Publication Date: Summer 1997

COUNCIL 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 Action.

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 tax bill.

BREAKTHROUGH 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 and condominiums.

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.