Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts...

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IBO New York City Independent Budget Office Ronnie Lowenstein, Director 110 William St., 14th Floor • New York, NY 10038 Tel. (212) 442-0632 • Fax (212) 442-0350 e-mail: [email protected] • http://www.ibo.nyc.ny.us Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in New York City December 5, 2006

Transcript of Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts...

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IBONew York City

Independent Budget Office

Ronnie Lowenstein, Director110 William St., 14th Floor • New York, NY 10038Tel. (212) 442-0632 • Fax (212) 442-0350e-mail: [email protected] • http://www.ibo.nyc.ny.us

Twenty-Five Years After S7000A:How Property Tax Burdens Have

Shifted in New York CityDecember 5, 2006

http://www.ibo.nyc.ny.us
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Contents

Inroduction 4

PastasPrologue:TheLegislativeRoadtoAdoptingToday’sPropertyTaxSystem 8

CauseandEffect:AnAnalysisofChangesinPropertyTaxBurdensSince1981 14

HowDoNewYorkCity’sCommercialPropertyTaxesComparewithOtherU.S.Cities? 44

AReviewofHouseholdIncomesByLocationandTypeofResidence 48

AlternativestotheCurrentRealPropertyTaxStructure 56

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NEW YORK CITY INDEPENDENT BUDGET OFFICE 4

Muchlikeothercities,NewYork’slargestandmoststablerevenuesourceistherealpropertytax.AlthoughNewYorkCityalsoleviesalargenumberofother,morecyclicaltaxes,muchasstatesdo,thepropertytaxremainsthecentralcomponentoflocalrevenues.Inthecurrentfiscalyear,thecitywillcollectan

estimated$13billioninpropertytax—roughly40percentofalllocaltaxrevenues.

Becausetherealpropertytaxissocentraltothecity’sfiscalcondition,IBOhasmadestudiesandreportsonthepropertytaxamajorpartofourwork.Thisnewreport,whichcomesonthe25thanniversaryoftheenactmentofS7000A,thelawthatcreatedthecurrentpropertytaxsystem,updatesandexpandsourpreviousworkandexamineshowpropertytaxburdensinthecityhavechangedoverthepasttwoandahalfdecades.

A1975decisionbythestate’shighestcourtforcedAlbanylegislatorstotackleanissuefewprobablywantedtoconfront:theinequitableassessmentofpropertiesinlocalitiesallacrossthestate,includingNewYorkCity.Whilehomeownersgenerallypaidpropertytaxesequaltoarelativelysmallshareofthevalueoftheirhomes,ownersofcommercialandapartmentbuildingspaidtaxesbasedonafarlargershareofmarketvalue.Thisviolatedanearly200-yearoldstatelawthatassessmentsforallpropertiesbemadeonfullmarketvalues.

Inaddition,ownersofsimilarhomesindifferentneighborhoodsinthesametownoftenhadverydifferenttaxburdens.Asseveralreportsissuedinthewakeofthecourtrulingfound,inNewYorkCityhomeownersinlow-incomecommunitiesfrequentlyhadahighereffectivetaxrate—thetaxpaidonevery$100offullmarketvalue—thanhomeownersinwealthierneighborhoods.

Afterroughlysixyearsofdelayandsporadicdebate,thelegislaturerespondedtothecourtdecisionbyreplacingtheoldlawwithonethatallowedlocalitiestolargelykeepdoingwhattheyweredoing.InNewYorkCitythiswasaccomplishedbycreatingasystemwithfourclassesofproperty,allowingeachclasstobetaxedonadifferentshareofitsmarketvalue,andbyputtingcapsonannualassessmentincreasesforhomeownersandlaterforapartmentbuildingswithlessthan10units.Tolessenthetaxburdenforcoopandcondoowners,thenewlawrequiredthattheybevaluedasrentalproperties.Withapartmentownersstillshoulderingahigherburdenthanhomeowners,acoopandcondotaxabatementwentintoeffectin1997.

Twenty-fiveyearsaftertheenactmentofS7000Adissatisfactionwiththecity’spropertytaxsystemisanear-universalcomplaintamongNewYorkerswhomustpaythetax.Thecomplexityandlackoftransparencyinthesystemispartofwhyeveryonefeelsoverburdened.ButusingIBO’scalculationsofmarketvaluesandfinaltaxbills,onebasiccomparisonmakesitclearthattheburdenofpayingthepropertytaxisnotsharedequally:Whileone-,two-,andthree-familyhomescomprise41percentofthemarketvalueofpropertyinthecity,thesehomesgenerate14percentofthetotalpropertytaxlevy;commercialpropertycomprises16percentofmarketvalueandgenerates43percentofthetaxlevy.ThisreporttakesadetailedlookatthedisparatepropertytaxburdensinthecityandhowtheyhavechangedsincetheimplementationofS7000A.Itexaminesthesechangesintaxburdensfordifferenttypesofproperties—privatehomes,apartmenthouses,andcommercialbuildings—andbetweensimilartypesofpropertiesindifferentneighborhoods.Amongthereport’skeyfindings:

Homeownersinlow-incomecommunitiesnolongerhavehighertaxburdensthanownersofsimilarhomesinwealthierneighborhoods.Althoughsomeofthefastestgrowthinmarketvalueshasbeeninthecity’spoorerneighborhoods,theassessmentcapslimitedhowmuchofthisgrowthcouldbereflectedinpropertytaxes,

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Introduction

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Introduction

therebyloweringtheeffectivetaxrateforownersinthesecommunities.Whilethedisparityineffectivetaxratesamongownersofhousesandapartmentshasnarrowed,thegapbetweenhomeownersandownersofothertypesofpropertieshaswidened.Forexample,theeffectivetaxrateforhomeownershasfallen65percentsince1984,butithasdroppedbyonly18percentforownersofcommercialproperty,andithasrisenslightlyforownersofapartmentbuildingswithelevators.Thecoopandcondotaxabatementhasloweredtheeffectivetaxrateformanyapartmentownerstobelowthatofhomeowners.Outofthe$293millionspentontheabatementthisyear,$156millionwenttoapartmentownerswhoseeffectivetaxrateswerealreadybelowthatofhomeownersorwhodidnotneedthefullabatementtoreachthehomeowners’level—withmuchofthisexcessspendinggoingtoUpperEastSideandUpperWestSideapartmentowners.YetmanyownersofcoopsinBrooklynandQueensstillhavehighertaxburdensthanhomeowners.Thedisparityintaxburdenshaswidenedbetweenrentalbuildingsandcoops.In1997theeffectivetaxrateforrentalapartmentbuildingswas1.8timeshigherthancoops.Tenyearslatertheeffectivetaxrateforrentalbuildingswas5.5timeshigherthancoops.Ingeneral,commercialpropertytaxburdensarehigherinNewYorkCitythaninotherU.S.citieswithpopulationsover1million.

Inaddition,IBOfindsthattheprocessofallocatingaportionofthetotalpropertytaxlevytoeachofthefourclassesofproperty,knownasthe“classsharesystem,”hascontributedtothewideningdisparitiesintaxburdens.Inordertopreventashiftoftaxburdensfromcommercialpropertiestohomeowners,thedraftersofS7000Adesignedthelawsothateachofthefourpropertytypeswouldpayroughlythesameshareofthetotalpropertytaxlevyastheydidin1981.

Butthisapproachlargelyignoresshiftsinmarketvalues.Ifchangesinmarketvalueswerefullyreflectedintheannualshareofthetotaltaxlevyforeachpropertytype,IBOestimatesthathomeownerswouldfaceanaggregatetaxlevy67percenthigherthanwhattheypaytoday.Incontrast,commercialpropertieswouldhavetopay25percentlessofthetotaltaxlevy.

Thereareavarietyofwaystoaddressthecontinuingdisparitiesinthecity’spropertytaxsystem.Thisreportincludesresultsofseveralrevenueneutralscenariosthatwouldreducethedisparities.Onealternativewouldshiftthepropertytaxsystemtoasingletaxrateforallpropertytypes.Theothersarevariationsbasedonusingtwopropertyclassesinsteadofthefourthecityhastoday.

Giventheextentofthecurrentdisparities,eachofthescenarioswouldproducelargechangeswithsomewinnersandsomelosers.Wepresenttheeffectsthesechangeswouldhaveontheaveragetaxbillsfordifferenttypesofproperties.NoneoftheexamplesareintendedasrecommendationsbyIBO.Rather,wepresentthemtoillustratethedifficultpolicyandpoliticalchoicesthatwouldhavetobemadeinordertobringgreaterequityandopennesstothecity’ssystemfortaxinghomesandbuildings.

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Past as Prologue: The Legislative Road to Adopting Today’s Property Tax System

AsdayturnedtonightinAlbanyonDecember3,1981,stateAssemblyandSenateleadersscrambledtoensuretheyhadenoughvotestooverrideGovernorHughCarey’sveto.Sixyearsearlier,NewYork’shighestcourthadruledthatthewaycitiesandtownsthroughoutthestateassessedpropertywasillegal.Overthe

ensuingyears,thestateSenateandAssemblygrappledwithhowtorespond,andafterseveralone-housebills,finallycameupwithlegislationthatpassedbothchambers.Now,unlessenoughmemberswent“intothetank”—legislators’vernacularforcastingavoteatthebehestoftheleadersofeachhouse—theycouldbebacktothedrawingboard.

ThecourtdecisionwaspromptedbyasuitfiledmorethanadecadeearlierbylawprofessorandattorneyJeromeHellerstein.HiswifeownedabungalowonFireIslandthatwasassessedatafractionofitsvalue.TheHellersteinsbelievedthiswaswrongand,despitethefactthatwinningincourtwouldlikelymeantheywouldwinduppayinghighertaxes,pursuedthecaseforsevenyears.In1975thestate’sCourtofAppealsupheldtheHellersteinchallenge,findingthatIslip(wherethesuitwasfiled)andmostotherjurisdictionsacrossthestate,includingNewYorkCity,wereinviolationofanearly200-year-oldstatelawthatrequiredpropertiestobeassessedattheirfullmarketvalue.

A PoliticAl Minefield

TheHellersteincasedidmorethaninvalidatethelong-timecustomacrossthestateoffractionalassessments:itcreatedapoliticalminefieldforelectedofficials.Foryears,homeownerspaidpropertytaxesbasedonarelativelysmallshareofthevalueoftheirhomes.Sincemanylocalitiesupdatedtheseassessmentsinfrequentlytheyoftenlaggedwellbehindchangesinthevalueoftheproperty.Withmostlocalitiesdependentonpropertytaxestoraiserevenuetoprovideservices,thismeantownersofotherkindsofproperty—namelycommercialandapartmentbuildings—hadtopaytaxesbasedonafarlargershareofmarketvalueinordertogeneratesufficientfunding.

InNewYorkCity,homeownersatthetimeofthesuitpaidtaxesbasedonapproximately25percentto30percentofassessedvalue.Commercialownerspaidtaxesbasedonroughly80percentoftheassessedvalueoftheirproperty.Inotherwords,theeffectivetaxrate—thetaxpaidonevery$100offullmarketvalue—wasfarhigherforownersofcommercialandapartmentbuildingsthanformanyhomeowners.

Buteveninthesamelocalityownersofsimilartypesofpropertiesoftenshoulderedverydifferentpropertytaxburdens.A1980studycommissionedbythecity’sDepartmentofFinancefoundthatthecityhada“standard–lesssystemofrealpropertytaxation.”1AstudybytheNewYorkPublicInterestResearchGroupconcludedthathomeownersinthecity’spoorerneighborhoodsfrequentlyhadaneffectivetaxratethatwasmuchhigherthanthatofownersofsimilarhomesinwealthierneighborhoodsbecauseinfrequentorinaccurateassessmentsdidnotreflectactualmarketvalues.2

WhilethecourtrulingmeantthattheLegislatureneededtoaddresstheissueoffullmarketassessments,meetingthemandatedidnotbyitselfhavetoaffecttheamountofpropertytaxpaidbyhomeowners.Simplypassinglegislationthatreplacedtheoldfullvaluerequirementwithrulesthatallowedforcurrentpracticescouldhavesatisfiedthecourt.ButtheHellersteindecisionandthesubsequentstudiesundertakeninresponsetothedecisionhadlaidbaretheinequitiesinthepropertytaxsystem,providingownerswhofeltoverburdenedanopportunitytopresslawmakersforbroaderchanges.Addressingtheinequitieswouldalmostcertainlymeantherewouldbewin-nersandlosers—somewhosawtheirpropertytaxbillsgoupandsomewhosawthemfall.Amongthosewhowouldlikelyseetheirbillsgoupwasasignificantshareofhomeowners.Thiswasnotagroupmostelectedofficialswantedtoanger.

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Whileownersofofficebuildingsandstorefrontscanpasssomeofthecostofhigherpropertytaxesontotheircommercialtenants,particularlythosewithescalationclausesintheirleases,andrentersdonotgenerallyseeevi-denceoftheportionoftheirrentsthatgoestotaxes,manyhomeownersreceivepropertytaxbillsinthemailandmustpaythemdirectly.Thatmakeshomeownersacutelyawareofchangesinpropertytaxes.Anditmakeselectedofficialswaryofangeringhomeowners,especiallybecausetheyvoteincomparativelylargenumbers.

A2000CensusBureaustudyofvoterparticipationnationallyfoundthatinthe1998electionshomeownersvotedatnearlytwicetherateofrenters,51percentto28percent.3Homeownerstendtohavehigherincomesandmaritalratesandbeolderthanrenters,demographicfactorsthatcorrelatetohighervoterturnout,accordingtoaUniversityofVirginiastudy.4Althoughrentersgreatlyoutnumberhomeownersinthecity,whencoupledwiththeseotherfactorstheinterestsofhomeownerscancarryadisproportionateweightinthevotingbooth,eveninNewYork.

Aslegislativeeffortstorespondtothecourtdecisionprogressed,Albanyincreasinglyheardfromworriedhomeowners.IfAlbanypolicymakershadanydoubtsaboutthepoliticalstrengthofaggrievedhomeowners,the1978passageofProposition13inCalifornia,whichcutpropertytaxesby30percentandthenlimitedfutureincreases,madeofficialsinstatecapitalsnationwideacutelyawareofthepowerofthisvotingbloc.

Nonetheless,homeownerswerenottheonlyonesmakingtheirinterestsknowninAlbany.Businessleadersarguedthattheburdenofpropertytaxationfelltooheavilyonthem.Manyarguedthathighcommercialpropertytaxeswereadragonthestateeconomy,impedingjobcreationandmakingitmoredifficulttoattractandretainbusinesses.AccordingtoE.J.DionneJr.reportinginThe New York Times,manylawmakerswhopubliclysupportedprotectinghomeownersfromincreasesprivatelyagreedwiththeviewofbusinessleaders.5

Inafewinstances,commerciallandownerstookadvantageofthecourtdecisiontosuelocalitiesforrestitutionafteryearsofhavingtoshoulderhighereffectivetaxratesthanhomeowners.Inoneexample,NassauCountywasorderedtopayback$5milliontocommercialfirmsasaresultoftheirpropertiesbeingoverassessedrelativetothecounty’sunderassessedhomes.“You’retalkingaboutcompletechaos,abreakdownofthebodypolitic,”ishowoneofficialdescribedtheprospectofcollectingbacktaxesfromhomeownersinordertopaytaxesduetothecommercialfirms.6

A SloW StARt toWARdS cHAnGe

TheCourtofAppealsgavethelegislatureathree-yeardeadlineforbringingthesystemofpropertytaxassessmentintocompliancewithstatelaw.Giventhecomplexitiesoftheissue—inpoliticalandpolicymakingterms—neitherthelegislaturenortheGovernorrushedtoact.

Indeed,withtheirfirstacttheylargelypostponeddecision-makinguntilalaterdate.InOctober1977GovernorCareysignedlegislationthatpostponedtheimplementationoffullmarketvalueassessmentsuntil1981andcreatedaTemporaryCommissiononRealPropertyTaxationtoexploremeansofprotectinghomeownersfromlargetaxhikes.Theseprotectionsincluded“homestead”exemptionsthatlimittaxationtoonlyaportionofahome’svalue,“circuitbreakers”thatlinkedtheamountoftaxpaidtohouseholdincomelevels,andaclasssystemthatwoulddifferentiatebetweenresidentialpropertyandcommercialpropertysothatcommercialownerscouldbetaxedatahigherrate.

Two Chambers, Two Approaches.Overthenextfewyears,avarietyofbillswereintroducedbutgainedlittletractiontowardsanultimateresolution.Whilelegislativeleadersuniformlysaidtheywantedtoprotecthomeownersfrompropertytaxhikes,theirproposedmeansfordoingthisbasicallytooktwodifferentapproaches.

SenatorFrankPadavanandAssemblymanJohnEsposito(bothfromQueens,whichsomestudiesshowedwasthemostunderassessedboroughinthecity)ledeffortstopasslegislationthatwouldsimplyturnthingsbacktothe

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pre-Hellersteindays.Theirbill,whichpassedintheRepublican-controlledSenate,wouldrepealthelawrequiringfull-valueassessmentsandenablepropertyassessmentstobedonemuchastheyhadpriorto1975.Opponentsclaimedthatthisapproachwouldleavelocalitiesopentosuitsfromcommercialownersclaimingthattheywereovertaxedanddemandinglargerepayments,similartothesuccessfulsuitinNassauCounty.

Topreventsuchsuitsandstillprotecthomeowners,theDemocratic-controlledAssemblytookadifferentapproach.SpeakerStanleyFinksponsoredlegislationthatwouldprovideforfullmarketvalueassessmentsbutcreateapropertyclassificationsystemandcraftdifferenttaxratesforresidentialandcommercialproperties.Thebillgavelocalitiestheabilitytofreezeassessmentsforcurrenthomeownerswhosepropertytaxeswouldriseandalsoincludedahomesteadexemption.

Butearlyexperienceswithfull-marketassessmentsintownssuchasIslipandMountKisco,whichhadalreadybeguntoimplementthemfollowingtheHellersteinruling,hurttheAssembly’sapproachandhardenedhomeowneropinions.AnIslipofficialdescribedtheprocessas“brutal”andsaidthatelderlyandfixed-incomeresidentswereforcedtoselltheirhomes.Heurgedothermunicipalitiestowaituntil“weseesomeresponsibleactiononthepartoftheLegislature.”7

Evenforthosehomeownerswhowerebeingovertaxedrelativetotheirneighbors,issuesoffairnessandequitywereswampedbyanautomaticaversiontochangesthatcouldpotentiallymeanhigherpropertytaxesforsome.Asthen-LieutenantGovernorMarioCuomoobserved,“Thetruthistodaythereisnoplanforguaranteeingequitythatisnotgoingtocostsomebody.Sincenobodyissurewhomasolutionwillhurt,everybodybelievesit’sgoingtocostthem.”8

Homeownershadjustifiablereasonstobeworried.A1979reportbyanAssemblytaskforceonpropertytaxationestimatedthatashifttofullmarketvalueassessmentswouldleadtolargejumpsinaveragepropertytaxbillsformanycityhomeowners—asmuchasa139percentriseinQueens,108percentinStatenIsland,and104percentinBrooklyn.Thereportwarned,“TheresultofallowingtheHellersteinmandatetostandwouldberesidentialtaxincreasessolargeinmanyareasthatNewYorkcouldsufferthesameangryreactionfromtaxpayersthatledtoProposition13inCalifornia.”9AssemblymanEspositoplayedaleadingroleinorganizinganxioushomeownersandbringingthemtoAlbany.HealsodecidedtorunfortheRepublicanmayoralnominationinNewYorkCityin1981,andmadepropertytaxesoneofhiscentralissues.ItbecameadirectchallengetoMayorEdwardKochwhowasrunningforreelectionandseekingboththeDemocraticandRepublicannominations.UnderattackbymanyminoritycityresidentsforhisdecisiontocloseSydenhamHospital,Koch’selectoralbasewasincreasinglydependentuponwhite,ethnicouterboroughvoters—someoftheveryvotersattheheartofEsposito’shomeownerorganizingefforts.10

A Deadline Approaches.Theyear1981wasmorethanjustanelectionyearinthecity.ItwasthedeadlinetheLegislaturehadgivenitselfforresolvingthepropertytaxissue.OnMay13,1981,justtwodaysbeforethisdeadline,AssemblySpeakerFinkandSenateMajorityLeaderWarrenAndersonintroducedwhattheytermeda“studybill”thatwassubjecttorevisions.Thebillgavelocalitiestheabilitytochooseamongseveralassessmentoptions,fromleavingtheirtaxsystemsmuchastheycurrentlyweretocreatingpropertyclasseswithdifferentassessmentratesforresidential,commercial,andotherproperties.Thelegislaturealsovoteditselfanotherone-monthextension.

