During last-minute state budget sausage-making over the weekend, New York legislators pulled the plug on the pied-à-terre tax and instead agreed on two one-time taxes that could subject the city's transit funding to a more unreliable revenue source, according to one policy expert.
“Those two taxes are very volatile,” said James Parrott, director of economic and fiscal policies at the Center for New York City Affairs who wrote the proposal on which the pied a terre tax bill was based. “One thing we know from New York’s fiscal history is that transaction taxes are the most volatile that we have.”
The plan, which is intended to help finance the city's much-needed subway repairs, calls for two taxes on luxury property transactions. It would expand the so-called “mansion tax,” which currently applies a flat 1% percent tax to all sales $1 million and up. Beginning in July, the state plans to impose a charge of 1.25% for homes selling between $2 million and $3 million, and topping out at 4.15 percent on sales over $25 million. The plan would also raise the state transfer tax to 0.65% from 0.4% for properties that sell for more than $3 million.
Legislators have said the new plan should raise $365 million, which will secure about $5 billion in bonds for mass transit. But the volatility of the revenue negatively impacts the amount the city can raise through bond sales, according to experts. Cuomo’s budget director Robert Mujica had estimated that the pied-à-terre tax could raise as much as $9 billion through the sale of bonds.
Parrott said revenue volatility is not a “fatal” flaw. The state will simply have to manage revenue over the luxury market’s cycles.
But he argued that what was more disappointing was the way the real estate industry aggressively worked to defeat the legislation. After years of debate, the pied a terre tax bill experienced a sudden resurgence of support, riding on a wave of outrage following the $238 million penthouse purchase by hedge fund billionaire Ken Griffin.
But in recent weeks, developers hired lobbyists to kill the legislation, which proposed a graduated annual tax starting at 0.5 percent on non-resident owners of properties valued at more than $5 million and rising to as much as 4 percent on those with properties worth more than $25 million.
The New York Times reported on Friday that William Zeckendorf, the developer of Uber-luxury condo project 15 Central Park West, was spotting walking the halls of the Capitol alongside a hired lobbyist, Patrick Jenkins, and an economist from the Real Estate Board of New York.
Lobbyists argued that the pied a terre plan would have been difficult for the city to administer, saying that regulators would have to determine whether homes were primary or secondary residences. There was even a question of whether such a tax was legal.
But Parrott said the state has been differentiating between primary and part-time owners since at least 2013, when legislators amended a cooperative and condominium property tax abatement to apply to primary residences only.
“The state's been implementing that for six years. I don't think there's been any legal challenge. It's neither illegal nor hard to administer,” he said. “It’s disappointing to see arguments as dubious as they are prevail.”
Back in July 2018, Alec Schierenbeck, an attorney, wrote an op-ed countering contentions by City Hall that a pied à terre tax would be illegal. As an example, he cited New York's decades-old STAR program which gives owner-occupied primary homeowners a break on property taxes.
Reached for comment, John Banks, REBNY president, issued the following statement:
"The recurring pied-à-terre tax proposal lost momentum after people began to understand that it would reap far less than initially estimated and that the City had no ability to implement the tax. Most importantly, people realized that a recurring pied-à-terre tax would have a devastating impact on New York City's economy."
But revenue issues aside, another policy expert said the new plan fails to address the broader issue of the city’s property tax inequity. Under the city's property tax system, which values co-ops and condos as if they were rental properties, the assessed value of Griffin's $238 million penthouse is only $9.4 million.
“If anything, what this full saga tells us is that we really need a reform of our property tax system, specifically how we value and tax the super high valued homes in the city,” said Moses Gates, vice president of housing and neighborhood planning for the Regional Plan Association, which supported the pied-à-terre tax plan.