Why be fair when you can be popular?

December 12, 2012 | Apartments, Co-ops, Condominiums, Local issues, New York, Real estate taxes, Rental, Taxation

By:David A. Smith


Close study of politics will lower one’s view of human character, and the closer to personal pocketbook issues, the lower one’s opinion goes, as illustrated with complete credulous oblivion by two stories, Crains New York (November 16, 2012) and The Queens Courier (November 16, 2012) (blue font):


Co-op, condo taxes set to soar


Uncertainty in the New York Legislature may prevent a special session of lawmaking by the end of the year, resulting in dramatic property tax increases for hundreds of thousands of co-op and condominium owners.


Do a favor once, runs the rueful proverb, and he or she is grateful.  Do it twice and it’s taken for granted.  And readers should be suspicious: if the increases are unfair, why does it take an act of the New York legislature to prevent them?  Doesn’t that smell fishy to you?


It’s just politics


Legislators in Albany and Gov. Andrew Cuomo were expected to take up an extension of a popular property-tax break for co-op and condo owners late this year, after unexpectedly pushing the issue off during the regular legislative session, which ended in June.


Oh, so now it’s a tax break, and it’s justifiable because it’s popular?  Talk about burying the lead and presenting the editorial before the news!


Bills could jump by about $1,200 per apartment.


Compounding the issue for co-op and condo owners is that the New York City Department of Finance assumed in tax bills sent out last summer that the break (which expired in June) would be renewed.


It’s certainly nice to have friends in government. 


I like people who are friends of people


The website states that if the abatement is not extended, “we will be required to recalculate your property taxes on a future bill” because bills sent out last summer did not reflect the break’s expiration.


I struggle to be sympathetic here. 


I’m not bothering to struggle


Where can I sign up for these ‘future coupons redeemable now’?


If the average assessed value of a condo or co-op is more than $15,000, taxes on the property will increase by approximately 21%, according to the city Department of Finance’s website. If the average is $15,000 or less, taxes will increase by 33%.


Whoa whoa whoa – average assessed value?  That means condos and co-ops are already getting a huge break because they are obviously being assessed at a small fraction of their real market value.


The tax break was created in 1997 to level the playing field with lower-taxed owners of one- and two-family homes.


I’ll bet it’s more complicated than that


When I become czar, the phrase ‘level playing field’ will be banned, and all computers will have an auto-correct that when they see the phrase ‘level the playing field’ it will be immediately and permanently replaced with ‘give a break to someone who can’t compete.’


Level playing fields? Sounds Bolshie to me.


Co-op and condo community leaders said the state Legislature left them “high and dry” last week after lawmakers adjourned the session without extending the city’s J-51 program and its tax abatement program.


To give you some idea of New York’s fiddling with its property taxes, we have a clergy exemption, a good Samaritan exemption, a senior citizen homeowners’ exemption, a green roof tax abatement, a solar electric generating systems tax abatement, of course the co-op and condo tax abatement — the one still hanging fire.


Tricky situation


A bill that would put a halt to skyrocketing property tax valuations was also not addressed by the end of the session, they said.


Is it over yet?


Sorry, I wasn’t paying attention.  When did New York (either the city or the state) suddenly become so flush with tax revenues that they need to dial down real estate valuations?


The J-51 program gives owners partial property tax exemptions for capital improvements, and the abatement reduces the difference in property taxes paid by Class 2 co-op and condo properties and one-, two- and three-family homes in Class 1 — which are assessed at a lower percentage of market value.


Behind that esoteric language lurks two levels of favoritism, both of them politically impeccable and questionable as to policy.


1. Homeowners are assessed lower tax rates than other types of property.  This is a well-established “placate the voter, surcharge the business” political model.  It’s so common, in fact, that it goes unremarked-upon virtually everywhere.


I’m being surcharged


2. Condo and co-op owners, feeling “unfairly treated,” agitated for the same tax break single-family owners get.  This is a beautiful example of the political arbitrage that arises when one treats asset types differentially.  Commercial property is surcharged; single-family homes are undercharged.  Condos and co-ops naturally want to be seen as the latter not the former. 


Bay Terrace (foreground), with the Throgs Neck Bridge to the north


Warren Schreiber, president of the Bay Terrace Community Alliance, said residents would pay up to an additional $1,200 a year in maintenance costs without the abatement.


As you can see, New York City is plenty large enough to have neighborhood-level special-interest groups.


And proud of it!


Bob Friedrich, president of Glen Oaks Village Owners, Inc., also counted his potential losses, saying his community would lose out on about $1 million.