IftheLegislature’sstudybilldidnotpromptanimmediateresolution,itdidleadtotheGovernormakinghisownproposal.InJune,GovernorCareyproposedmovingtofull-valueassessmentsthroughoutthestate,withaphaseinoverfouryears.InNewYorkCity,though,hisplancalledforacircuitbreakerlinkingtaxestoincome.Forexample,ahouseholdwithannualincomeoflessthan$12,000wouldhavepropertytaxeslimitedtonomorethan4percentofincome.Hisplanalsocreatedfourpropertyclassesinthecity,withtaxratesthatcouldbethreetimeshigherforindustrialandvacantpropertythanonone-tothree-familyhomes,coops,andcondos.Fortherestofthestate,

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GovernorCareyproposedhomesteadexemptions.

TheGovernor’sbillfailedtoswaytheLegislature,whichcontinuedtofocusonitsbipartisanstudybill.Withmanyhomeownersandtheirlegislativebackerscontinuingtoopposeanyplanthatcouldmeanataxincreaseforunderassessedproperties,theAssemblyandSenatevotedanotherextensiontotheirdeadline.

A coMPRoMiSe tAKeS SHAPe

OverthenextthreemonthsacompromisebilltookshapeinthelegislaturethatmorecloselyresembledtheSenate’sinitialgoalofchangingassessmentpracticesaslittleaspossible.Thenewbill,presentedonOctober18,soughttoaccomplishthisbyestablishingtwodifferentmethodsforassessments:oneforNewYorkCityandNassauCountyandanotherfortherestofthestate.

Whilemuchofthestatecouldcontinuetofollowtheircurrentpractices,inthecityandNassauCountythebillwouldcreatefourclassesofproperty—one-tothree-familyhomes,otherresidentialbuildings,utilities,andcommercial.Eachclassofpropertywouldcontinuetoprovidethesameshareoftotalpropertytaxescollectedastheythencontributed.

Toprovidegreaterprotectiontohomeownersagainstrisingpropertytaxes,particularlyunderassessedhomeowners,therewouldbecapsonhowmuchassessmentscouldincreaseannuallyandoverfiveyears.Inotherwords,thebillmaintainedasystemthatplacedlargertaxburdensonownersofcommercialpropertiesandapartmentbuildingsandfailedtoensurethattheassessmentandtaxinequitiesbetweensimilarhomesindifferentneighborhoodswouldbefullyeliminated.

Tendayslater,theAssemblyandtheSenateapprovedthebill,whichwasknownasS7000A.WhiletheSenatepassedthebillbyawidemargin,intheAssembly,thebillpassedbyavoteof88-47,amarginthatfellshortofthe100votesneededtoguaranteeanoverrideofapotentialvetobytheGovernor.Pressuring the Governor.Pressurequicklymountedfrombothsides.MayorEdwardKochstronglyendorsedthebill,notinginalettertotheGovernor“…enactmentofthisbillwouldgivetothecityanditsresidentsaclearerandmorecomprehensiblesystemofpropertyassessmentandtaxation.”

TheRealEstateBoardofNewYork,representingsomeofthelargestcommerciallandlordsinthecity,justasstronglyopposedthebillandtookupthecauseofapartmentrenters—byfarthelargestgroupofresidentsinthecitybutonelargelyunheardandunrepresentedduringthepropertytaxdebate.Therealestateboard’slettertotheGovernornotedthattaxingapartmentbuildingsatahigherratethanprivatehomesgavehomeownersa“…doublebenefit[lowertaxesaswellasmortgageandtaxdeductions]attheexpenseofNewYorkCitymultipledwellingtenants.”

Oppositiontothebilltookaharshertonefromsomelegislators.Then-stateSenatorMajorOwens,representingalargelyAfrican-AmericandistrictinBrooklyn,expressedhisviewtotheTimes thatthebillfailedtoaddresstheinequitiesinasystemthatleftmanyhomeownerspayingsubstantiallymorethanhomeownersinotherneighborhoods.SenatorVanderBeatty,whorepresentedaneighboringBrooklynDistrict,putitfarmorebluntly,callingthebill’sprotectionofunderassessedhomeownerswholargelyresidedinwealthiercommunities,“blatantracism.”11

OnNovember12,GovernorCareyvetoedthebill.InhisvetomessagetheGovernorargued,“Thebillwouldnotaffordadequateprotectiontoallhomeowners.Thepreservationofexistingpracticeswould,inmyjudgment,resultinthecontinuationoftheinequitable,chaotic,andhaphazardassessmentpracticeswhichhomeownershavebeen

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subjectedtoformanyyears.”

Roughlyaweeklater,theGovernorintroducedanewplan,whichwasrebuffedbylegislativeleadersinboththeAssemblyandSenate.ThefocusthereremainedsecuringenoughvotestooverridetheGovernor’svetooftheirbill.Overriding the Veto.OnDecember3theLegislaturemettovoteontheoverride.ThemeasurepassedeasilyintheSenate.IntheAssembly,MinorityLeaderJamesEmery,anupstateRepublicanwhowasrunningforGovernor,pressuredsomeofhiscolleaguestoabandontheirinitialoppositiontothebillandsupporttheoverride.

AlthoughtheMinorityLeaderhimselfdidnotvotefortheoverride,hesucceededinconvincingothers.WhenAssemblymanGeorgeWinnerofElmirafirstwalkedintothechamberthatnighthedeclaredhisoppositiontotheoverride.Later,hesaid,“Intothetank,”andswitchedhisearliervote,asdid13Republicancolleagues,andjoinedtheAssembly’sDemocraticmajorityinoverridingtheGovernor’svetobythreevotes.At9:55p.m.theroadtoadoptingS7000Ahadbeencompleted.12

SAMe AS it eVeR WAS?

Twenty-fiveyearsafterpassingS7000A,muchremainsthesame.Manyhomeownerscomplainthattheirtaxesaretoohigh—despiterelativelyloweffectivetaxburdenscomparedtorentalapartmentbuildingsandcommercialproperties.Otherinequitiescontinuetopersistaswell.Apatchworkof“fixes”suchasthecoopandcondotaxabatementhasaddedtothedisparitiesandcomplexitiesofthepropertytaxsysteminNewYorkCity.

FrustrationoverpropertytaxesissoprevalentacrossthestatethatGovernor-electElliotSpitzermadepropertytaxesoneofhispreeminentcampaignissues.Governor-electSpitzer’scampaignWebsiteprominentlydisplayedhisplanfor“middleclasspropertytaxrelief,”promotingitbeforesuchothermajorissuesaseducation,publicsafety,andhealthcare.

ButtheGovernor-elect’splanisaimedatreducingpropertytaxburdensratherthansystematicreform.WhilemanyNewYorkersmayfeelthatthepropertytaxsystem,especiallyasithasevolvedinthecity,isbroken,thereislittleaccordonhowtofixit.AnefforttocraftfundamentalreformswouldhavetotreadthesamepoliticalminefieldofcompetinginterestsandpolicyconcernsasAlbanylegislatorsfacedmorethantwodecadesago.Withoutanothercourtrulingorsomeotherexternalprod,itisnotaminefieldmanylegislatorsinAlbany,orCityHall,appearreadytobrave.

Written by Doug Turetsky and Peter Madden

end noteS

1Real Property Tax Policy for New York City,GraduateSchoolofPublicAdministration,NewYorkUniversity,December31,1980,p.1-3.2FrankDomuradandGeneRussianoff,City of Unequal Neighbors: A Study of Residential Property Tax Assessments in New York City,July,1982,pp.1-2.3JenniferC.DayandAvalauraL.Gaither,“VotingandRegistrationintheElectionofNovember1998,”Current Population Reports,U.S.CensusBureau,August2000.4HowardR.Ernst,The Housing Gap: A Political Analysis of American Voters by Housing Tenure,CenterforGovernmentalStudies,UniversityofVirginia,December15,1999,pp.4-13.5E..J.Dionne,Jr.,“TheArtofVotingNottoVoteAnyPropertyTaxReform,”The New York Times,June16,1981,p.20.6WilliamTucker,“TaxingNassau’sTaxSystem,”The New York Times,October24,1976.7ErnestDickinson,“Full-ValueAssessmentsIrkTowns,”The New York Times,September30,1979.8DionneJr.,June16,1980.9“TheLegislativeResponsetothePropertyTaxCrisis:AnAnalysisofPublicPolicyApproachestoClassification,”NewYorkStateAssemblyTaskForceonSchoolFinanceandRealPropertyTaxation,September1979.10ChrisMcNickle,To Be Mayor of New York: Ethnic Politics in the City,(NewYork:ColumbiaUniversityPress),1993,pp.275-278.11E.J.DionneJr.,“LegislatureOverridesCarey;PropertyTaxBillIsNowLaw,”The New York Times,December5,1981.12Ibid.

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Cause and Effect: An Analysis of Changes in Property Tax Burdens Since 1981

ThedraftersofS7000Aintendedtoavoidmajorchangesinthedistributionofpropertytaxburdensasitstood25yearsago.Whiletheysucceededinpreventingthesortofchangesthatwerepredictedifthestatecourt’sHellersteindecisionhadsimplybeenallowedtotakeeffect,taxburdenshaveinfactchanged

significantlyovertime.Thischapterexaminesthechangesintaxburdensamongdifferenttypesofpropertyandthedisparitiesintaxtreatmentwithinthesamepropertytype.

UnderS7000A,thecity’spropertytaxhasgrownevenmoretiltedinfavorofownersofone-,two-,andthree-familyhomesthanithadbeenin1981.Whilesomeofthemostegregiousdisparitiesthatexistedbefore1981havebeenremoved,IBOfindsthatnewdisparities—particularlybetweensimilartypesofresidentialproperty—havegrown,oftenasadirectresultoffeaturesofS7000A.

Afteradiscussionofthedatasourcesandmethodologyusedinthisstudy,wereviewindetailthemajorfeaturesofS7000A.Wethenanalyzehowtaxburdenshavechangedfordifferentclassesofproperties.Thechapterconcludeswithalookatdisparitieswithinthemajorpropertytypes.

dAtA And MetHodS

AssessinghowtaxburdenshavechangedunderS7000Arequiresaconsistentwayofmeasuringthoseburdens.Theannualtaxratesarereadilyavailable,butaswillbecomeapparentbelow,becauseoffeaturesofthesystemcreatedunderS7000A,thesenominaltaxratesdonotprovideausefulmeasure.Thenominaltaxratesareappliedtoassessedvalue,butlevelsofassessmentvarygreatlyamongtypesofpropertyunderS7000A.Toavoidthisproblem,throughoutthisstudyweusetheneteffectivetaxrate(ETR)asourstandardmeasure.Itissimplythefinaltaxlevy,netofabatementsandrebates,dividedbythemarketvalueoftheproperty.SincetheETRismeasuredagainstmarketvalueratherthanassessedvalue,theETRavoidstheproblemcausedbydifferencesinthelevelofassessment.

TomeasurethechangeineffectivetaxratesunderS7000A,IBOhadtodevelopitsownestimatedmarketvaluesinordertocompensateformissinganddistorteddataintheDepartmentofFinance’sofficialassessmenthistory.Thefinancedepartment,likeallassessingagencies,estimatesmarketvaluesasafirststepinvaluingpropertiesfortaxpurposes.Thevalues,however,werenotgenerallyrecordedandmadeavailabletothepublicuntil1993.1Therefore,weneededtoestimatemarketvaluesfortheyears1984through1992.Forconsistency,wealsoestimatedIBOvaluesfortheperiod1993through2007.

Asecondproblemwiththefinancedepartment’smarketvaluesafter1993isthattheydonotreflectrealvaluesforcoopandcondobuildings.Asdiscussedbelow,aprovisionofS7000Aforcesthecitytovaluethesepropertiesasiftheyarerentalbuildings.ToestimatevaluesclosertothetruemarketvalueofthesebuildingsIBOdevelopedsales-basedvaluesfromtherecordofapartmentsales.

Thisstudyreliedonthreeprimarydatasources:1)afilewiththehistoryofassessmentsforeachpropertyinthecityforeachassessmentrollbeginningwiththeoneusedfor1984throughthecurrent2007assessmentroll;2)fileswithrecordsofindividualsalestransactionsfrom1975throughJune2006forallpropertiesexceptcoops,forwhichthedatabeginin1990;and3)thefinancedepartment’sopenbalancefile,whichprovidedtherecordofabatementsfor1997through2007.Wealsouseddemographicdatafromthe1980and2000decennialcensusandthe2005HousingandVacancySurvey(HVS).

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ForcommercialandutilitypropertiesandlargerentalbuildingsweusedtheDepartmentofFinancemarketvaluesthroughoutthestudy.2Forotherproperties—one-,two-,andthree-familyhouses,coops,condos,andrentalbuildingswith10orfewerunits—weusedIBO’ssales-basedvalues.ThefirststepinestimatingtheseIBOmarketvalueswastocomputeratiosofsalespricestomarketvaluesfordifferentpropertytypesforvariousunitsofgeography.3Fortheyearsbefore1993wealsocomputedthemediansalespricetoassessedvalueratiosforthesamecombinationsofpropertytypesandgeography.

Thesesalesstatisticswerethenappliedtotheassessmenthistorytogenerateestimatedsales-basedmarketvaluesforvariouslevelsofgeography.Thedifferentlevelsofgeography—arrayedfromsmallesttolargest—arecooporcondobuildings,smallresidentialmarketsinManhattanthatareusuallyonlyafewsquareblocks,alargersetofapproximately250neighborhoodsdefinedtoconformtorealestatemarketsacrossthecity,communityplanningdistricts,andboroughs.IBOtestedtoseeifthereweresufficientsalesinaparticularassessmentyearinagivenunitofgeographytohaveconfidenceintheestimateandusedthesalesstatisticsfromthesmallestunitofgeographywhichmetourcriteriaforminimumsales.4Toestimatecooppricespriorto1990whenthecoopsalesbecamesubjecttotheRealPropertyTransferTaxandthereforeweresystematicallyrecordedinfinancedepartmentfiles,IBOusedcondopricesadjustedforthehistoricalrelationshipbetweencoopandcondopricesineachborough.5

IncomputingthelevyforeachpropertyweusedthefinaltaxratessetbytheCityCouncil.Inyearswithmid-yearrateincreasesweusedasingleblendedratefortheentireyear.Ourlevycalculationsexcludetheseparateveterans’taxrate.IBOhasaccesstoabatementinformationfrom1997onwardwhichallowedustocomputeanetlevyamount.TheabatementsincludedinthestudyweretheJ-51,IndustrialandCommercialIncentiveProgram,coop-condo,Section626,lowerManhattancommerciallease,andresidentialconversion.Thecurrent$400dollarrebateforhomeownersisnotrecordedintheopenbalancefile.Thereforeitwasestimatedusingthepopulationofthestate’sSchoolTaxRelief(STAR)exemption.AnytaxpayerreceivingSTARwasassumedtoalsobereceivingtherebate.

AlthoughIBOstartedwiththefullfinancedepartmenthistoryfiles,therearesomeyearsforwhichthesumoftherecordsonthecomputerfiledoesnotmatchthepublishednumbers.Inmostyearsthetotalsrepresentmorethan99percentofthepublishedamounts.Nevertheless,becauseofthediscrepancies,theassembledstudyfileshouldbeconsideredasample.

feAtUReS of S7000A

AswehaveseenfromthereviewofthelegislativehistoryofS7000A,theprimarygoalofthedrafterswastopreservethestatusquoandavoidthelargeshiftsintaxburdensthatwouldhaveoccurrediftheprincipalsoftheHellertsteindecisionwerefollowed.OneofthemainfeaturesofS7000Aisclassification.WhiletheHellersteindecisionfoundthatthecityhadillegallytreateddifferentgroupsofpropertiesdifferently,S7000Alegalizedsuchclassification.Ratherthanrequiringuniformityacrossallproperties,thenewlawrequireduniformitywithinclasseswhileallowingfordifferenttaxtreatmentforeachclass.

Four Classes of Property.Propertieswerenowgroupedintofourclasses:Class1originallyconsistedofone-,two-,andthree-familyhouses.OvertimeotherpropertytypeshavebeenmovedintoClass1,includingsmallcondobuildingswiththreeorfewerunitsthatwerebuiltascondos,andbungalowcommunitiesorganizedascooperativessuchasBreezyPointinQueens,smallmixed-usebuildingswiththreeorfewerunitswherethecommercialusage(usuallyagroundfloorstore)islessthanhalfofthesquarefootage,vacantlandoutsideofManhattanthatisadjacenttoaClass1parcel,andparcelswithafree-standinggaragethatareadjacenttoClass1parcels.

Class2consistsofallotherresidentialpropertiesincludingcoopsandcondosnotinClass1.Class3includespropertyofregulatedutilitiesandholdersoffranchisessuchascabletelevisionproviderswhoplacetheirequipment

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onorunderthecitystreets.SomeofthepropertyinClass3isassessedbythestate’sOfficeofRealPropertyServicesratherthanbythecity’sDepartmentofFinance.6Class4consistsofallotherproperty,rangingfromgasstationsandcornerstores,tofactoriesandwarehouses,uptoofficeskyscrapers.Asaresultoftechnologicalandregulatorychangesoverthelast25years,muchofthepropertyoriginallyplacedinClass3isnowincludedinClass4.

Eachclasscanhavedifferentassessmentratios(assessedvaluefortaxpurposesdividedbymarketvalue),valuationmethods,andtaxrates.Thecitycansettheassessmentratiosandtailorthevaluationmethodswithineachclasstosuititspolicies.Oncethecitydetermineshowmuchrevenueitwantstoraisethefromthepropertytaxinafiscalyear,theindividualclasstaxratesarelargelydeterminedbyformula,withonlyasmallamountofpolicydiscretionavailabletotheCityCouncil.

Limiting Assessment Increase/Changes.AsecondmainfeatureofS7000Aisthelimitsonassessmentchanges,althoughthelawspecifiesdifferentlimitationrulesforeachclass.InClass1,assessmentincreasesthatresultfrommarketconditionscannotexceed6percentinasingleyearand20percentoverfiveyears,regardlessofhowfastthemarketvaluehasgrown.Assessmentincreasesduetophysicalimprovementstoapropertyarenotsubjecttothecap.Suchcapsonassessmentgrowthareintendedtoprotecttaxpayersfromtaxincreasesdrivenbyrapidappreciationwhichmaynotbeaccompaniedbyacorrespondingincreaseintheowner’sabilitytopaythehighertax.ThiswasakeyconcernforthedraftersofS7000AwhowerewellawareofthetaxpayerfurycausedbyhousingpriceinflationinCaliforniainthe1970sthatculminatedinthepassageofProposition13in1979.Aswillbediscussedingreaterdetailbelow,theClass1assessmentcapincludedinS7000Ahasresultedinsignificantforegoneassessedvaluethat—barringanunprecedentedcollapseinhousingprices—willprobablyneverberecaptured.

OneofthefirstsignificantchangestotheoriginalS7000AstructurewastoextendthebenefitsofassessmentcapstosmallapartmentbuildingsinClass2.Forthesebuildingsannualassessmentincreaseswerecappedat8percentandnomorethan30percentoverfiveyears.AlthoughtheyremaininClass2,theyhavebeendesignatedassubclassesandareoftenbrokenoutforreportingpurposes.Class2Areferstobuildingswithfourtosixunitsthatreceivedthebenefitsofthecapsin1986.Class2Breferstobuildingswithseventotenunitswhoseassessmentswerecappedbeginningin1988.Finally,Class2Cwascreatedtocapassessmentsforcoopsandcondoswith10orfewerunitsbeginningin1994.

AssessmentlimitsarehandleddifferentlyforClass2buildingswithmorethan10unitsandinClass4.Forthesepropertiesthelawrequiresthatassessmentchangesduetomarketconditionsbephasedinoverfiveyears.7Taxesarecomputedtwoways,withthetaxpayerchargedtheloweramount.Thefirstmethodusestheactualassessmentwithouttakingintoaccountanychangescurrentlybeingphasedin.Thesecondmethod,whichisknownasthetransitionalassessment,takesintoaccountanychangebeingphasedinthisyearaswellasthosebeingphasedinfromthefourpreviousyears.Thelesseroftheactualorthetransitionalassessedvalue,netofexemptions,iscalledthebillabletaxableassessment.Thisisthevalueusedtocalculatetaxliabilities.

UnliketheassessmentcapsusedinClass1andinClasses2A,2B,and2C,whichhavepreventedthecityfromfullyreflectingallofthemarketvalueappreciationthathasoccurredoverthepast25years,theClass2andClass4phase-inssmoothouttheassessmentchangeswhileallowingthecitytoeventuallycapturetheappreciationinvalueforthoseproperties.Indeed,attimeswhenthemorecyclicallysensitiveincomeandsalestaxeshavecontractedsharplyduringdownturnsinthelocaleconomy,thissmoothingprocesshashelpedthecitysustainitsrevenuebasethankstothepipelineofpreviousassessmentincreasesstillbeingphased-in.Forexample,during2002asthecityeconomywasbatteredbyabriefnationalrecession,thecollapseofthedot-combubbleonWallStreet,andtheshockofthe9/11attack,incomeandsalestaxesfellby17.1percentfrom2001.Realpropertytaxrevenue,ontheotherhand,grewby7percentthanksinlargeparttothepipelineofpreviousassessmentincreasesstillbeingphased-in.

