Durst’s ‘Strange Marriage’ on New York Tax Reform May End Badly

An unlikely coalition of New York City’s biggest real estate developers and social justice groups are fighting to blow up the city’s property tax system in court. Their uneasy partnership may be the next thing to implode.

The members of Tax Equity Now NY (TENNY) agree the current scheme—which divides property into four classes and caps tax increases in neighborhoods where prices are surging—isn’t fair. But they have different ideas about who should pick up more of the tab. That’s likely to further complicate reform efforts if they win.

“It’s a strange marriage, I’ve got to admit,” says Garry Johnson, economic development chairman for the National Association for the Advancement of Colored People’s New York conference. “My concern is that short-term allies make long-term enemies.”

TENNY was created in large part by real estate giant the Durst Organization. Durst then signed on the companies that built One World Trade Center, the Hudson Yards redevelopment project and Manhattan’s Four Seasons hotel, citing concerns the tax structure punishes all of them. Durst also courted the NAACP, the Black Institute, and LatinoJustice to join a lawsuit, arguing to them that the system discriminates against black and Hispanic homeowners and renters in minority-majority areas.

Jordan Barowitz, who worked on former Mayor Michael Bloomberg’s press team; John Gallagher, a former Bloomberg spokesman now at political strategy firm Mercury; and TENNY policy director Martha Stark, a former city finance commissioner, are said to have led the recruitment of what one TENNY member called a “coalition of convenience.” The member spoke on condition of anonymity, citing the delicate politics involved in the situation.

“I wouldn’t say we’re leading it; I would say we’re facilitating it,” Barowitz, Durst’s government relations director, told Bloomberg Tax. “The issue has been talked about for decades.”

Bloomberg Tax is operated by entities controlled by the former mayor.

City Hall Roots

Stark recalled frequent talks in City Hall with Barowitz and Gallagher over the tax rates on various properties listed for sale in local newspapers.

“The property tax has continued to be a problem and so we said, ‘What can we do?’ We looked at the data and partnered with a law firm and, based on the data, lots of groups like the NAACP that have been in and around the property tax debate for a number of years.”

The current system “pervasively undervalues” condos and co-ops by treating them as rental-income generating properties, according to TENNY and its members. A maze of abatements and caps on increases then work to keep those values particularly low for condos and co-ops—as well as some single-family homeowners—in predominantly white neighborhoods, they say.

NAACP and LatinoJustice representatives told Bloomberg Tax they decided to get involved in the litigation after TENNY filed its lawsuit. They say they haven’t had much of a role since, aside from filing separate briefs focusing specifically on the system’s racial disparities.

“The TENNY people started looking into this and they looked around and said, ‘You know what, the Latino community is definitely being impacted and we need to reach out,’” said Jackson Chin, a lawyer for LatinoJustice.

Chin said he wasn’t aware that Durst and other large property owners were involved in the TENNY group.

“There’s something awkward about that,” Chin said. “There does seem to be some sort of economy of scale that’s enjoyed by the largest owners. They probably exercise a disproportionate amount of influence because political power is very much connected to the nexus of property ownership.”

The Black Institute declined Bloomberg Tax’s request for comment on its role in TENNY. Several other nonprofit housing research and advocacy groups listed as members on the organization’s website also declined or didn’t respond to requests for comment about the TENNY connection. That includes the Citizens Budget Commission, Community Housing Improvement Program, and the Citizens Housing Planning Council.

Durst Organization Chairman Douglas Durst is a trustee for the Citizens Budget Commission and sits on the board of the Citizens Housing Planning Council. Stark is a member of the Black Institute’s board.

Lawsuit to Drive Change

TENNY members across the spectrum say the group’s primary role is to pound the current tax system in court and force the city back to the drawing board. They say experience has shown that elected officials are not likely to fix the system without a court order.

“The reason we got involved in TENNY is simple,” says Frank Ricci, government affairs director for landlord trade group the Rent Stabilization Association. “You can’t even call it ‘lip service’ that’s been paid to the issue in city hall or in Albany. They don’t even discuss it, period. The only way to get them to actually focus on the issue is through the lawsuit.”

Civil rights groups agree with the big developers that much of the levy on apartment building owners now trickles down to renters.

Where they may eventually split, though, is on the question of whether any tax breaks for landlords will be passed on as well. Experts recently told a city advisory commission that’s not likely to happen.

“As a collective, we understand that the future is uncertain and that there is a lot of risk there,” Barowitz said when asked if Durst could wind up paying more in taxes under a new system. “We can’t predict what will happen, but we felt the risk was worth it.”

Stark says it’s “paternalistic and perhaps even a bit racist” to suggest that the big landlords can’t possibly have anything in common with the civil rights groups. There will be “winners and losers” no matter how the city and state ultimately decides to update the property tax system, Stark said, but the common thread among members is that they want to “fairly distribute the burden.”

“These are groups that are interested in the health and viability of the city,” Stark said. “People are willing to pay taxes if they think they’re fair and if they are delivering crucial services.”

The lawsuit has already spurred a move by city leaders to update the way New York values and taxes property. The advisory commission inching along on a set of proposals has been instructed to make its suggestions revenue neutral. That means cuts for one group have to be balanced with increases for another group.

TENNY won’t say who’s picking up the bill for a legal team that includes former New York Court of Appeals Chief Judge Jonathan Lippman, but several sources told Bloomberg Tax that Durst is directing the action behind the scenes.

“All members contribute, but just like in any tax system there are some members who contribute more than others,” Stark said.

The legal battle is currently tied up in an appeals court. The NAACP’s Johnson is already thinking about what happens after a judge rules.

“Sometimes when you blow things up, you better be careful what you ask for,” he said. “I think it is vitally important that if the NAACP is going to support the reform effort then we need to be at the table when it comes time to talk about reform. Often we are asked to agitate and advocate, but then we don’t get asked to participate.”