‘Lose out on’ means ‘no longer get subsidized to the extent of.’


But local elected officials said co-op owners need not worry about tax increases in the near future. The abatement, which expired June 30, will be continued until the State Legislature reconvenes later this year to pass a new plan, they said.


Assemblymember Ed Braunstein said it was “highly likely” the legislature would also pass his bill, which would increase abatements for middle class co-op owners from 17.5% to 25% this year and over 28% in three years.


Fighting to increase other New Yorkers’ taxes by lowering his constituents’: Braunstein


Yes, after all, we’re not under-taxed enough, we should be under-taxed more.


To be clear as to my personal views: New York isn’t my state or my city, and all issues of overall real estate taxation are inherently political.  Real estate taxes are a means of allocating the costs of a local budget: if you think they are too high, agitate and cut your local government’s budget.  But once the budget is set, how to apportion it is political – if some people pay less taxes, other people have to pay more. 


Clear enough?


Yes, there is one plausible policy position – taxing everything equally based on assessed value, the pure economist’s approach – but it never applies in the real world.  We’ve seen previously that cities or states will often use tax abatements to lure businesses to relocate into their town, the better to tax them later.


According to a summary report released by the Department of Finance (DOF) this year, taxes are expected to rise by 7.5% for co-op owners and 9.6% for condo owners across the city, while owners of single-family homes will see an increase of 2.8%.


Because New York City is the nation’s second-most-insulated market (behind Washington DC), it’s entirely possible that property values rose by 7% or more – and it’s more than possible than Mayor Bloomberg’s budgets rose by that amount.  Homeowners were being spared the brunt.


Last year, officials said, some co-op and condo valuations saw astronomical increases as high as 147%.  A pair of audits released this year by the city comptroller’s office found the DOF at fault for causing upheavals in condo and co-op property values — a determining factor in property taxes — when it changed its formula for calculating them in fiscal year 2011-12.


These are the same co-ops that, as we saw in the case of Sandy Weill’s modest little $80 million flat, are taxed as if they were rental, when they aren’t – that is, they’re rental only in the sense that if you own a single-family home, you as a landlord are renting to yourself as a tenant.


Well, I’m not going to charge myself rent, am I?


Still, a proposed “8/30” valuation cap — which would have limited property tax increases to 8% per year or 30% over five years — was not passed, and Friedrich said he does not expect a solution to be reached for another year.


“I am optimistic, but actions do speak louder than words,” he said.


As one reads, it becomes apparent that the subsidy to homeowners, including owners of condo’s and co-operatives, extends pretty much throughout the whole residential inventory.


Earlier this year, Mr. Cuomo and lawmakers reached an agreement that would increase tax breaks for middle class co-op and condo homeowners, but phase out the breaks for owners who do not count the co-op or condo as their primary residence.


This is the same city where rent control and rent stabilization distort the market, where people who live in rent-stabilized apartments buy vacation homes on Long Island, and where those lucky enough to perch in rent stabilization more or less instantly rationalize themselves into being deserving their luck.


Easy when you know how


The end-of-session deal was not passed into law, however, because Mr. Cuomo declined to issue a “message of necessity” circumventing the normal three-day aging period before legislation can be voted upon.


It would have been a bit much, even for Governor Cuomo, to call relieving Gotham’s upper-middle class of real estate taxes a statewide necessity.


As of last June, the expiration of the abatement had been expected by the city to raise property taxes by $430 million for 360,000 apartments. The Department of Finance spokesman could not immediately provide updated figures.


This is not small change to the City’s budget.


If Mr. Cuomo does call the Legislature back into session before the end of 2012, it is expected to take up several issues, perhaps including a vote on a legislative pay hike.


I suppose you’re wondering why I’ve called you all here today


Ah, there’s a reason to get the elected members back together!


The governor has said in the past that he would only call a special session if it were clear that the Legislature would pass something. This year, that might be a response to Superstorm Sandy.

“Nobody’s quite clear what’s going on,” said one top business leader. “There’s the uncertainty in the state Senate, but they also may need to come back and do something Sandy-related.”




However, this November’s election results have thrown control of the state Senate next year into doubt.


Juggling the state Senate is a New York state pastime.


“In the short term, the city has issued tax bills for the current fiscal year based on the current tax abatement rates,” Silver said. “When the legislation is signed into law as promised by the governor, we anticipate that the new lower rates will be effective retroactive to July 1.”


Meanwhile, co-op and condo community leaders said they remain hopeful for a more permanent, long-term fix on annual valuation spikes.


Are they equally firm on desiring a cap in the value of their apartments?


No caps!