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Class Share System.AthirdfeatureofS7000Aisoftenreferredtoasthe“classsharesystem.”Fundamentally,itisdesignedtoensurethateachofthefourtaxclassespayroughlythesameshareofthelevyastheydidin1981.Thesharesareadjustedeachyearforphysicalchanges(i.e.newconstructionanddemolition),shiftsofindividualpropertiesfromoneclasstoanother,andtopartiallyreflectchangesineachclasses’shareofmarketvalue.TheCityCouncilwasalsogivensolediscretiontoadjustthetaxlevyshareofeachclassbyupto5percentannually.Aswillbediscussedingreaterbelow,thisdiscretionwasregularlyusedtoreducetheClass1andClass3shares.Oncetheclasssharesaredetermined,thetaxrateforeachclassissetbydividingtheclasses’shareofthelevyneededforthebudgetbythebillabletaxableassessedvalueintheclass.

WhenS7000Awasoriginallyenacted,itwasexpectedthatthestate’sOfficeofRealPropertyServiceswouldundertakemarketvaluesurveyseverytwoyearstobeusedwhenadjustingthemarketvalueshares.Thefirststatesurveywasscheduledtobereadyfor1987,butitwasdelayedandlegislationwaspassedpushingthedeadlinebackuntil1989.Thesamebillalsosubstituted1984,ratherthan1981asthebaseyearfortheshares.Withnomarketvalueadjustmentsmadefrom1983through1989,duringwhichClass1valueshadbeengrowingrapidly,theuseofthefirstsurveyin1989wouldhaveresultedinasignificantadjustmentintheclassshares,withtaxesforClass1growingbyanestimated42percent.8Inordertoavoidsucharesult,theclasssharesystemwasfurthermodifiedbylegislationpassedin1989.Theprocessforcalculatingtheclassshareswasalteredtoincludeannualadjustmentsformarketvalueshareswithoutwaitingforperiodicsurveysbythestate,andreducethediscretionoftheCityCounciltoadjusttheshareseachyear.Thelegislationalsoresetthebaseyearforfuturesharecalculationsto1990.

Particularlyafterthe1989legislationwasenacted,theclasssharesystemdiscouragesincreasesintheoverallnominaltaxratebecausetheformulasensurethatanincreasewillbebornebyallclasses,includingClass1.Indeed,theoverallnominaltaxrateremainedfrozenfrom1992through2002.Followingthe18.5percentrateincreasethatwasphased-inin2003and2004asthecityfacedasevererevenueshortfall,theoverallnominaltaxratehasonceagainbeenfrozenatthenew,higherlevel.

Valuing Coops and Condos.AnotherfeatureofS7000Athatreceivedlessattentionin1981thantheassessmentcapsandclassshares,butwhichhasgrownincreasinglyimportantintheyearssince,concernshowcoopsandcondosaretobevalued.ThelegislationinsertedanewSection581intheRealPropertyTaxLawthatrequiredthecitytovaluecoopsandcondosasiftheywererentalbuildings.Thismeantthatassessorswerenotallowedtolookatthesalespricesofapartmentsinabuildingindeterminingmarketvalue.Sincethecityusesthecapitalizednetincomemethodtovaluerentals,assessorsmustimputeanincomeamountforcoopsandcondosusinginformationfromcomparablenearbybuildings.Giventheageandlocationofmanycoopsandcondos,thecomparablebuildings—particularlyintheearlyyearsunderS7000A—arerent-regulatedbuildings.

Usingtheincomeapproachalmostalwaysresultsinalowervaluethanifsalespriceswereused.Atthetime,whenawaveofcoopconversionswassweepingthecity,itwasthoughtthatSection581wouldavoidtheproblemofassessorsvaluingbuildingsbasedontheirconversionpotential.Butitwasalsoclearthatignoringsalespricesresultedindiscountedmarketvaluesforexistingcoopsandcondos.Aswillbediscussedingreaterdetailbelow,thisdiscountinghasgrowndeeperintheyearssince,wideningthedisparitiesintaxburdensamongdifferenttypesofresidentialpropertyandevenwithinthecoopandcondogroupitself.

Trends in Market Values, Assessments, and Tax Levy.Evenwiththeassessmentcaps,theSection581constraintoncoopandcondovaluations,andsomeadministrativelyimposedchangesthatloweredassessments,9totalassessedvaluehasgrownbyanaverageof4.2percentannuallysince1983(seeTable1).Overthesameperiod,thetaxlevy,netofrebatesandabatements,hasgrownevenfaster,averaging5.2percentannually.Whileincreasesinthenominaltaxrateaccountforsomeofthegrowthinthelevy,abouttwo-thirdsoftheincreaseisduetoassessmentgrowth.Ifthenominaltaxratehadremainedunchanged,thelevywouldstillhaveincreasedbyabout160percentsince1983.

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Despitetheincreaseinthenominaltaxratethelevyasashareofmarketvalue—theeffectivetaxrate—hasbeenfallingsinceatleast1984.IBO’sestimatedmarketvaluesforparcelsinthestudyhavegrownnearlysix-foldsince1984,averaging8.5percentperyearbetween1984and2007.Withmarketvaluegrowthoutstrippinggrowthinnetlevy,thecitywideETRdroppedatotalof51.3percent,or3.1percentannually,overthesameperiod.Forcomparison,Table1includestheDepartmentofFinancemarketvaluesbeginningin1993,whentheywerefirstpublished.AlthoughfinancedepartmentvaluesaredistortedbytheSection581constraintoncoopandcondoassessments,theyalsoshowadeclineintheeffectivetaxratebetween1993and2007of22.4percent.Notsurprisingly,givenIBO’smuchhigherestimateformarketvaluesinrecentyears,thedeclineintheIBO-estimatedETRforthesameperiodislargerat41.2percent.Inanenvironmentofgenerallyfallingeffectiverates,however,somehavefallenmuchfurtherthanothers.Inthenextsectionweexaminechangesineffectivetaxratesforvarioustypesofproperty.

cHAnGeS in tAX BURdenS BY tYPe of PRoPeRtY

Growing Disparities in Effective Tax Rates.A1980NewYorkUniversity(NYU)studycommissionedbytheDepartmentofFinancedocumentedthewidedifferencesintaxburdensforvarioustypesofpropertyin1979and

Table 1Market Values, Assessments and Levy under S7000A, 1983-2007Dollars in millions

DOF IBODOF Assessed Value1 Nominal Effective IBO5 Effective

Fisal Year Market Value Actual Billable Levy Net Levy2 Tax Rate3 Tax Rate4 Market Value Tax Rate6

1983 -- $47,194.0 43,824.8$ 4,004.6$ 4,004.6$ 9.120 -- -- --1984 -- 51,422.5 45,795.1 4,224.6 4,224.6 9.206 -- 152,961.7 2.731985 -- 53,589.8 48,266.4 4,475.5 4,475.5 9.255 -- 185,523.7 2.401986 -- 58,572.9 52,469.9 4,866.8 4,866.8 9.256 -- 209,643.6 2.311987 -- 61,972.6 55,089.4 5,141.7 5,141.7 9.315 -- 243,404.8 2.111988 -- 67,499.9 59,111.5 5,586.0 5,586.0 9.434 -- 288,590.4 1.931989 -- 76,577.2 64,141.6 6,233.0 6,233.0 9.703 -- 346,727.7 1.791990 -- 85,846.6 70,053.9 6,872.4 6,872.4 9.797 -- 400,193.6 1.711991 -- 91,534.1 76,333.6 7,743.0 7,743.0 10.135 -- 427,401.4 1.811992 -- 83,611.0 78,467.6 8,318.8 8,318.8 10.591 -- 393,749.2 2.111993 322,925.7 81,714.6 79,179.1 8,392.5 8,392.5 10.591 2.60 370,555.2 2.261994 300,283.9 79,296.5 78,177.5 8,113.2 8,113.2 10.366 2.70 350,577.1 2.311995 293,008.7 76,807.1 76,019.3 7,889.8 7,889.8 10.366 2.69 346,369.0 2.281996 294,069.8 77,423.6 75,851.6 7,871.4 7,871.4 10.366 2.68 354,883.1 2.221997 294,379.3 77,509.3 75,495.0 7,835.1 7,742.1 10.366 2.63 351,250.4 2.201998 298,357.0 78,770.3 76,020.7 7,890.4 7,694.4 10.366 2.58 364,275.6 2.111999 311,368.7 82,154.7 77,698.7 8,099.3 7,852.2 10.366 2.52 396,697.7 1.972000 326,921.8 85,868.0 80,089.4 7,374.3 7,114.7 10.366 2.18 428,215.7 1.882001 354,348.4 90,569.7 83,258.0 8,730.3 8,442.1 10.366 2.38 481,465.3 1.732002 392,347.6 97,486.4 88,289.6 9,271.2 8,965.7 10.366 2.29 542,616.0 1.632003 429,810.4 102,704.7 93,287.4 10,688.8 10,376.6 11.323 2.41 611,356.1 1.672004 466,677.7 106,789.5 98,634.5 12,250.7 11,879.2 12.283 2.55 674,485.2 1.742005 540,384.4 110,316.4 102,367.3 12,720.0 12,076.3 12.283 2.23 794,530.6 1.502006 614,455.0 122,484.0 110,127.2 13,668.1 12,978.9 12.283 2.11 928,077.3 1.382007 674,076.3 127,637.1 115,119.4 14,291.2 13,603.1 12.283 2.02 1,009,109.5 1.33Change1984-2007 170.5% 162.7% 256.9% 239.7% 34.7% 559.7% -51.3% Annual Avg. 4.2% 4.1% 5.4% 5.2% 1.2% 8.5% -3.1%Change1993-2007 108.7% 56.2% 45.4% 70.3% 62.1% 16.0% -0.22 172.3% -41.2% Annual Avg. 5.4% 3.2% 2.7% 3.9% 3.5% 1.1% -0.02 7.4% -3.7%

Notes:

1. Taxable assessments (actual and billable) are net of exemptions, including STAR.

2. Net Levy is levy net of rebates and abatements. Data are available only since 1997.

3. Nominal tax rate per $100 of assessed value, exclusive of the veterans school tax.

4. Effective tax rate per $100 of DOF market value

5. IBO market value from study sample. See "Data and Methods" in text for discussion of differences from full assessment roll.

6. IBO effective tax rate per $100 for parcels in study sample.

Sources: IBO; DOF Annual Report on New York City Real Property Tax, 1993-2005;

DOF RPAD file; City Council Tax Fixing Resolutions, 2006-2007.

SOURCES: IBO; DOF Annual Report on New York City Real Property Tax, 1993-2005; Deprtment of Finance “RPAD” file; City Council Tax Fixing Resolutions, 2006-2007.NOTES: 1Taxable assessments (actual and billable) are net of exemptions, including STAR. 2Net Levy is levy net of rebates and abatements. Data are available only since 1997. 3Nominal tax rate per $100 of assessed value, exclu-sive of the veterans school tax. 4Effective tax rate per $100 of Department of Finance market value. 5IBO market value from study sample. See “Data and Methods” in text for discussion of differences from full assessment roll. 6IBO effective tax rate per $100 for parcels in study sample.

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1980,withone-familyandtwo-familyhousesenjoyinganeffectivetaxrateof2.15per$100ofmarketvalue,whichwasbarelyhalf(52percent)oftherateforallproperty.10Theeffectivetaxrateforotherhousingwas5.19per$100andfornon-residentialpropertywas5.55per$100.S7000Awasdesignedtoavoidsubstantialequalizationofthesetaxburdens.

IBO’sanalysisoftheeffectivetaxratesformajorpropertytypesoverthelast25yearsshowsthatnotonlyhastherenotbeenanymovetowardequalizationbutthegapsbetweenClass1housesandotherpropertytypeshavegrownwider.11ThetrendsareshowninTable2withtheannualeffectivetaxrates—measuredusingIBO’sestimatesofmarketvalues—forvarioustypesofproperty.

Forownersofone-,two-,andthree-familyhouses,whichcomprisethebulkofpropertiesinClass1,theaveragetaxburdenhasfallenby65percentsince1984.OwnersofsmallapartmentbuildingsinClass2Aand2BhaveseenasimilardeclineintheirETRoverthesameperiod.TherewerealsodeclinesintheETRsforcoopandcondobuildingsof29percentand28percent,respectively.Walkupapartmentbuildingshaveseenaverymodestdeclineof7percent,whiletheeffectivetaxrateforelevatorapartmentbuildingsin2007hasgrownslightlysince1984.TheaverageETRinClass4fellby18percent,whiletheutilitypropertyinClass3hadanETRper$100in2007thatwas12percenthigherthanin1984.

Asaresultofthesechanges,theeffectivetaxrateforClass4properties,whichwas3.3timeshigherthantherateforone-,two-,andthree-familyhousesin1984,isnow7.8timeshigher.Forcoops,theratiototheone-,two-,and

Table 2Net Effective Tax Rates for Selected Property Types, 1984-2007per $100 of market value

FiscalYear

1,2,3Family Coops Condos Walkups Elevators 2A/2B Class 3 Class 4

1984 1.32 0.96 0.94 4.54 3.64 2.22 4.58 4.331985 1.18 1.09 1.05 3.51 2.76 2.33 4.49 3.251986 1.03 1.18 0.93 3.41 2.69 2.21 4.49 3.251987 0.88 0.97 0.79 3.22 2.60 1.63 4.55 3.241988 0.71 0.93 0.80 2.98 2.55 1.25 4.94 3.221989 0.60 0.91 0.79 2.79 2.46 1.03 5.60 3.091990 0.55 0.90 0.83 2.71 2.39 0.90 6.41 2.981991 0.57 1.00 0.95 2.79 2.40 0.89 7.54 3.221992 0.66 1.42 1.25 3.56 3.00 1.14 6.49 3.911993 0.76 1.56 1.41 3.75 3.14 1.65 3.96 4.061994 0.80 1.70 1.56 4.08 3.40 1.69 3.30 4.151995 0.76 1.80 1.59 4.10 3.37 1.93 3.43 4.081996 0.76 1.83 1.60 4.19 3.47 2.06 3.52 3.781997 0.77 1.86 1.63 4.03 3.38 2.12 3.48 3.811998 0.78 1.67 1.43 3.93 3.35 2.09 3.77 3.531999 0.74 1.27 1.21 3.63 3.18 1.87 3.86 3.452000 0.70 1.13 1.10 3.64 3.15 1.71 4.12 3.442001 0.64 1.05 0.99 3.52 3.10 1.47 4.55 3.182002 0.60 0.95 0.89 3.45 3.04 1.26 4.54 3.262003 0.60 0.92 0.87 3.68 3.23 1.21 5.09 3.642004 0.61 0.96 0.92 4.23 3.61 1.27 5.31 3.932005 0.49 0.81 0.81 4.04 3.63 0.66 5.32 3.952006 0.47 0.70 0.69 4.04 3.52 0.70 5.26 3.502007 0.46 0.68 0.68 4.21 3.72 0.78 5.15 3.56

SOURCE: IBO.

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three-familyETRhasgonefrom0.7to1.5,andforelevatorapartmentbuildingstheratiogrewfrom2.8to8.1.TheeffectsofcentralfeaturesofS7000Aaccountformuchofthesedifferencesintheoutcomesforthesevariouspropertytypes.

Class Share Adjustments Widen Disparities.Theclassshareprocessisabigpartofthestoryandamajorreasoneffectivetaxratesforhomeownershaveremainedlowerthanforothertypesofproperties.Asnotedearlier,theclasssharesystemwasintendedtolimitshiftingofburdensfromoneclasstoanotherbyestablishingthepre-S7000Alevysharesasthebaseforthenewsystem.Thebaseshareswerethentobeadjustedannuallytoaccountforphysicalchange(i.e.newconstruction,alterations,anddemolitions)andperiodicallyforchangesintheshareofmarketvalueamongthefourclasses.

TheCityCouncilwasalsogranteddiscretiontomakesmalladjustmentstotheshareseachyearaspartofthetaxratefixingprocess.TheCouncilusedthisdiscretiontolowertheClass1shareofthelevyeachyearfrom1983to1991whileincreasingtheClass4shareineachofthoseyears.ReducingthelevyshareforClass1contributedtothelowerETRforone-,two-,andthree-familyhouses.Likewise,theincreasesintheClass4levysharemeantthattheETRfortheclassfelllessthanitwouldhaveifthediscretionaryadjustmenthadnotbeenmade.TheshareforClass3wasreducedineachyearfrom1985through1991,inparttocompensateforregulatoryandstatutorychangesthatreducedtheassessabletaxbasefortheclass.EvenwiththediscretionaryreductionsintheClass3shareofthelevy,theETRfortheclassincreasedoverthesevenyears.ThediscretionarychangesforClass2weresporadicwithsomeyearsofincreaseandotheryearsofdecrease.

UnderS7000Aasenacted,thefirstmarketvalueadjustmenttotheshareswastobedonein1986forusein1987.Thelawwassubsequentlyamendedtopostponetheadjustmenttill1989forusein1990.Thesepostponementsmeantthatby1989adecade’sworthofstronggrowthinresidentialmarketvalues—themediansalespriceforaClass1househadgrownby257percentfrom1981to1989—wassettobereflectedwhentheshareswereadjustedformarketvaluechanges.CombinedwiththeeffectoftheannualdiscretionaryadjustmentsbytheCouncilthathadbeenusedtolowertheClass1shareeachyear,thismeantthatthescheduledmarketvalueadjustmenttotheclassshareswouldhavesignificantlyincreasedClass1taxburdens.

Topreventsucharesult,theMayorandtheCouncilappealedtotheLegislatureforyetanotherpostponement.Theresponsewasanoverhauloftheclasssharesystem.Thebaseshareswereresettothe1990shares,theCouncil’sdiscretiontoadjustthesharesunilaterallywaslargelyended,andtheprocessforadjustingtheclasssharesforchangesinthemarketvalueshareswasaltered.Ratherthanperiodicadjustmentsbythestateusingacomprehensivebutlengthyvaluationprocess,therewouldbeanannualadjustmentwithaggregatemarketvaluescomputedusingthestate’sannuallyestablishedequalizationrates.Toavoidlargeyear-to-yearshiftsintheclassshares,themaximumchangeinaclasses’marketvaluesharewastobecappedat5percent.Whenaclasses’marketvaluechangeexceededthecap,theCouncilwasgiventheresponsibilitytoallocatetheexcesstooneormoreoftheotherclasses.BecausetheCouncil’srolewaslimitedtoallocatingtheexcessoverthecap,muchlessoftheclassshareallocationwassubjecttoCouncildiscretionthanundertheoriginalS7000Alegislation.

The1989legislationwasquitefavorabletoClass1inthatitlockedinthediscretionaryadjustmentsthathadalreadybeenmadethrough1990andalsoavoidedthemarketvalueadjustmentthatwouldhavecapturedmuchofthe1980sgrowth.Asaconsolationtoownersandadvocatesoftheotherclasses,therewasthepromiseofmoreregularmarketvalueadjustmentsinthefuturewithlessroomfordiscretionaryshiftsofthetaxburdenfromClass1ontotheotherclasses.

Intheyearssince1992,whenthenewclassshareprocesstookeffect,themarketvalueofClass1propertiesasmeasuredbythestateforclasssharepurposeshascontinuedtogrowfasterthanthoseintheotherclasses.12Inorder

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toholdbackthegrowthinClass1’sshareofthelevythatwouldhaveresulted,theMayorandtheCityCouncilhaveroutinelyintervenedwiththestateLegislaturetohavethelawalteredtolowerthecaponthemaximumincreaseusedwhencalculatingthechangeinmarketvalueshares.Inrecentyearsthecaphasgenerallybeenloweredfromthestatutory5.0percentto2.0or2.5percent.Withalowercap,lessoftheincreaseinClass1’sshareofmarketvalueisusedinadjustingthesharesofthelevy.Inaddition,thelowercapmeansthatthereismoreoftheunusedamountoverthecaptobespreadtotheotherclasses,whichresultsinhighersharesthantheywouldotherwisehave.13

Giventhemanyadjustmentsthathaveoccurredintheclasssharesystemovertheyearsitisdifficulttocalculatetheimpacttheyhavehadoncurrenttaxburdens.Inboththeoriginalversionofthesystemandinthealteredsystemthattookeffectin1992,changesinshareofmarketvaluewereintendedtodrivetheadjustmentsintheclassshares.Wecangetasenseoftheeffectofthedeferredmarketvalueadjustments,thediscretionaryadjustments,andtheloweringofthecaponthemaximumadjustment,byestimatingwhattheshareswouldbetodayiftheinitialbasesharehadbeenadjustedsimplyformarketvaluechangesovertheinterveningyears.

