Welcome
Daily Tax Report ®

Lawmakers Seek NYC Property Tax Fix After Months of Inaction (1)

Sept. 27, 2019, 8:23 PMUpdated: Sept. 27, 2019, 9:08 PM

New York state legislators—after months of inaction from a New York City advisory commission—intend to tackle reform of the city’s much-criticized property tax system themselves.

State Sen. Brian Benjamin (D), chairman of the Senate Budget and Revenues Committee, is conducting a series of public forums across the city to hear from constituents, policy makers, and elected officials on how to bring more fairness and transparency to the system.

The September-October listening tour has the endorsement of Senate Majority Leader Andrea Stewart-Cousins (D). She cast city property tax reform in the 2020 session as the next stage of work by the newly Democratic-controlled chamber to follow up on major rent reform legislation in June that beefed up tenant protections.

At stake is the structure of a system that, with nearly $30 billion a year in tax collections, makes up nearly half of the city’s revenue. The changes would be the first in more than 20 years to a tax framework widely maligned as opaque, confusing, and riddled with disparities and inequities.

A pending 2017 lawsuit by a coalition of real estate interests, civil rights groups, and elected officials is seeking to have the system declared unconstitutional, leading Mayor Bill de Blasio (D) and City Council Speaker Corey Johnson (D) to convene an advisory commission in May 2018 to recommend ways to improve fairness and transparency.

But the commission hasn’t held a public meeting since the end of February or released a timeline to issue recommendations, fueling impatience among critics.

The commission’s mandate is for the proposed reforms to be revenue-neutral—meaning that some taxpayers will pay more if others will pay less. So there will be winners and losers.

“At the end of the day, there’s largely policy consensus that high-end properties in expensive or rapidly gentrifying areas, including co-ops and condos, pay too little in property taxes and that utilities, rental properties paying full taxes, and—to a lesser extent— small residential properties in lower-value areas, are often paying too much,” said Moses Gates, a vice president of the Regional Plan Association good-government group, said in a statement Sept. 27. “There is far less consensus about commercial property owners and whether they pay too much.”

The role of the state Legislature is central, since most of the important steps being discussed to equalize the tax burden among taxpayers would require changes in state law. The Legislature’s unexpectedly broad action on rent regulation, which dealt a major lobbying blow to landlords, may have raised the stakes.

Collaboration Seen

The state legislators respect the city’s process but have to gather their own input on the issues, Benjamin said.

“We see this as working collaboratively with the mayor and the council, assuming they provide their recommendations,” he told Bloomberg Tax on the sidelines of a standing-room-only public forum in Jamaica, Queens, a middle-class section that’s one of the hardest hit by the system’s disparities. “But if not, we want to be prepared to act on this. It’s our due diligence to hear concerns directly from the most impacted communities.”

While the commission deliberates and the litigation continues, “it’s unacceptable to be taxing seniors and lifelong residents of southeast Queens at a higher effective tax rate than the billionaires moving into expensive condos,” Sen. Leroy Comrie (D) said at the Sept. 26 evening meeting. The effective tax rate is the amount of real property tax as a fraction of the property’s market value.

“The state Senate is here and prepared to act,” Comrie sought to reassure a restive audience of more than 200, which greeted some remarks with murmurs and shouted responses. “What’s the polite word? We’re being ripped off. We want to get something done next year.”

Benjamin said that de Blasio has told him to expect the city’s reform proposal for consideration in the next legislative session, which begins in January and ends in June. The commission has pushed back timelines before, but a City Hall spokeswoman, Laura Feyer, backed up Benjamin’s account.

“The commission will release its recommendations by the end of this year, and the mayor will be lobbying on behalf of New Yorkers in Albany next year,” she said in a statement Sept. 27.

City Council members have been told that the commission’s preliminary recommendations will come out in late October or early November, Council Member Daneek Miller (D) said at the Queens forum. Commission leaders have said before that final recommendations would follow the preliminary findings after another round of public input.

The lawsuit, meanwhile, remains at a near-standstill after the trial judge refused a motion by the city and the state to have it dismissed and then stayed further proceedings while cross-appeals are pending. Arguments on the appeals are slated for mid-October.

The plaintiff, Tax Equity Now New York LLC (TENNY), wants the court to declare the system unconstitutional. “Commissions that don’t do anything and a lack of political will from politicians are exactly why we went to court,” the group’s spokesman, Chapin D. Fay, said in a statement Sept. 27. “We would again urge the City and State to stop opposing our lawsuit at every turn and to put their time and energy into reforming what everyone agrees is an unfair, discriminatory and unlawful property tax system.”

‘Sat on Their Hands’

Lawyers for the group maintain that the city won’t act on its own. “The City and the State have made abundantly clear by their inaction and delay, even since this case was filed, that they will not act unless compelled by the courts,” they said in a Sept. 23 brief.

Although both have long recognized the system’s failures, “they have sat on their hands and offered excuses for decades,” the brief said. “But this can has been kicked down the road for long enough.”

De Blasio, in a July interview on WNYC radio, acknowledged the system’s problems and said that, with the state Legislature returning in January, “we’re coming up to the point where these things are going to be put on the table and resolved.”

The challenge is “to figure out how to make the system better but not lose substantial revenue in the process,” he said, adding, “So it’s not going to be a panacea, to say the least.”

The case is Tax Equity Now LLC v. New York City, N.Y. App. Div., No. 2019-3610, brief 9/23/19

(Adds City Hall comment in 7th and 8th paragraph, Regional Plan Association comment in 14th and 15th paragraphs)

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

To read more articles log in. To learn more about a subscription click here.