The Fading Promise of Property Tax Reform

Despite promising that in his second term he would take on the challenge of property tax reform, Mayor de Blasio appears to be shying away as many leaders have done many times before.

New York City government is extremely dependent upon its property tax, which will generate roughly $30 billion this coming fiscal year, more than any other single revenue source. Not surprisingly, New Yorkers gripe about their property taxes almost as much as about the subways.

The laws and methods used to determine and assess the tax on individual properties are extremely complex and inequitable, but reforming them is a daunting task that will inevitably make some property owners unhappy. For that reason, elected officials have long avoided tackling the problem.

The current New York City property tax system was created in 1981. A lawsuit brought by law professor William Hellerstein in 1975 challenged the legality of the property tax system state-wide as violating the constitutional requirement that all similar properties be taxed equally.

After several missed deadlines, rejected proposals, and a last-minute override of Governor Carey’s veto, a new law was passed that divided properties in New York City into four “classes,” set different percentages of the value of each class of property to be assessed (assessment ratios), limited the amount of total property tax levy to be derived from each class (class shares), and provided for phase-ins and limitations on the growth of tax revenue from different classes so that no one property or type of property would experience a dramatic increase in value and taxation as the new system was phased in.

Thirty-eight years later, New York City looks quite different, property values have soared, and there have been many unintended consequences of the design of the property tax system.

Limitations on phasing in growth in value mean that properties within the same class are often taxed at very different effective rates and the limitations on class shares of the tax levy mean that different classes are shouldering disproportionate amounts of the burden of the growth in overall property value.

One of the most egregious outcomes is that co-ops and condos — for which the market was very different in 1981– are in the same class as rental properties and are assessed, not on their market value, but as if they were only generating rental income. The result is many high-end apartments assessed at far lower amounts than their real value; whole residential co-op and condo buildings in some parts of Manhattan are taxed at less than the actual sales prices of individual apartments in the building.

What is to be done? In April 2017 a group of frustrated real estate developers and landlords joined with individual property owners and supportive civic and civil rights groups (including Citizens Budget Commission, which I led at the time and filed an amicus brief) to file a new lawsuit, Tax Equity Now NY LLC vs. City of New York, et al.alleging the current property tax system discriminates against primarily people of color who are low-income renters and homeowners. The lawsuit was filed in the hope that, as had happened in response to the Hellerstein case, city and state leaders would respond with urgency and determination to develop a reformed taxation system.

Instead, both city and state defendants have strenuously resisted the suit, moving to dismiss it on the grounds that the plaintiffs aren’t directly impacted and/or that the state defendants aren’t responsible. The City also infuriated City Council memberswho wanted to intervene on behalf of the plaintiffs by opposing their application to file a separate brief.

The motion to dismiss was filed in June but it took until September 2017 for the judge to rule that the case could proceed and until February 2018 to rule that the Council members could not intervene in the case. The City filed an appeal and all further action in the case is on hold until that appeal is decided.  

At a breakfast hosted by the Association for a Better New York the day before he was re-elected in November 2017, I asked Mayor de Blasio whether he was going to take on property tax reform. He answered directly and forthrightly that the system needs to be more fair and transparent but that we cannot afford to reduce substantially the revenue it generates and that relying on the judicial system to resolve the problem would be a mistake.

He estimated that it would “take a year or two” to bring all the stakeholders together and come up with the needed reforms and that it would require being “blunt” about the challenges. He said: “I am ready to do it….When I say something that definitively, I mean it…We will create tax reform.”

It took until May 31, 2018, more than a year after the Tax Equity Now case was filed and now a year ago, for the Mayor and the City Council Speaker Corey Johnson to announce the formation of an Advisory Commission on Property Tax Reform. Co-chaired by former city Housing Commissioner Vicki Been, then faculty director of the NYU Furman Center, and former First Deputy Mayor and then Interim COO of CUNY Marc Shaw, the commission was charged to “develop recommendations to reform New York City’s property tax system to make it simpler, clearer, and fairer, while ensuring that there is no reduction in revenue used to fund essential City services.”

No deadlines were specified, but the commission was instructed to conduct at least 10 public hearings.

All the public hearings and meetings were recorded and are available online. The last one was held this past February 28. Yet there is still no word on what the commission will recommend or when it will publish its report. The state legislative session is almost over so it is too late to achieve any changes this year and Been has become a deputy mayor with a lot more on her plate.

So the mayor’s promises notwithstanding, an opportunity to rationalize our property tax system and make it more fair has been missed and the commission looks more like a stalling device than a sincere effort to make tough decisions. Who wants to make New York property owners unhappy during a presidential campaign? As was the case four decades ago, it appears that we will need a lawsuit to compel elected officials to make tough decisions.

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Carol Kellermann was president of Citizens Budget Commission from 2008 through 2018.

This story was originally published on June 12, 2019 by Gotham Gazette.