Table 32007 Class Levy Shares with Adjustment Only for Change in Market Value Shares Since 1984Dollars in millions

Class 1 Class 2 Class 3 Class 41983 Levy Shares Before Discretionary Adjustment 0.1464 0.2707 0.1717 0.4104

2007 Market Value Shares Relative to 1984 142.23% 120.82% 19.02% 60.94%2007 Levy Shares w/ Market Value Adjustment 0.2545 0.3999 0.0399 0.3057Current 2007 Levy Shares 0.1522 0.3641 0.0748 0.4089Difference in Levy Shares 0.1023 0.0358 -0.0349 -0.1032

2007 Levy with Market Value Adjusted Shares $3,472.8 $5,456.4 $544.6 $4,171.7Current 2007 Levy 2,076.9 4,967.9 1,020.8 5,579.9Difference in Levy 1,395.9 488.5 -476.2 -1,408.2

2007 ETR per $100 with Market Value Adjusted Shares 0.84 1.32 2.62 2.55Current 2007 ETR per $100 0.45 1.13 5.15 3.56Difference in ETR per $100 0.39 0.19 -2.53 -1.01

Source: IBO

Note: Market value adjustment based on IBO estimates which used sales based values for coop, condos,

and small rentals in Classes 2A and 2B. Changes in shares of Department of Finance market values,

can not be computed for years prior to 1993.

SOURCE: IBO. NOTES: Market value adjustment based on IBO estimates which used sales based values for coop, condos, and small rentals in Classes 2A and 2B. Changes in shares of Department of Finance market values, can not be computed for years prior to 1993.

Beforethediscretionaryadjustmentsmadethatyear,thesharesin1983—thefirstyearunderS7000A—wouldhavebeen14.64percentforClass1,27.07percentforClass2,17.17forClass3,and41.06percentforClass4.IfweadjusttheselevysharesbythechangesinthesharesofmarketvaluesasestimatedbyIBOfortheinterveningyears,thedistributionofthe2007levywouldbesignificantlydifferent.Class1propertyownerswouldfaceanaggregatetaxlevy67percenthigherthanwhattheypaytoday.Class4ownersontheotherhandwouldpay$1.4billion(25percent)lessthantheycurrentlypay.ThetotallevyforownersofapartmentsandapartmentbuildingsinClass2wouldbe$488million(10percent)higherthanunderthecurrentshares.TheClass3levywouldalsofallby47percent.Thechangesinthelevieswouldaltertheeffectivetaxratesaswell.Forexample,withthischangealone,theClass1ETRwouldgrowbynearly86percentto$0.84per$100ofmarketvalue.TheClass2ETRwouldalsorisesubstantially,whiletheClass4ETRwouldfallbymorethanone-quarterandtheClass3ratebynearlyhalf.

Caps on Assessment Increases Widen Disparities.AsecondfeatureofS7000AthathascontributedtothegrowingdisparityineffectivetaxratesbetweenthedifferenttypesofpropertyisthecaponassessmentincreasesinClass1andthesimilarcapsthatweregraduallyaddedforClass2A,2B,and2C.Withtheassessmentcapsinplace,if

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marketvaluesgrowbymorethanthecapwillallowassessedvaluestogrow,theETRgenerallyfalls,aslongasthegrowthintheoveralllevyislessthantheannualgrowthinmarketvalues.

Thelevelofassessmentorassessmentratio(assessedvaluedividedbymarketvalue),whichiscontrolledadministrativelybytheFinanceCommissioner,alsoplaysaroleindeterminingwhethertheETRwillfallwhenappreciationexceedsthecap.14OneofthefindingsinHellersteinhadbeenthatassessmentratioswerewidelyuneven.ThiswasconfirmedforNewYorkCitybytheNYUstudy,whichfoundthatassessmentratiosin1979and1980variedgreatlybypropertytype,withone-andtwo-familyhousesgenerallyhavingthelowestataround25percentofmarketvalue.UnderS7000A,whathadbeenillegaldifferentiationwasnowpermitted,atleastbetweentaxclasses,providedtherewasauniformassessmentratiowithineachclass.

ThecaponassessmentincreasesimmediatelyunderminedthatuniformityforClass1.TheClass1assessmentratiowasinitiallysetat20percentofmarketvalue.15By1984,anypropertywherethemarketvaluegrewbymorethan6percentfrom1983to1984haditsassessmentratiofallbelow20percentbecausethecapprecludedanassessmentincreaseofmorethan6percent.ForClass1,theclassassessmentratiobecameatarget.Ifanindividualproperty’sassessmentratiowaslessthanthetargetratio,theassessmentwouldmovetowardsthetarget,subjecttolimitationsoftheassessmentcap.

Whenthetargetratioislowered,assessmentsforthoseparcelsthatwouldhavebeenoverthenewtargetareloweredandforotherparcelsthatwouldhavestillhadroomforassessmentincreasesunderthecap,theassessmentcannolongergrowbyasmuch.16ForreasonsthatwillbediscussedbelowwhenwelookatdifferencesinETRwithinpropertytypes,theDepartmentofFinancegraduallyloweredtheClass1targetassessmentratiountilitreached8percentin1991.Itthenremainedatthatleveluntil2007,whenitwasreducedto6percent.WhentheClass1targetratiowasloweredfrom8percentto6percentfor2007,allpropertieswithassessmentratiosbetween6percentand8percenthadtheirassessmentloweredto6percent.Inaddition,forpropertieswithassessmentsratiosof5.67percentorgreaterbutlessthan6percent,themaximumpermissibleincreaseissmallerthanwhatwouldnormallybeallowedundertheassessmentincreasecap.

Chart1showstheinteractionbetweenannualmarketvaluegrowth,assessmentgrowthandtheETRforone-,two-,andthree-familyhousesunderS7000A.Thesecondhalfofthe1980swasaperiodofveryrapidappreciation,withgrowthinthemedianmarketvalueexceeding15percentannually.Withtheassessmentincreasecapinplaceandthetargetassessmentratiofalling,thechangeinthemedianassessedvalueneverexceeded5percent.AsaresulttheETRwasfallingthroughoutthisperiod.

In1988thegrowthinthemedianmarketvalueslowedandeventuallyturnednegativeforthreeyears.Themedianassessmentallbutstoppedgrowingatthesametimebecausemanyparcelswerejusthittingthefive-yearcapafteryearsofappreciation.Thetargetratiowasreducedto8percentin1991,whichalsoconstrainedassessmentgrowth.TheETRincreasedsomewhatfrom1990to1994,inpartduetoanincreaseintheoveralltaxratein1990and1991,aswellastheperiodofdecliningmarketvalues,beforereachingaplateauin1994.

Whethertheassessmentcapsorthetargetratioplaysthegreaterroleindeterminingthelevelofassessmentinagivenyeardependsonwhereinthepropertymarketcyclethecityis.Chart2categorizesone-,two-,andthree-familyparcelsbywhethertheyweresubjecttoeitherofthecaps,orwereatthetargetassessmentratio.Themid-1990s,yearsoflittleETRchangeasshowninChart1,correspondwithyearswhenamajorityofpropertieswereatthetargetratioasshowninChart2.Thenin2000,whenthemedianmarketvaluegrewbymorethan6percent,

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thenumberofparcelssubjecttotheassessmentcapbegantogrow.Withfewerparcelsatthetargetratio,medianassessmentgrowthpickedup,althoughbecauseofthecap,itlaggedthemarketvaluegrowthandtheeffectivetaxrateonceagainbegantofall.

Theassessmentcapsmeanthatitcanbedifficultforthecitytorecoverallofthepotentialassessmentgrowththatwaslostduringperiodswhenannualappreciationexceeded6percent.Inthisway,theassessmentcapsdifferfromthephase-inofassessmentchangesinClass2and4,whichdefertheincreasesbutallowthecitytoultimatelybenefitfromthegrowth.Torecapturealltheforegoneassessmentgrowthwouldrequireacollapseinmarketvaluesgreaterthanwhatoccurredintheearly1990s.

Impact of Coop/Condo Valuation on Disparities.OneadditionalfeatureofS7000AhasalsocontributedtothewideningofthedifferencesinETRbetweenproperttypes.Byrequiringthecitytovaluecoopsandcondosasiftheywererentalproperties,Section581hasleftthecityunabletocapturethestrongmarketdemandforcoopandcondoapartmentsthathaspushedupsalesprices.Overthepastfewyears,changesinassessmentproceduresinitiatedbytheDepartmentofFinancehaveresultedingrowingassessmentsandtaxbillsfortheseparcels,buttheincreasesstillconsiderablylagthegrowthinsalesprices.

UsingIBO’ssales-basedmeasureoftaxburden,theETRsforcoopsandcondoshavefallensteadilysincethelate1990s.Atthesametime,ETRsforrentalpropertiesinClass2havebeengrowing.Asaresult,theratiooftaxburdensbetweenrentalpropertiesandownershippropertiesinClass2havebeengrowingwider.In1997,theETRforrentalbuildingswas1.8timeshigherthanforacoop.In2007,thedifferencehasgrown5.5timeshigher.

tAX BURden diSPARitieS WitHin PRoPeRtY tYPeS

WhiledisparitiesbetweendifferenttypesofpropertieshavegrownwiderunderS7000A,howhasthelawaffecteddifferenceswithinpropertytypes?Whenthenewlawtookeffect,itwaswidelyacknowledgedthatthetaxburdensvariedgreatlywithineachofthemajorpropertytypes.Althoughclassificationlegalizedthedifferencesbetweenclasses,thenewstructurewasexpectedtoresultingreateruniformitywithinclasses,andatleastinitiallyitdid.Otherprovisionsofthenewlaw,particularlytheassessmentcapsandtheSection581provisionlimitingcoopandcondovaluations,haveprovedtobeobstaclestouniformity.Inthissectionwefirstreviewtheimpactofthelawinaddressingwhathadbeenoneofthemostglaringpre-reformproblems,theseeminglysystematicdiscriminationagainstcertaintypesofneighborhoods.Wewillthenconsidercurrentwithin-classdisparitiesintaxburdensandtheroleofS7000Ainexacerbatingthem.

OuranalysisindicatesthatthepatternofhigheffectivetaxratesforhomesinareaswithlowincomeandlowmarketvalueswaslargelyeliminatedduringthefirstdecadeunderS7000A.Theshifttoannualreassessmentandotheradministrativechangesbythefinancedepartmentcontributedtothisimprovement,butthegeographicpatternofpropertyappreciationwasalsopivotal.ManyoftherelativelylowincomeandlowmarketvalueareasthatboreveryhighETRsintheearly1980shaveexperiencedstrongappreciationsincethen.Withfastermarketvaluegrowth,thecapsonassessmentincreasesresultinlowerETRs.Wefoundthatthesecapshaveintroducednewdisparitiesbasedonwhereappreciationoccurs.WealsofoundthatthetreatmentofcoopsandcondosunderS7000Ahascreatedsignificantdisparitiesintaxburdenamongapartmentowners.

Neighborhood Characteristics and Differences in Class 1 ETR.AcommonfindingofseveralstudiesconductedbetweentheHellersteindecisionandtheenactmentofS7000Awasthatnotonlyweretherewidedisparitiesineffectivetaxratesamongone-familyandtwo-familyhousesacrossthecitybutthedifferenceswerecorrelatedwithneighborhoodcharacteristicssuchastheincomeofresidents.WecanusethefileassembledforthisstudytotestwhethersuchpatternscontinuedafterS7000Atookeffect.

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Before S7000A. The1980NYUstudyconcludedthat“withfewexceptions,assessmentsingoodneighborhoodsaresubstantiallylowerthaninneighborhoodsoflesserquality.”17InneighborhoodscategorizedaspoorinBrooklynandtheBronx,thetaxburdenforone-familyhouseswasmorethantwiceashighasthoseinneighborhoodsconsideredgood.InQueenstheywereroughly25percenthigherinthepoorneighborhoodsthaninneighborhoodsratedgood.TherewasessentiallynodifferenceinStatenIsland.Thereweresmaller,butstillsubstantialdifferenceswhencomparingassessmentsfortwo-familyhousesinneighborhoodsrankedpoorandgood.18TheneighborhoodrankingusedbytheNYUstudywasmultidimensional,incorporatingpercapitaincome,propertytaxdelinquency,useofpublicassistance,andpopulationchange.19

AstudybytheNewYorkPublicInterestResearchGroup(NYPIRG)City of Unequal Neighborsthatfocusedonone-familyandtwo-familyhousesfoundsimilardifferencesregardingneighborhoodsonthe1980assessmentroll.20DriveninpartbythefindingsoftheNYPIRGstudy,theDepartmentofFinancebeganasystematicreviewofresidentialassessmentsinearly1982thatresultedinassessmentreductionsfor50,000propertiesthattookeffectforthe1983fiscalyear,thefirstgovernedbyS7000A.21Despitethiseffort,afollowupstudybyNYPIRGoneyearlaterfoundthatassessmentsinpoorneighborhoodsremainedsubstantiallyhigher,onaverage,thanthoseinwealthierneighborhoods.NYPIRGalsofoundapatternofdiscriminationagainstlow-valuedhouses,withthegreatestproblemsintheBronx(90percentoflowvaluehouseswereoverassessed)andBrooklyn(82percent).22

Improvement after S7000A.TotestwhetherthesepatternspersistedafterS7000wasenacted,IBOmeasuredtheeffectivetaxratesforone-,two-,orthree-familyhousesincensustractswithasignificantnumberofsuchproperties.23Insteadoftheneighborhoodqualitymeasureusedintheearlierstudies,wesimplyrankedcensustractsbasedonthemedianfamilyincomeinthetractrelativetothefullcitywideincomedistribution.24Thecitywidedistributionwascomputedusingallcensustracts,notonlythosewithsignificantconcentrationsofClass1houses,soourrelativeincomemeasurerankstractsagainstalltractsinthecityincludingthosedominatedbycoopandcondopropertieswithhigh-incomeresidentsandthosedominatedbylowerqualityrentalstockwithgenerallylower-incomeresidents.Thus,itgivesameasureofhowthemedianfamilyincomeinacensustractrankswithintheoverallincomedistributionforthecity,notjustthosewithsubstantialnumbersofClass1houses.

IntheyearssincethenewsystemcreatedbyS7000Awasimplemented,bothoftheseeffectsfoundintheearlierstudies—highertaxburdensforneighborhoodswithpoorerresidentsandlowervaluedhouse—weregraduallyeliminated,andthenreversed.Althoughourresultsfor1984wereconsistentwiththeNYUandNYPIRGfindings,thedifferenceswerealreadysomewhatlessthantheearlierfindingsfor1980and1981.CensustractsinthelowestquartilewhenrankedbyrelativefamilyincomehadETRsthatwere1.5timeshigherthancensustractsinthehighestquartile,$1.86per$100ofmarketvalueversus$1.23per$100.By1989thedifferenceswerelargelygoneandby2007,thecensustractswiththehighestrelativeincomesin1980nowhadthehighestETRs,whilethosewiththelowestincomesin1980hadthelowestETRs.The2007ETRsforthesecond,third,andforthquartileswerefairlycloselybunched.TheresultsareshowngraphicallyinChart3.

Thepictureisnotthatmuchdifferentifwegroupcensustractsbytheirrelative2000income.Onceagain,the1984effectivetaxratesarethehighestinthetractsthatranklowestinincomeandlowestinthetractsthatrankhighestinincome,althoughthegapissmallerthanwhengroupedby1980income.TheETRinthelowestincometractsis1.4timeshigherthaninthetractswiththehighestincomes.Andonceagain,thedifferencesareallbuteliminatedby1990.By2007thetractswiththehighestrelativeincomein2000havethehighestETRsandthosewiththelowestrelativeincomein2000havethelowestETRs.

Partoftheexplanationforthemodestdifferenceintheseresultsregardlessofwhetherweusetheincomerankingsfrom1980or2000isthattheincomequartilerankingsforindividualcensustractsarefairlyconsistentoverthe20

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years.Over70percentofthecensustractsinthefirst(lowest)quartileofrelativeincomein1980werestillinthefirstquartilein2000,withanother22percentnowinthesecondquartile.Similarly,ofthoseinthefourthquartilein1980,96percentwereineitherthethirdorfourthquartilein2000.Thesubstantialstabilityintheincomerankingsmeansthatthechangesobservedintheeffectivetaxratesforthedifferentquartilesareforthemostpartnottheresultofchangesinthesocio-economicmakeupofthecensustracts.

IBOalsofoundevidencethatthepatternofdiscriminationagainstlow-valuepropertieswasessentiallyremoved.WegroupedthecensustractswithsignificantconcentrationsofClass1housesby1984marketvaluesandmeasuredtheannualETRforthe1984marketvaluequartiles.ConsistentwithNYPIRG’sfindingsforthe1982assessments,housesinthefirstquartileofcensustracts(thosewiththelowestvalues)facedthehighestETRsin1984.Thatyeartheratiobetweentheeffectivetaxrateinthefirstquartileandtheeffectivetaxrateforthequartilewiththehighestmarketvalueswas1.7.By1990,though,therewaslittledifferenceintheeffectivetaxratesforthetwoquartiles.Aswiththeincomeanalysis,anewgaphasonceagainopenedupby2007,althoughitisnowpropertiesinthehighestmarketvaluequartilethatbearahigherETR.

Department of Finance Response to S7000A.MuchofthecreditforthisstrikingimprovementinreducingthepatternofdiscriminationagainstareaswithlowincomeandlowpropertyvaluescanbeattributedtoS7000AanditsimplementationbytheDepartmentofFinance.Aninitialstepwastoapplythenewtargetratioofassessmentstomarketvaluesfortheclass.Propertiesoverthetargetratiohadtheirassessmentsimmediatelyreducedtoreachthenewtarget.Thoseunderthenewtargetwereallowedtorisetowardit,subjecttothe6percentcaponassessmentincreases.Bysimplycompressingtherangeofpossibleassessmentratios,thecity’searlyeffortstocomplywithS7000AreducedtheextentofthedisparitieswithinClass1.

Thecityalsoquicklyconcludedthatcomplyingwiththenewlaw’srequirementforgreateruniformitywouldrequireaprocessforroutinelyreassessingproperties.PriortoS7000A,reassessmenthadbeenamorehaphazardprocess.Thelonglagbetweenassessmentsinsomeareasofthecity,particularlythosewherepropertyvalueswereeitherdecliningorappreciatingrapidly,wasbelievedtoaccountformuchofthedisparitiesinETRbetweenneighborhoods.25BeginningevenbeforeS7000Atookeffect,thefinancedepartmentinvestedheavilyinthestaff,training,anddataprocessingsystemsnecessarytosupportannualreassessments,includingthemorethan500,000parcelsinwhatbecameClass1.26Bythemid-1980stheseinitiativesincludeddatacollectionandsystemsdevelopmenttoallowtheuseofcomputerbasedmassappraisaldrivenbymultivariateregressionmodelsformostpropertiesinClass1.27TheseinvestmentspaidoffwiththecontinuedreductionindifferencesinClass1effectivetaxratesthroughthemid-1990s.28

Assessment Caps, Appreciation, and New Disparities in Class 1.Despitetheseimprovements,intra-classdifferencesremainamongone-,two-,andthree-familyproperties.Indeed,inthelastfewyearsthesedifferencesappeartobegrowing.TheextentofnewdisparitiescanbeseenifwelookatthemorerecentyearsonChart3.The2007effectivetaxrateforthehighestincomequartileisnow1.7timeshigherthantheETRforthelowestincomequartile.(In2004,thisratiowas1.4.)WhilewenolongerfindaninverserelationshipbetweenareaincomeandareaETR,therelativedifferenceineffectivetaxratesbetweenthehigh-andlow-incomequartilesisactuallysomewhatlargerthanitwasin1984.29

Thedifferenceshavereemergedlargelybecausetheassetmentcapspreventassessmentsfromkeepingpacewithmarketvalueswhenthelattergrowbymorethanthecapamountinagivenyear.30Whenthemarketvalueincreasesmorethantheassessmentcan,theeffectivetaxratefalls,barringalargeincreaseinthenominaltaxrate.Ontheotherhand,whenaproperty’smarketvaluegrowsbylessthanthecappercentage,theassessmentcanincreasebyuptothecapamountaslongastheproperty’sassessmentratiodoesnotexceedthetargetassessmentratioforthe

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class.Whentheassessmentgrowsbymorethanthemarketvalue(inpercentageterms)theETRforthepropertyincreases.Becauseappreciationdoesnotoccurevenlyacrossthecity,theinfluenceofthecapsindeterminingaproperty’sassessmentcanproducedisparitiesinETR.

