Property Tax Reform for Class 2 properties (co-ops and condos) is desperately needed in New York City.
With 2017 coming to an end, another year passes without meaningful Property Tax reform for middle-class families that live in co-ops and condominiums. Property taxes are the largest generator of revenue in New York City, but it is NYS that legislatively controls the rules that govern our property tax system.
Without the full support of the mayor and NYC Council, the NYS Legislature will not change the system. Although co-ops and condos are residential homes, they are taxed very differently and significantly more than one- to three-family homes. In fact, many smaller co-op apartments pay higher property taxes than the mayor’s multi-million-dollar home in Brooklyn.
The mayor, city comptroller, Department of Finance commissioner, State Assembly speaker and most other elected officials acknowledge that the property tax system is broken, unfair and inequitable. We know this because many of the leading advocates of NYC co-ops, such as myself and co-op Presidents Warren Schreiber of Bay Terrace and Michael Kurtz of Clearview Gardens, have met with all of them. They refuse to fix the problem or grant temporary relief through annual property tax caps as is done with private homeownership.
Single-family homes have an annual property tax assessment cap of 6 percent per year, or 20 percent over 5 years. Co-ops have no such caps. Under state law, actual property tax increases are limited to 2 percent per year in every jurisdiction except New York City. That is because Mayor Bill de Blasio lobbied hard to have NYC exempt from the 2 percent annual cap law.
Queens co-ops like Parkwood Estates saw an unconscionable 57 percent property tax increase last year, while many others like Glen Oaks Village saw 7.5 percent or more increase. Who can forget the double- and triple-digit valuation increases imposed on many co-ops in northeast Queens a few years ago. Co-op property taxes used to be approximately 25 percent of a co-op’s overall budget. Today, those very same taxes often represent 40 percent to 50 percent, or even more, of a co-op budget.
Property Taxes on Class 2 properties have absolutely no relationship to the actual fair market values of the individual apartments in the co-op. In fact, crazy as it sounds, assessed valuations are based on the value of an entire co-op development as if it was a rental property that an investor wanted to purchase. These calculations are riddled with so many assumptions, often incorrect, that they produce erroneous and inaccurate calculations.
Here are the five 5 steps of how NYC calculates property taxes on a typical co-op apartment:
1. The Department of Finance views a co-op development as a fictional rental property, that an imaginary buyer wants to purchase. In order to figure out the market value or sales price, the DOF needs to create fictional financial statements.
2. It does this by making up annual rental revenue paid by non-existent rental tenants as if the co-op development was a rental property. The DOF then makes up annual building expenses that would be generated by the fictional rental property. The DOF then nets these two numbers and calculates the fictitious profit of the imaginary rental property.
3. From the fictitious profit, the DOF can calculate what an imaginary buyer would pay for the imaginary residential rental community that generates such a profit. This sales price becomes the “market value.”
4. The market value is multiplied by 45 percent to get to the assessed valuation.
5. The assessed valuation is multiplied by the Property Tax Rate (which is set annually by the NYC Council) to get to the actual property tax of the co-op development which is then divided by the number of apartments so that each owner pays their portion.
As absurd as it sounds, that’s how it’s done. It should never be surprising that a hypothetical - based on a fiction - doesn’t reflect reality. This byzantine system has produced property taxes that have dramatically risen well in excess of inflation. These costs are driving out middle-class families and making our co-ops, which are often the last bastion of affordable housing, unaffordable.
The problems are so systemic and the system is so complicated that few understand it, which is why it has become virtually impossible to fix, legislatively. The type of home we choose to live in, should never affect the fairness of how our property taxes are calculated.
Bob Friedrich is President of Glen Oaks Village, a Civic Leader and former City Council Candidate.
©2017 Community News Group
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