Owners of one-, two- and three-family homes—including co-ops and condos—stand to benefit if New York City adopts recommendations from an independent fiscal monitor on its effort to overhaul the property tax system for the first time since 1996.
The Nov. 27 plan formulated by the nonpartisan Citizens Budget Commission feeds into the deliberations of a city advisory panel looking into ways to fix the much-criticized system’s shortcomings in fairness and transparency. The panel is developing its preliminary reform proposal, having collected public testimony across the city’s five boroughs over the past two months. A hearing for expert testimony is set for Dec. 13.
The CBC plan would change how the property tax burden is spread across small residential properties, bigger rental buildings, expensive co-ops and condos, and commercial real estate.
The small residential properties—Class 1 buildings—accounted for almost 47 percent of the $1.25 trillion total market value of taxable city properties in the current fiscal year. They would face a lower effective tax rate, the ratio of property taxes to a property’s market value, under the CBC plan.
Effective tax rates would be increased for residential rental buildings (Class 2), utility properties (Class 3), and commercial properties (Class 4).
But co-ops and condominiums, lumped together more than 20 years ago with residential rental buildings in Class 2, would be moved into Class 1 with the small residential properties and share their lower effective tax rate.
The trade association for the city’s real estate industry “supports a more equitable and more transparent real property tax system that should tax all real estate uniformly at their fair market value and establish guidelines to ensure that the burden on any individual property is not excessive or confiscatory,” John H. Banks, president of the Real Estate Board of New York, said in an emailed statement.
“We share the CBC’s concern that the differing tax burdens among property classes are too large,” he added.
Assessed values would rise in all four classes, with a shift to valuation relying on full market value, possibly adjusted to favor residential properties and households where property taxes are out of proportion to income.
The tax burden would be highest on income-producing properties, both residential and commercial, though the CBC recommended that residential buildings pay less than their commercial counterparts, as a way of boosting the city’s rental housing supply.
The group also recommended narrowing the divergence between tax burdens for owner-occupied homes and commercial and rental properties, which is “far higher than in most other cities.” Effective tax rates for commercial and rental properties in New York City are four to five times those for owner-occupied homes, the CBC said.
Effect on Prices
Sales prices and market values could change in response to the “substantial” recommended revisions, so a five-year phase-in period would be needed to temper the effects, the CBC said.
The work of the New York City Advisory Commission on Property Tax Reform, formed in May by Mayor Bill de Blasio (D) and the City Council, is intended to guide the mayor and the council as they develop legislative proposals and other steps for next year that would introduce the first changes in the system in more than 20 years.
Previous reform attempts have run aground against “prominent inequities” built into the system’s structure, the CBC analysis said, adding that “a comprehensive redesign is needed” to meaningfully address the disparities.
“While the transition is likely to be difficult and may be unpopular among some taxpayers, it is long overdue and necessary to assure the City has a property tax system that functions simply, fairly, and effectively well into the future,” the CBC said.
Members of the advisory commission will review and consider the CBC recommendations along with testimony gathered in the public hearing sessions, a commission spokeswoman said in an emailed statement.
The advisory panel plans at least one more hearing and more discussions before undertaking its report to the mayor and the council in 2019. Many of the reforms being explored would require action by the council and the state Legislature.
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(Adds comment from NYC Advisory Commission in paragraph 17)