Table 4Distribution of Census Tracts by 1980 Income and Appreciation for One-, Two-, and Three-Family Houses 1984-20071

Appreciation 1984-20071980 Relative 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

Income Number ETR 1984 ETR 2007 Number ETR 1984 ETR 2007 Number ETR 1984 ETR 2007 Number ETR 1984 ETR 20071st Quartile 6 1.51 0.48 10 1.55 0.49 21 1.62 0.47 222 1.97 0.27 259 0.857143

2nd Quartile 31 1.30 0.54 77 1.32 0.49 127 1.37 0.46 105 1.57 0.36 3403rd Quartile 109 1.36 0.52 180 1.29 0.49 177 1.34 0.45 40 1.38 0.33 5064th Quartile 226 1.21 0.53 106 1.23 0.49 47 1.34 0.47 5 1.17 0.27 384 0.588542

Source: IBO

Note: 1) Census tracts with 100 or more One-, Two-, and Three-family houses in 2007 (n=1490).

SOURCE: IBO.NOTE: 1Census tracts with 100 or more One-, Two-, and Three-family houses in 2007 (n=1490).

Itisdifferencesinappreciationandthesubsequentinteractionwiththecapsthatexplainwhatmayseemananomalyintheearlierdiscussionofareaincomeandmarketvalues:whydoareaswithlowrelativeincomeandlowmarketvaluesatthebeginningoftheperiodthatborethehighesteffectivetaxratesin1984nowbearthelowestETRs,despitelittlechangeinthecensustractincomerankings.Theansweristhatthecensustractsinthelowest1980incomequartiletendedtohavethefasterratesofappreciation,atleastsince1984.

Table4showsthedistributionofthosecensustractswithatleast100one-,two-,orthree-familyhousesbytheir1980relativeincomequartileandtheirquartilerankingformarketvalueappreciationfrom1984through2007.Ofthe259censustractswithmedian1980incomethatwouldranktheminlowestquartileofthecity’soverallincomedistribution,86percent(222outof259)areinthetopquartilewhenthesecensustractsarerankedbyappreciation.TheETRinthesecensustractsfellfrom$1.97per$100ofvaluein1984to$0.27per$100in2007.Ontheotherhand,ofthe384censustractsthatrankedinthetopquartileofthecity’s1980incomedistribution,59percent(226/384)areinthelowestquartilewhenrankedbyappreciationandanother28percent(106/384)areinthesecondlowest.Becausetherehasbeenlessappreciationinthesehigherincometracts,theassessmentcapscameintoplaylessoftenandthereforethedeclineintheeffectivetaxrateswaslessthaninthelowincomecensustractswithfasterappreciation.

Table 5Borough ETR Under S7000A for Capped Property Types Effective Tax Rates per $100 of Market Value

1-, 2-, 3-Family TC 2A/2BEffective Tax Rate Effective Tax Rate1984 2007 Appreciation2 19841 2007 Appreciation2

Manhattan 1.48 0.36 12.7% 2.15 0.76 14.4%Bronx 1.72 0.52 9.2% 2.77 1.23 11.5%Brooklyn 1.35 0.41 9.9% 2.40 0.67 13.4%Queens 1.21 0.47 9.7% 1.97 1.02 10.7%Staten Island3 1.37 0.53 8.2% n.a. n.a. n.a.

Source: IBO

Notes: 1) 1984 ETR for TC 2A/2B is for properties that because these sub-classes.

2) Appreciation is annual average change in median market value within each borough.

3) Staten Island accounts for less than 2 percent of TC 2A/2B parcels

SOURCE: IBO. NOTES: 11984 ETR for TC 2A/2B is for properties that these sub-classes. 2Appreciation is annual average change in median market value within each borough. 3Staten Island accounts for less than 2 percent of TC 2A/2B parcels

Borough and Neighborhood Differences in Effective Tax Rates for Classes 1, 2A, and 2B.Inthissectionweshiftourunitofgeographyfromcensustracttolargerareasthataremorerecognizabletomostreaders:boroughsandsub-boroughs(neighborhooddistricts).WehaveseenhowthesystemcreatedbyS7000Ahashelpedtoeliminatethe

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discriminationagainstlowincomeandlowmarketvalueareaswhenwelookatcensustracts.ButthecapsinClass1andClass2Aand2Bhavecreatednewdisparities,albeitonesduetorequirementsofthelawratherthanbiasandinactiononthepartofassessors.

Asdiscussedpreviously,thekeyvariableistherateofappreciationinmarketvalues.UnderthegeneralprincipalsofS7000A,allparcelswithinataxclassaretobeassessedatauniformpercentageofmarketvalue;inthecaseofClass1,thetargetassessmentpercentageiscurrently6percent,andinthecaseofClass2A/2B,theClass2rateof45percentapplies.31Whenaproperty’smarketvaluegrowsbymore(inpercentageterms)thantheassessmentcangrowbecauseofthecaps,theassessmentandthetaxbilldonotincreasebyasmuch(inpercentageterms)asthemarketvalue,andasaresulttheETRforthepropertyfalls,assumingthereisnooffsettingincreaseinthenominalrate.Whenaproperty’smarketvaluegrowsbylessthanthecap,orevenfalls,theassessmentcancontinuetoriseuptothetargetassessmentpercentagefortheClass,whichresultsinahigherETR.

ConsideringfirstthedifferencesinETRbetweenboroughs,weseethattherankingshavechangedsince1984.TheNYUstudyandotheranalysespriortoenactmentofS7000AhadgenerallyshownthatQueenshadthelowesttaxburdensonone-familyandtwo-familyhouses.32InthepoliticalmaneuveringthatproducedS7000A,legislatorsfromQueensweresomeofthestrongestadvocatesforasolutionthatwouldproducetheleastchangeintaxburdens.Table5showsthatin1984,QueensstillhadthelowestETRsforthecappedpropertytypes.ButbecausemarketvaluegrowthinQueenssince1984haslaggedthegrowthinBrooklynandManhattan,theETRinQueensdidnotfallasmuchasitdidinthoseboroughs.Asaresult,BrooklynandManhattannowhavelowerETRsforbothpropertytypessubjecttotheassessmentcaps.TheratiosbetweenthehighestandlowestETRsareactuallynowbiggerthantheywerein1984(1.49versus1.42and1.85versus1.41),althoughthedifferencesinactualETRper$100ofmarketvaluearesmaller($.17versus$.51and$.56versus$.81).

Giventheboroughvariation,itisnotsurprisingthatweseefurtherdifferencesifwelookatareaswithineachborough.Ouranalysisofsub-boroughareasusedthegeographicareasdefinedbytheU.S.CensusBureauforusewiththeNewYorkCityHousingandVacancySurvey.33Table6summarizesthechangeswithinsub-boroughsfrom1984through2007,withthesub-boroughsrankedfromlowesttohighesteffectivetaxrateinthecurrentyear.Theratioofthehighestsub-boroughETRtothelowestdeclinedfrom1984to2007,fallingfrom3.1to2.8,andthedifferenceintaxesper$100ofmarketvaluehasalsoshrunkfrom$1.81to$.39.Therewasconsiderableshufflingofneighborhoods,withnineofthetenwiththelowestETRsin2007havingbeenranked29thorhigherin1984.Manyofthesesub-boroughsthatshiftedfromthebottomofthelisttothetopofthelisthadlargeconcentrationsoflow-incomeresidents.Thispatternisconsistentwiththecensustractanalysisshowingthattheassessmentbiasagainstlow-incomeneighborhoodsbeforeS7000Awasenactedwaslargelyeliminated.

TheexceptiontothereshufflingisParkSlope-CarrollGardens,whichhadthelowesteffectivetaxrateinbothyears.Theneighborhood’sappreciationrate,whilestrong—itaveraged12.4percentannually—wasnotthehighestamongallsub-boroughs.Butithadthefastestgrowthamongthe10sub-boroughswiththelowesteffectivetaxratesin1984.

InTable6wecanseetherelationshipbetweenETRandtheannualmarketvalueappreciationinthesub-boroughareabycomparingthelasttwocolumns.Theneighborhoodswiththelowesteffectivetaxratesgenerallyhaddoubledigitannualappreciation,whenaveragedovertheentireperiod1984to2007,whilethosewiththehighestETRsgenerallyhadslowerannualappreciation.(Thecorrelationcoefficientbetweenthetwois-.92,indicatingastronginverserelationship.)Theseneighborhoodsalsohavevirtuallynopropertiesatthetargetratesin2007.

Ofcourse,propertyappreciationinNewYorkhasnotbeenconsistentovertheyears.Therehavebeenperiodsofrapidgrowthandperiodsofsharpdeclines.ThemiddlecolumnsofTable6showtheeffectivetaxratesandrankings

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Table 6Effective Tax Rates for One-, Two-, Three-family Houses by Sub-borough Areas for Selected YearsETR in $ per $100 market value

1984 1999 2007 AnnualHVS Sub-Borough1 ETR Rank ETR Rank Capped @Target ETR Capped @Target MV Growth2

1 Park Slope-Carroll Gardens 0.878 1 0.461 2 93.2% 2.2% 0.215 98.0% 0.0% 12.4%2 Ocean Hill-Brownsville 2.461 38 0.417 1 44.7% 11.8% 0.225 93.2% 1.0% 15.7%3 Bushwick 2.666 40 0.530 4 47.4% 8.0% 0.239 96.6% 0.0% 15.8%4 Bedford-Stuyvesant 2.687 41 0.560 5 71.0% 13.3% 0.257 97.1% 0.0% 16.1%5 Brooklyn Heights-Ft. Greene 1.359 21 0.593 6 74.9% 13.0% 0.259 96.9% 0.0% 13.2%6 Williamsburg-Greenpoint 1.895 35 0.613 7 58.6% 14.4% 0.262 96.1% 0.0% 14.5%7 Crown Heights 2.067 37 0.617 8 63.3% 28.6% 0.289 96.5% 0.0% 13.5%8 Morrissania 2.627 39 0.480 3 49.8% 1.1% 0.298 74.5% 16.7% 14.6%9 Sunset Park 1.464 25 0.687 10 43.5% 29.9% 0.331 98.6% 0.0% 12.2%10 East New York 1.758 32 0.650 9 38.9% 32.1% 0.369 97.6% 0.0% 11.7%11 Coney Island 1.419 22 0.719 14 18.4% 62.1% 0.426 96.5% 0.4% 10.6%12 Rockaways 1.861 34 0.765 28 31.3% 44.1% 0.432 96.1% 0.9% 11.2%13 Jackson Heights 1.310 16 0.818 41 23.6% 62.8% 0.434 96.8% 1.1% 10.3%14 Jamaica 1.683 29 0.739 17 28.4% 63.3% 0.437 97.0% 0.1% 10.8%15 Middle Village-Ridgewood 1.096 5 0.740 19 20.2% 59.1% 0.443 98.7% 4.3% 9.6%16 Astoria 1.224 12 0.785 36 10.0% 69.8% 0.444 97.8% 0.7% 10.2%17 Bensonhurst 1.145 7 0.713 13 32.5% 47.5% 0.450 97.9% 0.7% 9.6%18 Sunnyside-Woodside 1.197 10 0.799 39 15.8% 67.7% 0.450 97.1% 2.1% 10.2%19 Corona-Elmhurst 1.232 13 0.808 40 30.9% 53.5% 0.450 96.0% 3.2% 10.4%20 Kew Gardens-Woodhaven 1.287 14 0.760 26 30.1% 54.7% 0.455 97.9% 0.0% 10.6%21 Borough Park 1.166 8 0.707 11 29.7% 38.4% 0.458 94.1% 0.3% 10.5%22 South Crown Heights 1.805 33 0.763 27 28.9% 63.0% 0.462 98.3% 0.2% 10.4%23 Flatbush 1.348 19 0.710 12 32.9% 50.2% 0.462 94.8% 1.0% 10.2%24 Gravesend-Sheepshead Bay 1.222 11 0.730 16 30.9% 54.4% 0.470 96.2% 1.2% 9.7%25 Flushing-Whitestone 1.067 4 0.758 25 19.0% 65.2% 0.478 95.5% 6.9% 9.2%26 Howard Beach- S. Ozone Park 1.306 15 0.748 21 28.3% 54.9% 0.480 97.2% 0.1% 10.9%27 Bay Ridge 1.123 6 0.726 15 33.5% 48.9% 0.483 97.6% 0.5% 9.4%28 Bayside-Little Neck 1.035 3 0.755 24 20.3% 66.4% 0.494 95.5% 0.2% 8.6%29 North Shore (S.I.) 1.448 23 0.781 35 11.1% 54.5% 0.498 93.9% 0.2% 8.9%30 Forest Hills-Rego Park 0.951 2 0.768 30 21.5% 60.3% 0.501 98.4% 11.1% 8.6%31 Fresh Meadows-Hillcrest 1.196 9 0.798 38 11.1% 83.8% 0.502 95.9% 0.1% 8.8%32 Bellrose-Rosedal 1.316 17 0.773 32 21.4% 71.6% 0.505 96.7% 0.6% 9.6%33 Mid Island (S.I.) 1.355 20 0.766 29 11.8% 64.1% 0.527 92.4% 0.3% 7.9%34 Riverdale-Knightsbridge 1.496 26 0.772 31 24.5% 63.1% 0.530 96.4% 0.0% 9.0%35 East Flatbush 1.573 28 0.773 33 33.4% 58.8% 0.537 99.1% 0.4% 9.3%36 Throngs Neck-Coop City 1.556 27 0.754 23 13.1% 80.2% 0.540 95.7% 1.0% 8.9%37 Pelham Parkway 1.692 30 0.747 20 34.3% 61.2% 0.541 98.1% 0.9% 9.2%38 Soth Shore (S.I.) 1.316 18 0.739 18 10.3% 75.6% 0.546 91.1% 0.2% 8.3%39 Soundview-Parkchester 1.926 36 0.785 37 26.7% 58.0% 0.558 92.3% 4.0% 9.8%40 Flatlands-Canarsie 1.449 24 0.776 34 19.1% 70.5% 0.570 96.8% 2.3% 9.0%41 Wakefield-Baychester 1.750 31 0.754 22 29.3% 63.8% 0.600 94.4% 4.6% 9.1%

Average for Included Sub-boroughs 1.311 0.738 25.6% 58.0% 0.462 95.9% 1.4%Ratio Highest to Lowest ETR 3.1 2.0 2.8Absolute Difference in ETR 1.81 0.40 0.39

Source: IBO

Notes: 1) HVS Sub-boroughs with more the 3,000 one-, two-, three-family parcels in 2007.

2) Annual MV growth is annual average growth in the median market value in the sub-borough from 1984 to 2007.

SOURCE: IBO.NOTES: 1HVS Sub-boroughs with more the 3,000 one-, two-, three-family parcels in 2007. 2Annual MV growth is annual average growth in the median market value in the sub-borough from 1984 to 2007.

in1999.Between1984and1999,thecity’spropertymarkethadseenupsanddowns,withaboomthatlasteduntil1989,followedbyadeclinethrough1993andthenaperiodofonlymodestgrowththrough1999.By1999muchofthereshufflingofsub-boroughsfromthebottomtothetopoftheETRrankingshadoccurred;the10thatwouldbeinthetop10in2007werealsointhetop10in1999,althoughthespecificrankingsdiffered.

In1999,afterfiveorsixyearsofslowgrowth,58percentoftheparcelshadreachedthetargetassessmentratio,althoughtheshareatthetargetvariedgreatlyfromareatoarea.Ingeneral,thosesub-boroughswiththelowestETRshadsmallersharesoftheirparcelsatthetargetratioandlargersharesoftheirparcelswiththeirassessmentslimitedbyeithertheone-yearorfive-yearcaponassessmentincreases.Alowershareatthetargetmeantthatmarketvaluegrowthinthatparticularsub-boroughhadbeenstrongenoughsothattheassessmentcapsconstrainedtheincreaseintheassessmentratio(andhencetheETR)atalevelbelowthetarget.

Inslowergrowthareas,particularlywheretheannualmarketvaluegrowthwasbelowthe6percentassessmentcap,

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theassessmentratio(andthereforetheETR)hadcontinuedtoedgeup,untilmanypropertiesreachedthetargetratio.Inthesesub-boroughstheshareofparcelswithcappedassessmentswasgenerallysmallerthaninfastergrowthareas.

By2007,afteraperiodofveryrapidappreciationinpropertyvalues,theassessmentcapsaffected95.9percentoftheparcels(92percentwereattheirfive-yearcap).Only1.4percentofparcelswereatthetargetratio,evenaftertheDepartmentofFinanceloweredthetargetby2percentagepointsto6percentthisyear.

ThestoryisquitesimilarforClass2Aand2Bbuildings.Again,therehasbeenareshufflingofthesub-boroughswhenrankedbyETR,withrelativelypoorbutheavilytaxedareasin1984nowrankedamongthosewiththelowestETRs.Onceagain,ParkSlope-CarrollGardensistheexception.IthadbyfarthelowestETRin1984,usingIBO’ssales-basedestimatesofmarketvalue,at$1.13per$100ofmarketvalue;itnowranksfifthwithaneffectivetaxrateof$0.44per$100.

InadifferencefromthepatternforClass1,thedispersioninETRsforthesesmallrentalbuildingshasgrown,withtheratioofthehighesttolowestrankedsub-boroughrisingfrom4.6in1984to7.0in2007.Inthecaseoftheseproperties,assessmentshavebeenheldbacknotonlybythelimitof8percentannualincrease,butalsobythefactthatthefinancedepartmentusesincome-basedmarketvaluesratherthansales-basedvalues.Theincomeapproachresultsinmarketvaluesthatareabout28percentlowerthanIBO’ssales-basedvaluations;moreover,theydonotgrowasfast.Asaresult,theassessmentsthataresetbythefinancedepartmentarelesslikelytogrowsufficientlytobelimitedbythecap.

Neighborhood and Borough Differences in Coop and Condo Effective Tax Rates. Coopsandcondosalsofacewidedifferencesintaxburdens.InthiscasethecauseisanotherfeatureofS7000A,theSection581requirementthattheybevaluedasrentalproperties.Inturningourattentiontothisportionofthepropertytaxlaw,weexaminetheresultingdifferencesinETRacrossthecity,andlookatthecity’scrudeattempttomitigateoneinequityinthesystemcreatedbyS7000A,atthecostofcreatingothers.

Section 581.ThesectionwasintendedtogiveapartmentownerssomeoftheprotectionfromrapidincreasesinassessmentsthatClass1homeownersgetfromtheassessmentcaps.UnderSection581thecityisrequiredtovaluecoopsandcondoswithoutregardtothesalesprice,orpotentialsalespriceofindividualunits.Instead,thecitymustvaluethemasiftheywererentalbuildings,imputingincomebasedonincomeandexpenseinformationfromnearbycomparablerentalbuildings.

AtthetimeS7000Awasenacted,thewaveof1980scoopconversionswasonlyjustbeginningandthereweremanyfewercondoapartments.34Wheretoplacecoopsandcondosinthenewtaxclassstructurehadbeenoneoftheopenquestionsin1981.Asthelegislativecompromisemovedtowardsafour-classsystemwithapartmentbuildings,includingcoopsandcondos,inaseparateclassfromone-,two-,andthree-familyhomes,theSection581provisionwasaddedtoofferapartmentownerssomeprotectionfromassessmentincreasesdrivenbymarketvalueappreciation.Rentregulation,whichthencoveredagreatershareofapartmentsthantoday,wasacknowledgedtoconstrainthevaluesofapartmentbuildings.TyingcoopandcondovaluestorentalassessmentsofferedsomethingakintotheassessmentcapprotectionavailableinClass1.35Moreover,bypreventingassessmentsofexistingrentalbuildingsusingtheirpotentialvalueascoops,theprovisionavoidedmakingpropertytaxesanadditionalspurtocoopconversions.

Valuationsusingimputedincomearealmostalwayslowerthanifcomparablesalespricesareused.Theextentofthedifferenceisshowninthe“Sect581Discount”columnsinTable7.In1993,forthecityasawhole,theuseofimputedincomemeantthattheresultingmarketvalueswerejustoverhalf(52percent)ofwhattheywouldhave

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beenifvalueshadbeenbasedonsales.36Thedifferencehasgrownintheinterveningyears,reaching59percentin2000,and78percentfor2007.ItisthisdiscountingthatcausesthedifferenceinIBO’sestimatedeffectivetaxratesbetweencoopandcondobuildingsandtherentalbuildingsinClass2,asexplainedinourdiscussionofdataandmethods.37

Theextentofthediscountvariesgeographically.Thegapbetweensales-basedvaluesandincome-basedvaluesdiffersfromareatoarea,dependingonfactorssuchastheprevalenceofrent-regulatedbuildings—whichhavelowernetincomethanmarketraterentals—amongthecomparablesandthestrengthofthemarketforapartmentsinthearea.Notably,thedifferenceshavenarrowedsomewhatby2007thankstothebroadlydistributedgainsinmarketvalueacrossallofthecity’sfiveboroughs,theincreaseddevelopmentofnewmarket-raterentalbuildings,andthedeclineinthenumberofrent-regulatedapartmentsthroughderegulationandconversions.Indeed,Manhattannolongerhasthelowesteffectivetaxrate.Thanks,inpart,totheextremelylowETRonits8,000apartmentsinbuildingswith10orfewerunits(.36per$100ofmarketvalue)Brooklynnowbearsthelightestburden.

