Following months of speculation, a commission tasked with reforming New York City's antiquated and unequal property tax system has issued its preliminary report outlining a list of recommendations that would force wealthier homeowners to pay more while allowing their lower-income counterparts to pay less.
The plan's biggest game-changing proposal would be to tax most residential properties, including co-ops and condos, at their full market value, thereby remedying one of the long criticized inequities of the city's tax system in which homeowners in more affluent neighborhoods like Brooklyn's Park Slope and around Central Park in Manhattan have been able to pay disproportionately low property taxes because of a cap placed on rising property values.
Among the recommendations that would help low-income homeowners is the creation of a "circuit breaker" that would ensure that individuals pay no more than a certain percentage of their income.
The report also seeks to do away with a roughly 40-year practice of valuing co-ops and condos as if they were rental properties, which has led to puzzlingly low assessments for the growing stock of luxury condos. One recently wrath-inducing example cited by the Wall Street Journal was the $238 million penthouse at 432 Park purchased by hedge funder Ken Griffin, which as of last February was effectively worth only $9.4 million in the eyes of city tax collectors.
The proposed overhaul claims to be revenue neutral, in part from the inclusion of a pied-à-terre tax, another policy that has been floated over the years and which gained traction last year in large part due to Griffin's purchase. In an example provided by the report, Griffin’s property taxes on the condo would rise from $532,000 to nearly $3 million.
One possible advantage of incorporating the pied-à-terre tax into the city's property tax system as opposed to a separate piece of state legislation, which seemed on the verge of passing last year but failed amid pressure from the real estate industry, is that the money generated from the tax would remain solely in the city's control.
James Parrott, director of economic and fiscal policies at the Center for New York City Affairs who serves on the commission, said the plan offers a far-reaching and long overdue correction to the inequities created by the current tax system which was passed by the state legislature in 1981.
But although producing the report, which took more than a year and a half, was a significant step, the recommendations face a lengthy approval process, from the mayor and City council to the state legislature and Governor Andrew Cuomo. Past administrations tried and failed to tackle property tax reform, and the commission, which is set to hold public hearings around the city on its report, is likely to face political pushback from homeowners disadvantaged by the proposed plan.
The real estate industry's lobby, the Real Estate Board of New York, did not respond to a request for comment, but some brokers were already expressing concern about the proposed plan, and the uncertainty it now creates for prospective buyers.
"The property tax system in NYC has always seemed pretty illogical, so basing it on actual sales prices in a more straightforward manner does make sense," said Lindsay Barton Barrett, of Douglas Elliman. "But there will be people who really feel it, and it certainly has the potential to put a damper on sales until there is resolution."
Parrott argued that homeowners who have sat on increasingly valuable properties have been able to benefit for years from an unfair system. "I think the report makes a pretty compelling case that reform has to happen," he said, adding that the current disparities are "indefensible."
He said it would not be impossible for the state legislature to consider the plan this year, but he said he hoped it would be "teed up for action in 2021."
On Friday, asked about the report on the Brian Lehrer Show, Mayor Bill de Blasio stopped short of giving the plan his full endorsement but said that "the basic principles" are "the right ideas."
He said the most important part of the property tax reform was that it result in a system that people would consider "more fair, more consistent, more transparent.”