums were included
but cooperatives were not. City Council Speaker Peter Vallone was swift
to point out that cooperatives were also "homes". His protests
were joined by many others, and the Governor quickly amended his proposal
to include cooperatives.
The "STAR" program as initially proposed was also unfair to
New York City school children. Its formulas for funding education
would have given New York City far less than its fair share
of State revenue. Budget negotiations also addressed this
inequity and the program now appears to give New York City
fair treatment. As the Department of Finance announces procedures
for determining who qualifies for STAR abatements, CNYC will
alert its members.
WATER BOARD INCREASES RATES
Meeting in May, the Water Board increased water rates an additional 6.5%
for fiscal 1998. This brings an automatic hike in sewer rates, as well.
The board did continue for another year the ability of buildings to remain
on frontage charges after their meters are installed. It also extended
until June 1998 the window of opportunity for buildings to install their
own water meters (these buildings are reimbursed by the City based on
an established scale), rather than having the meter installed by the City.
CNYC joined many other groups at the Water Board hearing on the rate
increase. We protested the massive increase in the cost of
water over the last decade and urged the water board to reexamine
its rate structure. To date, only minimal use has been made
of meters, once it was found that charges based solely on
use were disastrous in buildings in lower income areas and
provided extremes of benefit in buildings whose residents
took long vacations, leaving their units vacant. Hearings
were held in the early 1990's with a view towards establishing
a rate that combined charges for infrastructure and use, and
provided incentives for conservation practices. No concrete
proposal for such a rate has yet been made.
VETERANS IN CO-OPS CAN NOW ENJOY TAX BENEFITS
For many years, Assemblyman Ivan Lafayette has worked to bring fairness
to the tax treatment of veterans who live in cooperatives. While condominiums
have always been recognized as "homes" where veterans tax abatement
privileges applied, it was not possible to receive veterans property tax
abatements on cooperatives. All that has now changed. Chapter 171 of the
Laws of 1997 of the State of New York permits municipalities to enact
local legislation granting property tax benefits to veterans.
No sooner had this passed than the City Council passed its own legislation
implementing this process. Beginning in July 1998, qualifying
veterans will receive tax abatements. As the Department of
Finance announces procedures for registering for this abatement,
CNYC will alert its members.
COMPARATIVE STUDY OF 1996 OPERATING COSTS
Many cooperatives and condominiums have already sent CNYC their 1996
financial statements so that their data can be included in the Comparative
Study of 1996 Operating Costs. This annual analysis provides a framework
to help you decide if your building is operating economically and efficiently.
It examines the costs of operating a building, using code numbers to identify
the participants in order to preserve the anonymity of individual cooperatives
The Comparative Study looks at assessment and mortgage figures, and also
lists the maintenance cost. It then lists amounts spent per room on wages,
fuel, utilities, repairs and maintenance, insurance, management, administrative
costs, water and sewer fees, property tax, and debt service. When possible,
elevator maintenance and legal and accounting costs are each listed separately.
The Study also presents summary statistics, calculating the averages and
medians for each item, and the average portion of total operating budget
devoted to each category.
CNYC will close the 1996 Comparative Study in September so as to have
it in the hands of members and subscribers for use in preparing their
1998 budgets. Your 1996 financial statement is important to Comparative
Study. Please forward your annual financial statement and a room count
to CNYC before September 15th so that it can be included in the Study.
When the Study is sent to members and subscribers, those that have contributed
will be advised of their code numbers so that they can find their own
statistics. Each member building will receive its own copy of the Comparative
Study. Additional copies can be purchased from CNYC for $5.
IRS REFUSES TO ACKNOWLEDGE THWAITES DECISION
In the spring issue of this Newsletter, we announced the decision in
the Thwaites Terrace Owners Corp. case, where the Tax Court determined
that housing cooperatives are not subject to Section 277 of the Internal
Revenue Code. Unfortunately, the Internal Revenue Service has apparently
decided not to acquiesce in this decision. Accordingly, it has not complied
with requests for refunds made pursuant to the Thwaites decision, and
it continues to request information from buildings with pending 277 cases.
CNYC maintains that Section 277 does not apply to cooperatives. With
the refusal of the IRS to acknowledge the court decision, we will continue
to work with the National Association of Housing Cooperatives for a legislative
solution to this problem. At the same time, we are seeking test cases
to challenge the IRS in the courts on this issue. If your building receives
a notice from the IRS on the 277 issue, please alert CNYC.
DOES YOUR BUILDING DESERVE "RESTITUTION"?
The 1994 indictments of management personnel and firms by the Manhattan
District Attorney rocked the co-op and condo community. As the investigation
progressed, the District Attorney required contributions to a "restitution
fund," but gave no indication of how this fund would be used. Feeling
that it would be very difficult to prove or to quantify the losses of
any building, CNYC proposed that the restitution fund be used to educate
boards and residents in cooperatives and condominiums to better recognize
and resist corruption. The New York Times recently reported that attorney
Eric Herschmann had been appointed as a special master to oversee distribution
of the restitution fund. Buildings that may have been affected are being
notified and invited to submit a claim to him at Kasowitz, Benson, Torres
& Friedman, 1301 Avenue of the Americas, New York, NY 10019.