Giventhelocation-specificfactorsthatdeterminetheextentoftheSection581discount,itisnotsurprisingthatwecanfindvariationineffectivetaxrateswithintheboroughs,aswell.Table8rankstheHVSsub-boroughareasbyETRfor2007.Ingeneral,neighborhoodswithlarge581discountshavethelowestETR,whilethosewiththesmallestdiscountfacehighertaxburdens.IgnoringtheextremecaseofBedfordStuyvesantforthemoment,theETRinthesecondrankedneighborhood,Jamaica,is3.5timeshigherthantheETRinCrownHeights.Theaverage581discountforJamaicaisonlytwo-thirdsasdeepasforCrownHeights.

Ofcourse,theextentofthe581discountforaneighborhoodisnottheonlyfactorindeterminingtheETR.AlowETRcanalsoresultifmanybuildingsinanareahavetaxexemptionsthatloweraproperty’sassessment.Forexample,BedfordStuyvesant,whichhasthelowestETRin2007,wasnotevenrankedfor2000becauseithadfewerthan1,000coopandcondominiumapartmentsinthatyear.ItsextremelylowETRof.19per$100ofmarketvalueisduetoanumberofnewprojectsthathavecomeonlinesince2000,manyofwhicharebenefitingfrom421-aexemptions.ThesameistruetoalesserextentinWillamsburg-GreenpointandCentralHarlem,whichrankedfifthandeighth,respectively.

TheshiftsinrelativeeffectivetaxratesthatresultedinBrooklyndisplacingManhattanastheboroughwiththelowestcoopandcondoETRcanbeseenbycomparingeachneighborhood’srankingfor2000withthe2007rank.Thefivesub-boroughareaswiththelowestETRareallfromBrooklynthisyear.Bycomparison,Manhattandominatedthelowrankingsin2000withsevenofthetenlowestETRsfoundinthatborough.QueensandBronxneighborhoodsdominateattheotherendoftherankings,althoughtherearealsoBrooklynneighborhoodsfound

Table 7Coop/Condo Effective Tax Rates by BoroughETR , net of abatements and rebates, per $100 of market value

1993 2000 2007Sect 581 Sect 581 Appreciation Sect 581 Appreciation

Borough ETR1 Discount2 ETR1 Discount2 1993-20003 ETR1 Discount2 1993-20003

Manhattan 1.77 -55.8% 1.17 -67.8% 142.1% 0.74 -79.8% 273.6%Bronx 1.98 -55.1% 2.08 -43.9% 66.3% 1.01 -70.9% 229.3%Brooklyn 2.05 -46.2% 1.43 -62.2% 118.3% 0.66 -79.4% 292.5%Queens 2.31 -47.0% 1.86 -47.1% 89.5% 1.01 -72.1% 280.1%Staten Island 2.24 -41.1% 2.27 -39.9% 77.5% 0.75 -79.5% 408.2%

Overall 1.94 -51.7% 1.47 -59.1% 123.9% 0.83 -77.6% 301.2%

SOURCE: IBO

NOTES: 1) ETR is the median after weighting by number of apartments.

2) Sect 581 Discount shows the extent of the gap from sales-based market values to Dept. of Finance market value.

3) Appreciation computed as the increase in the median market value from beginning of the period.

SOURCE: IBO. NOTES: 1ETR is the median after weighting by number of apartments. 2 Sect 581 Discount shows the extent of the gap from sales-base market values to Dept. of Finance market value. 3Appreciation computed as the increase in the median market value from beginning of the period.

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amongthosewithhigherETRs.

Coop-Condo Abatement: Short-Term Fix, Long-Term Problem. ThankstoSection581,theeffectivetaxratefacedbycoopandcondoownershasconsistentlybeenlowerthanfortherestofClass2.Sinceatleast1984,however,theoveralleffectivetaxrateforthesepropertieshasalsobeenhigherthantherateforClass1properties.Foradvocatesforapartmentownersitisthislatterdifferencethatmatters:theyaskwhyhomeownersshouldbetaxeddifferentlydependingonwhethertheyliveinahouseoranapartmentbuilding.

InTable2,IBOcomparestheratesforcoops,condos,andClass1houses.Intheearlytomid-1990s,coopandcondoeffectivetaxratesgrewfasterthandidthoseforClass1houses,sothatby1995theETRforbothtypesofapartmentwasmorethantwicethatofClass1houses.38Withthetaxdifferencesbetweenhomeownersgrowing,advocatesforcoopandcondoownersbroughttheircasebeforea1993PropertyTaxReformCommissionthathadbeenappointedbyMayorDavidDinkinsandCityCouncilSpeakerPeterVallone,Sr.39AlthoughtheagendaofthecommissionwasinitiallyambitiousanditsfinalreportprovidedimportantinformationdocumentingmanyoftheshortcomingsoftheS7000Asystem,themostconcreterecommendationfromthecommissionwasthatsomethingneededtobedonetobringcoopandcondotaxesmoreintolinewithClass1taxes.40

MayorRudolphGiuliani,whohadbeenelectedaftertheappointmentofthecommission,andtheCityCouncilbothendorsedthisrecommendationandbeganworkingtofindawaytoimplementit.DuetothecomplexitycreatedbyS7000A,itproveddifficulttoproviderelieftojustonegroupwithoutcreatingotherproblems.Moreover,becausethemostdirectwaytoequalizetheburdenswouldbetorepealSection581andvalueapartmentsbasedonsalesprices,thefinancedepartmentwasconcernedthatitwouldneedtimetodevelopthemodelsanddatasystemstobeginusingsuchanapproach.

Aftertwoyears,acompromiseemergedthatwouldprovideanabatementgivingapartmentownersataxcutthatwasexpectedtonarrowthegapintaxburdensbyroughlyhalf.Theabatementwastobetemporary,beginningin1997andlastingthreeyears,whilethefinancedepartmentresolvedthetechnicalchallengesandthecityworkedouthowtomakemorefundamentalchange.ThelegislationcreatingtheabatementincludedadeadlineofJune30,1999forthecitytoreporttothestatelegislaturewithaplanformorecomprehensivechanges.Thecitymissedthedeadlineandseveralthathavebeensetsincethen,choosinginsteadtokeepextendingthe“temporary”abatement.

Ina1999report,IBOdocumentedmajorshortcomingswiththeabatement.Sincethentheshortcomingshavebecomemoreproblematicbecause—intheabsenceoffundamentalchange—theabatementhasbecomethede-factosolutiontoreducethedifferencesintaxburdensbetweencoopandcondoownersandClass1homeowners.41TheproblemswiththeabatementstemfromthefactthatitdoesnothingtostandardizeassessmentsforcoopsandcondossothatthedisparitiescausedbythedifferencesintheextentoftheSection581discountpersist.Simplyabatinganequalpercentageofunequaltaxburdensdoesnothingtofixthedisparitiesamongapartmentowners.42TheareasofthecitythatbenefitthemostfromSection581areconcentratedinManhattanand“brownstone”Brooklyn,althoughaswesawinTable6,therankingshaveshiftedsomewhatinthelastyearortwo.Withtheabatement,theseareasgotthesamepercentagereductionintaxasdidareaswithsmallerSection581discountsandhencehighertaxburdens.EqualizingeffectivetaxratesbetweencoopsandcondoswouldrequirerepealofSection581anduseofsalespricesforvaluation.

Asecondproblemisthatinmanycases,theabatementprovidesabenefitthatislargerthanwhatisneededtoremovethedifferenceintaxtreatmentbetweenClass1andClass2.Thisproblemhasescalatedsincetheabatementbeganin1997becausecoopandcondoeffectivetaxrateshavebeenfallingfasterthanhavethoseforClass1(seeTable2).Asaresult,thegaptobeclosedbetweenhomeownersandapartmentownershasnarrowed,withoutanyadjustmenttothetermsoftheabatement.

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Table 8Tax Treatment of Coops and Condos in HVS Neighborhoods,Ranked by 2007 Effective Tax RatesETR, net of abatements and rebates, per $100 market valule

2000 20072007Rank HVS Neighborhood ETR1 Rank ETR1

% of Class 1

Actual ETR2

% of Class 1

Target ETR3

Sect 581

Discount4

1 Bedford-Stuyvesant 0.86 n.a. 0.19 41.8% 19.6% -67.1%2 Crown Heights 0.84 4 0.39 85.2% 40.0% -83.4%3 Park Slope-Carroll Gardens 0.92 6 0.39 86.3% 40.5% -87.5%4 Sunset Park 1.51 16 0.42 93.2% 43.7% -83.4%5 Williamsburg-Greenpoint 1.26 11 0.43 95.1% 44.7% -78.5%6 Chinatown-Lower East Side 1.64 21 0.44 95.8% 45.0% -85.3%7 Morniningside/Hamilton Heights 0.63 1 0.44 96.5% 45.3% -84.3%8 Central Harlem 0.85 5 0.48 106.4% 49.9% -74.8%9 Washington Heights/Inwood 1.22 10 0.51 111.7% 52.4% -86.6%

10 Brooklyn Heights-Ft. Greene 1.32 13 0.52 115.4% 54.2% -82.6%11 Coney Island 1.05 7 0.61 135.0% 63.4% -83.1%12 Upper West Side 0.84 3 0.63 138.3% 64.9% -80.8%13 East Harlem 0.72 2 0.63 138.8% 65.1% -82.3%14 Bay Ridge 1.77 26 0.65 142.5% 66.9% -81.5%15 Greenwich Vill-Financial District 1.07 8 0.65 143.4% 67.3% -84.0%16 Mid Island (S.I.) 1.75 24 0.72 159.0% 74.7% -81.5%17 North Shore (S.I.) 2.29 40 0.72 159.2% 74.8% -78.1%18 Chelsea-Clinton-Midtown 1.18 9 0.74 163.6% 76.8% -78.6%19 Astoria 1.72 23 0.75 164.3% 77.1% -73.6%20 Bensonhurst 1.53 17 0.78 172.7% 81.1% -79.6%21 Gravesend-Sheepshead Bay 2.14 37 0.80 175.1% 82.2% -77.9%22 Stuyvesant Town-Turtle Bay 1.55 18 0.87 192.1% 90.2% -77.8%23 Upper East Side 1.28 12 0.88 193.6% 90.9% -76.7%24 Bellrose-Rosedale 1.56 20 0.88 193.8% 91.0% -75.8%25 Flatbush 1.55 19 0.89 196.9% 92.4% -77.6%26 Borough Park 1.77 25 0.90 198.4% 93.2% -77.0%27 Bayside-Little Neck 1.86 30 0.92 203.5% 95.5% -73.4%28 Sunnyside-Woodside 1.49 15 0.92 203.5% 95.5% -73.2%29 Riverdale-Knightsbridge 1.98 33 0.95 209.2% 98.2% -77.1%30 Rockaways 2.03 34 0.97 212.5% 99.8% -71.8%31 Flushing Whitestone 1.82 28 0.98 215.6% 101.2% -71.5%32 South Crwon Heights 1.41 14 0.99 217.4% 102.1% -74.2%33 Flatlands-Canarsie 1.96 31 0.99 218.3% 102.5% -73.9%34 Howard Beach-So. Ozone Park 1.80 27 1.02 224.6% 105.5% -60.6%35 Jackson Heights 1.98 32 1.03 227.1% 106.6% -66.1%36 East Flatbush 2.06 35 1.04 229.5% 107.7% -77.7%37 Forest Hills-Rego Park 1.82 29 1.06 232.4% 109.1% -73.0%38 Fordham-University Heights 2.94 47 1.06 233.9% 109.8% -69.4%39 Fresh Meadows-Hillcrest 2.18 38 1.07 235.2% 110.4% -68.5%40 Pelham Parkway 2.53 43 1.08 236.8% 111.2% -62.2%41 Throngs Neck-Coop City 2.03 n.a. 1.09 240.5% 112.9% -69.8%42 Mott Haven-Hunts Point 2.90 45 1.14 250.0% 117.4% -69.4%43 Kingsbridge Heights-Mosholu 2.34 41 1.15 253.5% 119.0% -67.1%44 Kew Gardens-Woodhaven 2.11 36 1.15 253.7% 119.1% -68.2%45 Morrissania 3.41 48 1.18 259.0% 121.6% -69.4%46 East New York 1.65 22 1.25 275.1% 129.2% -76.4%47 Corona-Elmhurst 2.51 42 1.28 280.8% 131.8% -68.6%48 Highbridge- So. Concourse 2.93 46 1.32 289.6% 136.0% -70.9%49 Wakefield-Baychester 2.19 39 1.38 304.4% 142.9% -61.0%50 Jamaica 2.58 44 1.38 304.8% 143.1% -55.2%

SOURCE: IBO

NOTES: 1) Median ETR, net of abatements and rebates, weighted by number of apartments.

2) Coop/Condo ETR as percent of actual 2007 citywide Class 1 net ETR of .45

3) Coop/Condo ETR as percent of target Class 1 ETR (6 percent assessment rate and Class 1 nominal tax rate

4) Sect 581 Discount shows the extent of the gap from sales-based market values to Dept. of Finance marke

SOURCE: IBO. NOTES: 1Median ETR, net of abatements and rebates, weighted by number of apartments. 2 Coop/Condo ETR as percent of actual 2007 citywide Class 1 net ETR of .45. 3 Coop/Condo ETR as percent of target Class 1 ETR (6 percent assessment rate and Class 1 nominal tax rate of .152). 4Sect 581 Discount shows the extent of the gap from sales-based market values to Department of Finance market value.

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IBOestimatesthat$156millionoutof$293millionspentontheabatementin2007wenttoapartmentownerswhoseeffectivetaxratewaseitheralreadybelowthetargetClass1levelorelsedidnotneedtheirfullbenefittoreachtheClass1ETR.43AlthoughManhattanisnolongertheboroughwiththelowestETR,becauseithasthemostcoopandcondobuildings—includingmanywithETRsundertheClass1targetrate—thebulkoftheexcessabatementspendinginisManhattan,particularlyontheUpperEastSide($30million)andtheUpperWestSide($29.5million).

Table 9Inefficiency in Coop/Condo AbatmentDollars in millions

Apartments

Levy Amount Over/(Under)

Class 1 ETR Before

Abatement Abatement

Levy Amount Over/(Under)

Class 1 ETR After

AbatementExcess

AbatementManhattan

Below Class 1 ETR Before Abatement 108,433 (194.7) (103.6) (298.3) $103.6Below Class 1 ETR After Abatement 52,151 32.8 (67.4) (34.6) 34.6Above Class 1 ETR Abatement 44,160 96.2 (64.0) 32.2 0.0

Rest of CityBelow Class 1 ETR Before Abatement 41,507 (24.6) (12.4) (36.9) $12.4Below Class 1 ETR After Abatement 48,905 7.5 (13.4) (5.8) 5.8Above Class 1 ETR Abatement 108,641 55.5 (32.3) 23.2 0.0

Total 403,797 (27.2) (293.0) (320.2) $156.3Source: IBO

Note: Class 1 ETR used in comparison assumes Class 1 target ratio of 6 percent.

SOURCE: IBO.NOTE: Class 1 ETR used in comparison assumes Class 1 target assesmnet ratio of 6 percent.

Throughoutthecity,therearecoopandcondotaxpayerswhoseeffectivetaxratesremainabovetheClass1targetevenwiththeabatement.TheyareparticularlyprevalentintheBronxandQueenswheretheymakeupamajorityofthetaxpayersreceivingtheabatementinthoseboroughs.IBOestimatesthatin2007,taxpayerscitywideneededanother$55.4millioninabatementstoreachparitywithClass1.UnderamorecomprehensivereformwherecoopsandcondoswerevaluedandtaxedlikeClass1houses,these“leftbehind”taxpayerswouldjointheirfellowcoopandcondoownerswhoalreadyenjoyClass1treatment.

coMMeRciAl And lARGeR RentAl PRoPeRtieS

Theforegoingdiscussionofdisparitieswithinpropertytypeshasfocusedprimarilyonowner-occupiedhousing,wherefeaturesofS7000AresultinvaryingassessmentratiosandthereforedifferencesinETRs.ForthelargerrentalbuildingsinClass2(thosewith11ormoreunits)andallofClass4,thechangesunderS7000Aweredifferent.Amongthesebuildingtypes,theuseofuniformclassassessmentratiosremovedamajorcauseofdisparitiesthatexistedpriortoS7000A.AssumingthattheDepartmentofFinanceisestimatingmarketvaluesuniformlyacrossbuildingtypes,thereshouldbeonlymodestdifferencesinETRs.Wefindevidence,however,basedonthevariationintherelationshipofsalespricestothefinancedepartment’smarketvaluesfordifferentpropertytypes,suggestingthatdifferencesinETRsremainandmayevenbegrowing.

TheNYUstudyhadfoundlargedifferencesineffectivetaxratesforcommercialandlargerrentalpropertiesin1979.Walk-upapartmentbuildingsintheBronxandQueensfacedtaxburdensthatwerenearlydoublethoseforwalk-upsinManhattanandBrooklyn.Elevatorbuildingsweretaxedmuchmoreheavilythanwalk-ups,witholderelevatorbuildingstaxedmoreheavilythannewerones.44Therewerealsowidedifferencesamongcommercialpropertytypes,withofficebuildingsandhotelsfacingthehighestburdensandvacantlandbeingthelightesttaxed.45

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37 NEW YORK CITY INDEPENDENT BUDGET OFFICE

Inaddition,theNYUstudyfoundextraordinarilyhighdegreesofvariationinassessmentratioswithinpropertytypes.46

DespitetheuseofacommonassessmentratiowithintheclassesunderS7000A,differencesineffectivetaxratesremain.OneofthefactorsdiscouraginguniformityistheS7000AfeaturethatprovidesforthephasinginofmostassessmentchangesoverfiveyearsinClasses2and4.47Althoughtheinitial(actual)assessmentintheseclassesisderivedusingauniformclassassessmentratio,therearedifferencesinthefinalassessmentfortaxpurposes(billabletaxable)dependingonthepipelineofpreviousassessmentchangesstillbeingphasedinforaparticularparcel.

OtherfactorscausingETRdifferenceswithinpropertytypesincludeexemptionsandabatementsforindividualproperties.ThetwolargestexemptionbenefitsaretheIndustrialCommercialIncentiveProgramandthe421-aprogramforhousingdevelopment.48Partialexemptionssuchasthesereducetheassessmentthatisactuallytaxed,whichlowersthetaxesasaportionoffullmarketvalue.Abatementsreducethenettaxesbyfunctioninglikeacreditagainstthelevyforqualifiedparcels.CommonabatementsforcommercialandlargerrentalpropertiesincludeJ-51forhousingrehabilitationandsomecommercialincentiveprograms.

TheinfluenceofthesefactorscanbeobservedinTable10.Mostnewrentalresidentialdevelopmentisofelevator

Table 10Net Effective Tax Rates for Selected Larger Rental and Commercial Property Types 1984-2007per $100 of market value

FiscalYear

Walk-upApartments

ElevatorApartments

ManhattanOffice

ManhattanRetail

Non-Manhatan

RetailFactory /

WarehouseGarage /

Gas StationVacant

Land1984 4.54 3.64 4.40 4.78 5.10 4.79 4.84 4.411985 3.51 2.76 3.26 3.65 3.83 3.59 3.71 3.411986 3.41 2.69 3.35 3.56 3.73 3.52 3.33 3.411987 3.22 2.60 3.42 3.55 3.59 3.37 3.17 3.241988 2.98 2.55 3.48 3.27 3.34 3.14 3.17 2.911989 2.79 2.46 3.43 3.30 3.06 2.81 3.00 2.631990 2.71 2.39 3.38 3.16 2.87 2.65 2.92 2.201991 2.79 2.40 3.65 3.37 3.04 2.82 3.06 2.561992 3.56 3.00 4.38 4.08 3.95 3.67 3.81 3.311993 3.75 3.14 4.59 4.39 4.19 3.89 4.07 3.741994 4.08 3.40 4.67 4.53 4.31 4.01 4.26 4.021995 4.10 3.37 4.64 4.53 4.24 4.01 4.24 4.151996 4.19 3.47 4.49 4.37 4.06 3.92 4.12 4.081997 4.03 3.38 4.43 4.25 3.93 3.85 4.04 4.011998 3.93 3.35 4.32 4.08 3.79 3.73 3.97 3.761999 3.63 3.18 4.29 4.06 3.73 3.70 4.00 3.892000 3.64 3.15 4.07 3.90 3.60 3.59 3.93 3.702001 3.52 3.10 3.84 3.69 3.48 3.46 3.79 3.592002 3.45 3.04 3.68 3.60 3.41 3.30 3.71 3.492003 3.68 3.23 4.02 4.02 3.72 3.70 4.17 3.922004 4.23 3.61 4.38 4.28 4.08 4.04 4.38 4.142005 4.04 3.63 4.35 4.33 4.16 4.10 4.55 4.032006 4.04 3.52 4.11 3.89 3.76 3.81 4.38 3.312007 4.21 3.72 4.04 3.80 3.56 3.49 4.05 3.28

Source: IBO

Note: ETR computed using Department of Finance, income-based market values and levy net of abatements.

SOURCE: IBO.NOTE: ETR computed using Department of Finance, income-based market values and levy net of abatements.

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Table 11Median Sales Price to Finance Department Market Value Ratios, By Property Type and Borough

Rental ApartmentsManhattan Bronx Brooklyn Queens

Num Sales Ratio Num Sales Ratio Num Sales Ratio Num Sales Ratio1996 322 1.40 88 1.19 175 1.33 113 1.481997 322 1.41 100 1.35 165 1.40 79 1.551998 320 1.43 135 1.50 132 1.42 91 1.591999 360 1.81 171 1.59 170 1.48 95 1.722000 437 2.48 162 1.69 272 1.79 131 1.842001 430 2.37 167 2.02 221 2.03 128 1.942002 333 2.74 116 1.98 187 2.03 109 2.022003 324 2.99 143 1.95 164 2.26 95 2.322004 417 3.25 164 2.49 216 2.76 107 2.502005 465 3.93 217 2.96 197 3.07 135 2.332006 444 3.74 234 3.16 266 3.27 110 2.76 0.267389 0.362489

100 100Retail 45 45

Manhattan Bronx Brooklyn Queens 5.73165 5.73165Num Sales Ratio Num Sales Ratio Num Sales Ratio Num Sales Ratio 5.73165 5.73165

1996 77 1.35 51 1.20 169 1.26 143 1.201997 60 1.03 61 1.12 150 1.23 189 1.29 373.9865 275.87071998 83 1.31 90 1.17 167 1.42 185 1.37 1.532582 2.077658 1.3556591999 79 1.49 78 1.20 171 1.41 210 1.372000 103 1.90 98 1.42 216 1.65 221 1.542001 125 1.92 98 1.20 209 1.70 230 1.662002 103 2.57 80 1.32 179 1.71 256 1.662003 81 2.51 101 1.29 184 1.83 208 1.862004 81 2.83 111 1.56 197 2.16 230 1.942005 100 3.55 100 1.95 215 2.28 227 2.472006 110 3.34 126 2.00 210 2.86 226 2.47 0.29964 0.499577

100 100City-wide 45 45

Office Buildings Fact/Ware Gar/Gas Vacant 5.73165 5.73165Num Sales Ratio Num Sales Ratio Num Sales Ratio Num Sales Ratio 5.73165 5.73165

1996 148 1.01 381 1.20 256 1.36 351 1.531997 135 1.16 390 1.22 298 1.42 398 2.00 333.7336 200.16931998 174 1.25 421 1.27 379 1.73 509 1.96 1.717433 2.863401 1.6672561999 212 1.47 547 1.37 423 1.65 450 2.852000 219 1.63 614 1.58 504 1.92 552 2.992001 267 1.68 629 1.69 606 1.89 598 2.852002 246 1.87 509 1.97 509 2.19 571 3.782003 193 2.03 422 2.10 540 2.29 437 3.802004 208 2.18 431 2.72 623 3.20 495 5.262005 253 2.45 551 3.34 669 3.34 460 5.642006 283 2.67 530 3.72 515 4.21 409 5.49

SOURCE: IBO.SOURCE: IBO.

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39 NEW YORK CITY INDEPENDENT BUDGET OFFICE

apartmentbuildingsandthereforethistypeismorelikelytohave421-aexemptionsthanolderwalk-upbuildings.ThishasresultedinlowerETRsfortheformer,atleastsince1984.Withinthecommercialpropertytypes,muchofManhattanisexcludedfromtheIndustrialandCommercialIncentiveProgram.ThispartiallyexplainstherelativelyhighETRforofficebuildings,whicharepredominantlyinManhattan,andManhattanretailproperties.TheverylowETRforClass4vacantlandresultsfrommanypartialexemptions,particularlyoutsideManhattan.

Asnotedabove,theETRsforthesepropertytypeswillbemoreuniformaslongasthefinancedepartmentdoesareasonablejobestimatingthemarketvalueofthebuildings.Formostrentalandcommercialproperties,thefinancedepartmentusescapitalizednetincomeratherthansalespricestoestimatemarketvalues.Suchanapproachisappropriategiventhatsalesarerelativelyinfrequentforthesetypesofproperty,andbecausesalespricesoftenreflectspeculation.

Nevertheless,comparingthesalespricetothemarketvaluethatthefinancedepartmentestimatedwhenthesaleoccurredcangiveusanindicationofthedepartment’ssuccessinreflectingcurrentmarketconditionsinitsvaluations.49InTable11themedianoftheratioofsalespricetothefinancedepartment’smarketvalueeachyearisreported.Whentheratioisgreaterthanone,thesalespriceexceededthefinancedepartment’smarketvalue,implyingthatthevalueusedfortaxpurposesislow.Theratioshavebeengrowingvirtuallyeveryyearforthepropertytypesshowninthetable,whichisnotsurprisingduringatimeofrapidpriceappreciation,particularlysince2003.

Thepattern,however,isnotconsistentacrossboroughsandpropertytypes.Forexample,amongrentalapartmentbuildings,theboroughmediansofthesalespriceratiowerefairlyclosein1996and1997,butarenowmorewidelyspread,withManhattansalespricestypically3.74timesgreaterthanthemarketvaluewhereasinQueensthesalespricesweretypicallyonly2.76timeshigherforthe2007assessmentroll.IfweweretousethesalespricetocomputeETRsforthesesales,theQueensapartmentbuildingsaretaxed35percentmoreheavilythanthoseinManhattan.

Forsalesofretailproperties,therearesimilardifferencesexceptthatinthiscasethedifferenceforthecurrentyeariswidestbetweenManhattanandtheBronx.Effectivetaxratesbasedonsalesare67percenthigherinthelatterthanintheformer.Finally,therearelargedifferencesintheratiosamongpropertytypes,particularlythoseforrentalapartmentbuildings,retail,office,andfactoryandwarehouseproperties,allofwhicharevaluedusingthesamenetincomeapproach.

Thesedifferencesindicatethatthefinancedepartment’sincome-basedmarketvaluesarenotconsistentlyreflectingvaluesfordifferentpropertytypesindifferentareas.Asaresult,disparitiesintaxburdensforthesetypesofpropertieslikelyremainaproblem.

conclUSion

InthischapterofthereportweexaminedhowS7000Ahadimpacteddisparitiesontwodimensions:differencesbetweenpropertytypesorclasses,anddifferenceswithinpropertytypes.UnderS7000A,thedisparitiesbetweenpropertytypeshavegrown,thanksprimarilytothesystemusedtoallocatesharesofthelevy.ItwasagoalofthedraftersofthelegislationtoavoidtheshiftoftaxburdenfromcommercialtoresidentialpropertythatwouldhaveoccurrediftheHellersteindecisionwereenforcedwithoutchangingthelaw.

NotonlyhavetheclassshareprovisionsofS7000AworkedtoprotectClass1fromsuchashift,butbecausethesystemdoesnotfullyadjusttochangesinmarketvaluesharesamongtheclasses,theClass1effectivetaxrateisnowmuchlowerthanitwouldbeifthelevyshareswerebaseddirectlyonmarketshare.Class4hasabsorbedmostoftheburdenthatwouldhaveshiftedontoClass1.AsaresulttheETRpaidbycommercialpropertyownersisnow

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25percenthigherthanitwouldbeiflevyshareshadtrackedthechangesinmarketvalueshares.Asecondsourceofinter-classdifferencesisthedisparatetreatmentofresidentialpropertytypes.WiththeassessmentcapsprotectingClass1andSection581producingsignificantdiscountsinmarketvaluesforcoopsandcondostherearemajordifferencesintaxburdensbetweentheownershipclassofresidentialpropertyontheonehandandrentalpropertiesontheother.

Thestarkdifferenceslinkedtoareaincomeandmarketvalues,particularlyforhouses,thatweredocumentedpriortotheenactmentofS7000Ahavebeeneliminated.Otherdisparitieswithinpropertytypeshaveemerged,though,largelytheresultofS7000A’sassessmentcapsandSection581.Thebenefitsfromtheseprovisionshelpownersofhouses,apartments,andsmallrentalsgenerally,butthebenefitsvarywidelyfromneighborhoodtoneighborhoodacrossthecity,resultinginnewdisparitiesintaxburdens.Unlikethepre-S7000Adifferences,thesearetheproductofthelawitselfratherthanaction,orinaction,onthepartofassessors.

Written by George Sweeting

end noteS

1Unlessotherwisenoted,allreferencestoayearinthisreportyearsrefertocityfiscalyearratherthancalendaryear.Fiscalyearsaredenotedbythecalendaryearinwhichtheyend,so1993referstothefiscalyearthatranfromJuly1,1992toJune30,1993.2Fortheyearsbefore1993,thereportedassessedvaluewasdividedbytheknownassessmentratioforthepropertytypetogetthefinancedepartment’smarketvalue.3Thesalesfilerequiredextensiveeditingpriortocomputingtheseratiostoremovenon-armslengthtransactions,foreclosuresalesandsalesbythecity,transactionswithextremevalues,andsaleswithevidenceofrapid“flipping.”Ofapproximately2.7millionsalesrecordsfrom1975throughmid-2006,includingthoseintheseparatecoopsalesfiles,onlyabout1.6millionwereincludedintheanalysisfile.4Saleswerelinkedtotheannualassessmentwhichwas“active”atthetimeofsaleratherthanthefiscalyearthesaleoccurred.Theassumptionwasthatasaleoccurringwhileapropertywasbeingassessedmightinfluenceitsvaluation,butthatasaleoccurringaftertheassessmentbecomesfinalwouldhavenoinfluenceonthevalue.Forexample,the2006fiscalyearassessmentswereactivelyworkedoninthesecondhalfofcalendaryear2005,withfieldworkcompletedbythetaxablestatusdateofJanuary5,2005.TheywerethensubjecttoreviewthroughthespringandbecamefinalonMay25,2006.SalesoccurringfromJune2004throughMay2005wereusedtogeneratethesales-basedmarketvaluesneededtocalculatetheETRsforthe2007roll.Thealternativewouldhavebeentoassociatethosesales,oratleastthosefromJuly2005throughJune2006,withthe2006assessmentroll.5Asimilarprocesswasalsoneededforaperiodinthemid-1990swhenthefinancesalesfileismissingvirtuallyallcoopsales.6WhenS7000AwasenactedtheofficewasknownasthestateBoardofEqualizationandAssessment.TheofficeconsistedofstaffwhoassistedtheStateBoardincarryingoutitsequalizationduties.Today,thectateboardstillexists,butthestaffoperatesundertheseparatename,OfficeofRealPropertyServices.7Thesearereferredtoasequalizationchanges.Whileallequalizationincreasesarephased-inoverfiveyears,howdecreasesarehandleddependsonwhethertherearepreviousincreasesstillbephasedin.Ifthereisapipelineofpreviousincreasesstillbeingphasedinthenequalizationdecreasesarealsophasedinoverfiveyears.Ifthereisnopipeline,thenthedecreaseisfullyreflectedintheyearitoccurs.8CityofNewYorkTaxStudyCommission,Final Report, December1989,p.1399UnderS7000A,theFinanceCommissionermaydetermineauniformassessmentratioforeachclass.TheClass1targetratiowasinitially20percentofmarketvalue.Ithasbeenadjustedperiodicallyovertheyearsandnowstandsat6percent.TheratioforClass2andClass4wasinitially60percentandthenwasreducedtothecurrent45percentbeginningin1985.TheratioforClass3propertyassessedbythecitywasoriginally50percent,withastateequalizationratiousedforpropertyassessedbythestate.Since1994,allClass3propertyhasbeenassessedwitharatioof45percentofmarketvalue.10NewYorkUniversity,Real Property Tax Policy for New York City,1980,p.1-11.11Therelativelylargedifferenceineffectivetaxratesreportedforone-,andtwo-familyhousesintheNYUstudyfor1980andtheIBOestimatesforwhatbecameClass1in1984areduetoseveralfactors.First,theClass1targetassessmentratiousedinthefirstfewyearsunderS7000Awas20percentwhichissignificantlylowerthanthe24.6percentratioestimatedfor1980.Therewerealsosomesmallerdifferencesforothertypesofproperties.Secondly,inpreparationforimplementingS7000A,thecitymovedtoadjusttheassessmentsonmanyproperties,particularlyover-assessedhomes.Forexample,accordingtotheMessageoftheMayorsubmittedwiththe1983ExecutiveBudget,thecityloweredtheassessmentson50,000housesduring1982.Third,propertyvalues—alongwithotherindicatorsofthehealthofthecity’seconomy—hadbeguntoslowlyrecoverfromtheshockofthe1970sfiscalcrisesandthisgrowthcontinuedintotheearly1980sevenastherestofthecountrywentthroughback-to-backrecessionsin1981-83.Thegrowingmarketvaluescontributedtothedeclineineffectivetaxratespriorto1984whentheIBOdataseriesbegin.Anyremainingdifferenceispresumablyattributabletomethodologicaldifferencesinestimatingmarketvaluesforthetwostudies.12ThiswouldnotbetrueifmarketvaluesofcoopsandcondosinClass2weremeasuredusingsalespricesratherthanimputedincome.BasedonIBO’sestimatedmarketvalues,theClass2marketvaluesharehasgrownslightlyfasterthanClass1’ssharesince1992.13SeeIBO,Where Does the Buck Stop?,1999.14TheCommissioneractuallyhasauthoritytosettheassessmentratioineachclass,butotherthanareductioninthethirdyearofS7000AforClass2andClass4,andadjustmentsinClass3necessitatedbyregulatorychanges,thepolicy-drivenchangeshavebeenconcentratedinClass1.15Wewerenotabletolocateadefinitiveaccountdocumentingthechoiceofinitialassessmentratio.The20percentiscomputedfromatableofeffectiveratesfortheclassesincludedintheMayor’sOfficeofManagementandBudgetTaxRevenueForecastingDocumentation.Thechartshowsanominalrate

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41 NEW YORK CITY INDEPENDENT BUDGET OFFICE

for1983of$8.95per$100ofassessedvalueandaneffectiverateof$1.79per$100ofmarketvalue,whichimpliesanassessmentratioof20percent.16TheinteractionoftheClass2A,2B,2CcapswiththeassessmentratioforClass2ismuchlessbecausethetargetratiois45percent,whereasactualaverageassessmentratiosforthesepropertiesarecurrentlyaround.08usingIBO’ssales-basedvaluesor.15usingFinance’sincome-basedvalues.Withsomuchroombetweentheactualandtargetratios,thetargetisnotasignificantconstraintonassessmentincreases.17NYU,Real Property Tax Policy for New York City,p.II.31.18NYU,Real Property Tax Policy for New York City,p.II.5.Exhibit15showstheneighborhoodqualitydifferentialsbasedondifferencesinassessmentratios.Becausethecitystillhadauniformnominaltaxrate,thecomparisonofassessmentratiosisequivalenttocomparingeffectivetaxratesortaxburdens.19NYU, Real Property Tax Policy for New York City,pp.II.152-163.Thefactorswerepercapitaincomein1974andgrowthfrom1970to1974;percentageofparcelswithtaxarrearsin1972and1978;percentageofneighborhoodpopulationonpublicassistancein1976;andchangeinneighborhoodpopulationfrom1970to1975.20NewYorkPublicInterestResearchGroupCity of Unequal Neighbors: A Study of Residential Property Tax Assessments in New York City,February1981.NYPIRGusedthesameneighborhooddefinitionsastheNYUstudy.21NYPIRG“CityofUnequalNeighbors,OneYearLater,”1982,p.3.22NYPIRG1982,p.11.23BoththeNYUstudyandtheNYPIRGstudiesusedasetofneighborhooddefinitionsthatweredevelopedbytheCityPlanningDepartmentinconjunctionwiththe1980decennialcensus.Therewere267neighborhoodswhichwerebuiltupfromcensustractboundaries.Theseneighborhooddefinitionswerenotavailableforthisstudy.IBO’scensustractanalysisusedtheNeighborhoodChangedDatabase(NCDB)whichwasdevelopedbytheUrbanInstituteandGeoLytics,Inc.TheNCDBincludescensustractdatafromthe1970,1980,1990,and2000decennialcensuses.Becausecensustractdefinitionschangefromdecadetodecade,theNCDBprovidesthedatainaformthatnormalizesthecensustractgeographytothe2000definitions.Thenormalizationprocesscanintroducesomedistortionsinareaswheretherearemanychanges.InthecaseofNewYorkCity,thecensustractgeographyhasbeenfairlystableandtheimpactofthenormalizationonanyresultsisunlikelytobelarge.Thedatabaseincludes2217censustractsforthecityusingthe2000decennialdefinitions,ofwhich1490hadatleast100Class1propertiesin2007.24Medianfamilyincomewasestimatedfor1980byusingthemidpointofreportedfamilyincomeranges.Themedianwasreportedfor2000.Itwasnotpossibletousemedianhouseholdincome,whichismoretypicallyusedwhenanalyzingincomedistributionbecauseitwascouldnotbeestimatedfor1980.Becausethedistributionisestimatedfromrangesratherthanmeasuredcontinuously,thequartilescanactuallyrepresentslightlymoreorlessthan25percentofthedistribution.25NYU,Real Property Tax Policy for New York City,p.II.36-43.26MarilynRubinandFranJoseph,“TheNewYorkCityPropertyTax:ACaseStudyinStructuralChangeandAdministrativeResponse,”Property Tax Journal,Volume7,Number1(March1988),pp.85-100.OneofthefirstresultsfromtheseeffortswastheDepartmentofFinance’sreductioninassessmentsfor50,000one-andtwo-familyhousesinspring1982thatwascitedabove.27JackEichenbaum,“LocationasaFactorinDeterminingPropertyValues,”Property Tax Journal,Volume8,Number2(September1989),pp.151-169.28ThebestmeasureoftheeffectivenessoftheCAMAinitiativeistheratioofsalespricetotheDepartmentofFinance’sFairMarketValue(FMV)forsoldproperties.UnfortunatelyFMVsarenotavailableformostpropertiesduringthe1980s.Anecdotalevidencesuggeststhattheratiowasfarefrom1.0,atleastintheearlypartofthedecade.In1993,whenourstudyfilefirstcontainsreliableFMVdata,themedianratiostoodat.95andby1994itwasverycloseto1.0whereitremaineduntil1998.Sincethenithasbeengrowingreaching1.09forsalesusedtosetthe2007values.ThismeansthatforsalesduringtheperiodJune2005throughMay2006,aperiodofveryrapidappreciationinhouseprices,thesalespricestendedtobeaboutninepercenthigherthanthemarketvaluethefinancedepartmenthasestimatedforthepropertyforthe2007assessmentroll.29WiththeoveralldeclineinETR,thelargerpercentagedifferencestillresultsinasmallerabsolutedifferenceintermsoftaxesper$100ofmarketvalue.30AsecondaryfactorisagradualtailingoffinrelationshipbetweensalespriceandtheDepartmentofFinance’sFMVestimates.Asnotedearlier,inordertouseaconsistentdataseriesthroughoutthereport,thereportedETRsforClass1propertiesarebasedonIBO’sestimatedmarketvalueswhichweredevelopedusingsalesratios.WhenFinancecalculatesaproperty’sassessedvalueditstartswiththedepartment’sestimateofmarketvalueandETRsbasedonFinance’sFMVsshowslightlylessvariationthantheETRsmeasuredwithIBO’smarketvalue.(For2007,thecoefficientofvariationfortheFMV-basedETRsis36.7,and37.2fortheIBOmarketvalueETRs.)Butsincethe1994-1998period,whentheratioofsalespricetoFMVforsoldpropertieswasessentially1.0,theratiohasbeengrowingandnowstandsat1.09forsalesusedtosetthe2007values.ThismeansthatforsalesduringtheperiodJune2005throughMay2006,thesalespricestendedtobeaboutninepercenthigherthanthemarketvalueFinancehasestimatedforthepropertyforthe2007assessmentroll.Theyearssince1998,andparticularlysince2002haveseenveryrapidappreciationinmarketvalues.Accuratelyreflectingsuchappreciationisachallengeforassessorsandthecomputermodelstheyuse.Nevertheless,thisdeclinemayalsobeevidenceofadeclineinthequalityofFinance’sClass1marketvaluemodels.31Theassessmentcapsonlyaffectchangesresultingfromgeneralmarketconditions(equalizationchanges).Changesinvaluebasedonimprovementsandalterations(physicalchanges)arenotlimitedbythecapsandareassessedusingtheappropriateclassassessmentratio.Asaresultofthecaps,theaverageassessmentpercentageforClass2A/2Bpropertiesisnowabout7percentusingIBOssales-basedmarketvaluesand12percentusingfinancedepartment’sincome-basedvalues.Withsuchalargegapbetweenthesepercentagesandthe45percentClass2assessmentpercentage,someownersfacedunexpectedlylargeincreasesintheirtaxbillswhentheyrenovatedtheirbuildingsandtheincreasedmarketvalueresultingfromthephysicalimprovementswasassessedat45percent.Beginningwiththe2006assessmentroll,thecitysoughtandreceivedstatelegislationtoassessbuildingimprovementsandalterationsatalowerpercentage,currently15percentofthemarketvaluechangeresultingfromtheimprovement.32NYU,Real Property Tax Policy for New York City,Exhibit14,II-34.33HVSsub-boroughsaremadeupofcensustractsandforthemostpartalignwiththecity’sCommunityPlanningDistricts.Thereareonly55HVSsub-boroughsandmostaremuchlargerthanwhatisconventionallythoughtofasaneighborhood.TheyhavetheadvantageofallowingustobringinanalysisbasedontheHVSsurveyofresidentsineachsub-borough.34Accordingtofinancedepartmnetassessmentdata,in1984therewere238,566coopapartmentsand14,440condos,plus7,746apartmentsinthesmallcoopandcondobuildingsthatbecameTaxClass2C.By2007,thisinventoryhadgrownto440,881coopapartments,144,818condoapartments,and17,507apartmentsinClass2C.35NewYorkCityTaxStudyCommission,December1989,pp.142-143.

An Analysis of Change in Property Tax Burdens Since 1981

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NEW YORK CITY INDEPENDENT BUDGET OFFICE 42

36ThereporteddiscountsarebasedonthemedianoftheratioofIBOperapartmentmarketvaluetofinancedepartmentperapartmentmarketvalue,weightedbythenumberofapartments.37ETRsinthissectionarethemedians,weightedbythenumberofapartments.38TheriseinETRforapartmentsinthisperiodtracksadeclineinsalesprices,withthelargestdeclinescominginManhattan,particularlyforpre-warcoops,wherethemediansalespricefellby11percentfrom1992to1995andby19percentfrom1992to1997.AlthoughsalespricesforClass1housesalsofellatthesametime,thedeclinewasasmaller8percentfrom1992to1995.39ThecommissionwaschairedbyStanleyGrayson.ReportoftheNewYorkCityRealPropertyTaxReformCommission,p.138.40ReportoftheNewYorkCityRealPropertyTaxReformCommission,pp.3-4.Thecommissionbeganitsworkinthesummerof1993priortothefallMayoralelectionracebetweenDavidDinkinsandRudyGiuliani,butdidnotholditsfirstpublicmeetinguntilthedayaftertheelection.TheelectoraloutcomegavetheCommissionasomewhatlameduckstatus,withlittleexpectationthattheincomingadministrationwouldwelcomebroadrecommendationsfromapanelthatithadplayednorole41IBO,The Coop Condo Abatement and Residential Property Tax Reform,1999.42Theabatementactuallyhastworates,17.5percentforapartmentsinbuildingsweretheaverageassessmentperapartmentexceeds$15,000and25percentforapartmentsweretheaverageassessmentisless.Forover90percentofownerswhoqualifiedfortheabatementin2007,thepercentageis17.5percent.43Forthiscomparison,IBOcalculatedtheClass1targetETRbymultiplyingthetargetassessmentratioof6percenttimestheClass1taxrate.NotethatthistargetETRissubstantiallyabovetheactualaverageETRinClass1today.UsingtheactualETRwouldlowertheestimateofunnecessaryabatementsubstantiallytoonly$14million.Weusethetargetratiobecausethelong-termgoalofcoop-condoreformistomoveapartmentownersintoClass1.WhenotherpropertytypeshavebeenshiftedintoClass1inthepast(vacantlotsadjacenttoClass1lots,andsmallmixedusedbuildings)theyhavecomeinatthetargetrate.44NYU,Real Property Tax Policy for New York City,I-14.45Officesandhotelswereassessedat78percentofmarketvaluewhilevacantlandwasassessedat22percentonaverage,withfactories,warehouses,retailandloftbuildingsinthe60-66percentrange.NYU,Real Property Tax in New York City, I-20.46Thecoefficientofvariation(COV),astandardmeasureofuniformity,orlackthereof,inassessmentsexceeded60percentinhalfofthecommercialtypesmeasured.NYU,RealPropertyTaxPolicyforNewYorkCity,I-22.47Increasesinassessedvalueduetomarketconditions,knownasequalizationchanges,arephasedinoverfiveyears.Equalizationdecreasesarereflectedimmediatelyunlessthereisapreviousincreasestillbeingphased-in,inwhichcasethenewequalizationdecreaseisalsophased-inoverfiveyears.Changesattributabletophysicalchanges(i.e.construction,alteration,renovation,demolition)arereflectedimmediately.48Theexemptionsforgovernment-ownedproperties,includingpublichousingcomplexes,arelargerthan421-aandIndustrialandCommercialIncentiveProgram,butsuchfullyexemptpropertiesareexcludedfromouranalysis.49Recallthatwelinksalestotheassessmentrollbeingdevelopedatthetimeofthesalewhichshouldincreasethechancethatthefinancedepartmentcanreflectthesalespriceinitsvaluation.

An Analysis of Change in Property Tax Burdens Since 1981

www.ibo.nyc.ny.us/iboreports/coopcond.html - 50k - 2005-02-14
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InthischapterwecompareNewYorkCity’scommercialpropertytaxratewithratesinothercitiesandbrieflyconsiderimplicationsfortheeconomyofNewYorkCity.Traditionally,thepropertytaxhasservedasamajorrevenuesourceforU.S.cities,withmuchofitfallingonbusinessandcommercialproperty.Nationwide,

propertytaxesonreal,personal,andutilitypropertyownedbybusinessesaccountforthelargestshare,37percent,ofstateandlocalbusinesstaxes.1Wehaveseenthatthecityhasahigheffectivetaxrate(ETR)forcommercial(Class4)property.Ifthecity’scommercialtaxburdenishigherthanelsewhere,thenanynegativeeffectonthecity’seconomywillbecompounded.

Projectedtototalmorethan$13billionthisfiscalyear,theamountofpropertytaxescollectedinNewYorkCityisbyfarthelargestcomparedtootherU.S.cities.Ofcourse,thisisprimarilyafunctionofthecity’spopulationandscale.Moremeaningfulcomparisonsmeasureacity’spropertytaxagainsttheeconomicresourcesavailableinthecitytopayitoralternativelyagainstthevalueofthepropertybeingtaxed,whichistheeffectivetaxrate.

Whencomparingpropertytaxesamongcities,oneneedstobeginbyrecognizingthesignificantdifferencesinthewaythesetaxesareleviedineachjurisdiction.ForexamplewhileLosAngeleshasfourpropertyclasses(residential,commercial,industrial,andpersonalproperty),Chicagoidentifiesadozentaxablepropertyclasses.Inmostmunicipalities,thetaxbasecompriseslandandimprovements,althoughinsomecities,personalproperty(suchastrucks,boats,ormachinery)isalsoincluded.Citiesalsodifferintheirexemptionstructures.And,mostimportantly,nominaltaxrates,valuationmethods,andassessmentratesallvarywidelyacrossmunicipalities.ThesedifferencesinpropertytaxationpresentaseriouschallengeinmakingavalidcomparisonofNewYorkCitypropertytaxestothoseofothercities.

AforthcomingIBOreportwillpresentcomparisonsoftaxburdensfortheninemostpopulouscitiesinthecountry(Tables1and2).Thestudyestimatesthetotalsofmajortaxescollectedinagivencity,includingtaxesleviedbytheoverlappinglocalgovernments,suchascounties,schooldistrictsandotherjurisdictions.Thestudythencontraststhesumofcitytaxeswiththecity’staxcapacity.IBOhasdevelopedameasureoftaxcapacitythatwecall“taxableresources,”whichisthesumofaggregatehouseholdincomesandsurplusesofbusinessesoperatinginthecity.Theshareofeachcity’staxcollectionsper$100oftaxableresourcesrepresentstaxeffortandisusedbyIBOtomake

crosscitycomparisons.

Accordingtothismeasure,NewYorkCity’soverallpropertytaxeffortof$2.24per$100oftaxableresources(showninthesecondcolumnofTable2)ishigherthanthatofallbutoneoftheothercitiesinourstudy,slightlyaboveChicago’staxeffort,andissignificantlylargerthanthe$1.85averagefortheothermajorcities.2Table3distinguishesbetweenthetypesofrealpropertyonwhichthetaxisbeingleviedforthesixcitieswherethenecessarydatawasavailable.Thisallowsustocalculatesharesofthetotalpropertytaxfortwocategories:residential,whichincludeshouses,condominiums,andapartmentbuildings;andnon-residential,whichincludesallothertypesoftaxableproperty,thelion’sshareofwhichiscollectedfrom

How Do New York City’s Commercial Property Taxes Compare with Other U.S. Cities?

Table 12003-2004 City and Overlapping Government TaxesDollars in millions

CityProperty

Taxes Other Taxes TotalNew York, NY $11,445.00 $33,857.40 $45,302.40Los Angeles, CA $3,052.60 $9,805.60 $12,858.20Chicago, IL $3,371.60 $5,620.50 $8,992.10Houston, TX $2,841.80 $5,245.30 $8,087.10Philadelphia, PA $891.20 $3,519.20 $4,410.40Phoenix, AZ $1,212.30 $2,790.20 $4,002.50San Diego, CA $1,192.70 $3,669.80 $4,862.50San Antonio, TX $1,296.70 $1,840.50 $3,137.20Dallas, TX $1,775.70 $2,885.60 $4,661.30SOURCE: IBO.

Table 22003-2004 Property Taxes and Tax Effort

City

Property Tax Share of All

Taxes

per $100 Taxable

Resources

New York, NY 25.30% 2.24

Los Angeles, CA 23.70% 1.6

Chicago, IL 37.50% 2.16

Houston, TX 35.10% 1.92

Philadelphia, PA 20.20% 1.43

Phoenix, AZ 30.30% 1.86

San Diego, CA 24.50% 1.45

San Antonio, TX 41.30% 2.76

Dallas, TX 38.10% 1.94

Non-NYC averag 30.60% 1.85

SOURCE: IBO.

Table 32003-2004 Residential and Non-Residential Property Taxes

City

ResidentialProperty Tax

Share

Non-Residential

Property Tax Share

ResidentialProperty Tax

per $100 Taxable

New York, NY 51.60% 48.40% 1.09Los Angeles, CA 73.10% 26.90% 0.43Houston, TX 62.40% 37.60% 0.72Philadelphia, PA 69.00% 31.00% 0.44San Antonio, TX 70.70% 29.30% 0.81Dallas, TX 67.30% 32.70% 0.63

SOURCE: IBO calculations based on financial reports of local governments

City

ResidentialProperty

CommercialProperty Ratio

New York City 0.639 3.868 7.262

Boston 0.684 2.968 4.251

Phoenix 1.041 3.171 3.127

Chicago 1.498 3.259 2.611

Philadelphia 2.234 2.902 1.559

Houston 2.334 2.791 1.184

Los Angeles 1.139 1.156 1.015

U.S. Average 1.757

SOURCES: IBO; 50-State Property Tax Comparison Study,

Minnesota Taxpayers Association, April 2006

Table 42005 Effective Property Tax Rates

NEW YORK CITY INDEPENDENT BUDGET OFFICE 44

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commercialandindustrialproperty.Amongthesecities,NewYorkhasthelargestpercentageofpropertytaxescollectedfromnon-residentialproperty(48.4percent),whiletheothershaveclosertoathirdorlesscomingfromnon-residentialproperty.Measuredasashareoftaxableresources,NewYork’snon-residentialpropertytaxburdenexceedsthatoftheothercities.

Amorecommon—andlesslaborintensive—methodofcomparingtaxesacrossjurisdictionsmeasurestheeffectivepropertytaxrateforeachcity.Theeffectivetaxrateshowstherelationshipbetweenpropertytaxesandthemarketvalueoftheproperty.Assumingonehasgoodestimatesofmarketvalues,city-to-citycomparisonsofeffectivetaxratesavoidtheproblemoflocalvariationinassessmentpractices.TheestimatespresentedinTable4comefromthe“50-

StatePropertyTaxComparisonStudy”basedonthe2005taxyearthatwasconductedbyMinnesotaTaxpayersAssociationandothermemberstatesofNationalTaxpayersConference.3DataforpropertytaxcalculationswassuppliedbyvariousstateandlocalagenciesandWebsites,andbystateandlocaltaxexperts.

Theresultsofthesurveysuggestthatamongmajorcities,NewYorkCity’sETRforcommercialpropertyisthehighestinthecountry,whiletheresidentialETRisamongthelowest.TheMinnesotastudy’smoststrikingfindingisNewYork’shighratioofcommercialtoresidentialeffectivetaxrates.Infact,itisthehighestamongmorethanahundredlocationscoveredinthereport.Whilethenationalaverageis1.7,NewYorkCity’sratioasmeasuredfortheMinnesotastudyis7.2.4Thehighratioreflectsthehugedisparityinthewaydifferentclassesofpropertyaretaxedinthecity.

WithNewYorkCity’seffectivetaxrateoncommercialpropertieshigherthaninotherlargecities,andmanytimeshigherthanthatofresidentialproperties,theresultisadisproportionatelyheavytaxburdenonthecity’scommercialrealestate.WhatislesscertainistheextenttowhichthisdisproportionateburdenproducesadverseeconomicimpactsbydecreasingNewYorkCity’scompetitiveness.

Howbigcouldthisimpactbe?Isitsubstantialenoughtowarrantseriousconcern?Certainlythereissomelevelatwhichpropertytaxratedifferentialswillhaveaneffectonbusinesslocationdecisions.Commercialandindustrialpropertyoftenconstitutesafirm’slargestinvestmentitem,and,therefore,taxationofsuchpropertiesmayhaveseriousimplicationsonthedecisionofafirmtomove,maintain,orexpanditsoperationsinagivenlocality.Inanefforttocreatenewjobsandgrowtheireconomies,localofficialsoftenuseincentivesthatlowertaxes,mostcommonlythepropertytax,asapolicytooltoattractandretainindividualfirms.Manyeconomists,however,areskepticalaboutboththeeffectivenessoffirm-specifictaxbreaksandthedegreetowhichlocalandstatetaxdifferentialstranslateintoeconomicimpacts.

TimothyBartikinaseriesofpapersfrom1991to1994providesacomprehensivereviewofeconometricliteratureontheeffectsofstateandlocaltaxationoneconomicdevelopment.5Inareviewandreestimationof75differentstudies,Bartikreportedthatalmosttwothirdsofthemfoundastatisticallysignificantnegativeimpactoftaxincreaseswhileholdingotherthingsconstant.Bartikprovidesthefollowingexampletoreflecttherangeoftheestimates:ifalocality,beitametropolitanareaorastate,decidestoraiseitstaxesby10percent,“theestimatedlong-runeffectwouldbeareductionofbusinessactivitybetween1percentand6percent.”

45 NEW YORK CITY INDEPENDENT BUDGET OFFICE

How Do New York City’s Commercial Property Taxes Compare with Other U.S. Cities?

Table 22003-2004 Property Taxes and Tax Effort

City

Property Tax Share of All

Taxes

Property Tax per $100 Taxable

ResourcesNew York, NY 25.30% 2.24Los Angeles, CA 23.70% 1.60Chicago, IL 37.50% 2.16Houston, TX 35.10% 1.92Philadelphia, PA 20.20% 1.43Phoenix, AZ 30.30% 1.86San Diego, CA 24.50% 1.45San Antonio, TX 41.30% 2.76Dallas, TX 38.10% 1.94Non-NYC average 30.60% 1.85SOURCE: IBO.

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Bartik,inhis1991review,notedthattaxcutstranslateintorevenuelossesthatcanleadtoadecreaseinpublicspending.Reductioninthelevelandqualityofpublicservicescanalsohavesignificantnegativeeconomiceffects.MichaelWasylenkoinhis1997updatetoBartik’sstudygoesfurtherandsuggeststhatcompanieswouldgainmorefrom“astablebusinesstaxsystemthatefficientlyfunds

[public]services”insteadofinconsistentpoliciesoftaxcuts.

Theeffectofcommercialpropertytaxesmaybemostsignificantwhenfirmsaremakingintra-regionallocationdecisions.NewYorkCitycompetesnotonlywithlargecitieselsewhereinthecountry,butalsowithjurisdictionsonitsborders—particularlyacrosstheHudsonRiverinNewJersey.Thankstotheregion’stransportationinfrastructure,firmscandrawuponessentiallythesameregionallabormarketregardlessofwhichsideoftherivertheychoosetolocatenewfacilities.AlthoughNewJersey’sresidentialpropertytaxratesarerelativelyhigh,itscommercialratesarenot,makingtheveryhighNewYorkcommercialpropertytaxburdenacompetitivedisadvantage.Areasoutsidethecityalsoenjoyothercostadvantages,particularlycomparedwithManhattanwithitsdensityandhighcostofland.WhenthesedifferencesarecoupledwithdeepincometaxdiscountsavailableincountiesonthewesternshoreoftheHudson,NewJerseyandtosomeextentWestchesterandConnecticut,havehadsuccessinattractingfirms,jobs,andcommercialinvestmentfromthecity.

Written by Eldar Beiseitov

end noteS

1ErnstandYoung,“TotalStateandLocalBusinessTaxes,”2005.2NotethatthenumberspresentedinTables1and2includenotonlypropertytaxescollectedbythecitygovernments,but,whenapplicable,alsotaxescollectedbyoverlappingjurisdictions,suchasschooldistricts,counties,statesandothers.3“50-StatePropertyTaxComparisonStudy,”MinnesotaTaxpayersAssociation,April2006.4UsingtheETRsestimatedbyIBO,theratiowas8.1in2005.5Bartik,Timothy.1991.Who Benefits From State and Local Economic Development Policies? Kalamazoo,Mich.:W.E.UpjohnInstituteforEmploymentResearch.“Theeffectsofstateandlocaltaxesoneconomicdevelopment:Areviewofrecentresearch.”EconomicDevelopmentQuarterly.Vol.6,No.1(February1992).“Taxesandlocaleconomicdevelopment:Whatdoweknowandwhatcanweknow?”Proceedingsofthe87thAnnualConferenceonTaxationoftheNationalTaxAssociation,Charleston,S.C.,November13-15,1994.“Jobs,productivity,andlocaleconomicdevelopment:Whatimplicationsdoeseconomicresearchhavefortheroleofgovernment?”National Tax Journal.Vol.47(December,1994).Growing State Economies: How Taxes and Public Services Affect Private Sector Performance.WashingtonD.C.:EconomicPolicyInstitute,1996.

NEW YORK CITY INDEPENDENT BUDGET OFFICE 46

How Do New York City’s Commercial Property Taxes Compare with Other U.S. Cities?

SOURCE: IBO calculations based on financial reports of local governments.

Table 32003-2004 Residential and Non-Residential Property Taxes

CityResidential

Property Tax Share

Non-ResidentialProperty Tax

Share

Non-ResidentialProperty Tax per $100

Taxable ResourcesNew York, NY 51.60% 48.40% 1.09Los Angeles, CA 73.10% 26.90% 0.43Houston, TX 62.40% 37.60% 0.72Philadelphia, PA 69.00% 31.00% 0.44San Antonio, TX 70.70% 29.30% 0.81Dallas, TX 67.30% 32.70% 0.63

SOURCES: IBO; 50-State Property Tax Comparison Study, Minnesota Taxpayers Association, April 2006.

Table 12003-2004 City and Overlapping Government TaxesDollars in millions

CityProperty

Taxes Other Taxes TotalNew York, NY $11,445.00 $33,857.40 $45,302.40Los Angeles, CA $3,052.60 $9,805.60 $12,858.20Chicago, IL $3,371.60 $5,620.50 $8,992.10Houston, TX $2,841.80 $5,245.30 $8,087.10Philadelphia, PA $891.20 $3,519.20 $4,410.40Phoenix, AZ $1,212.30 $2,790.20 $4,002.50San Diego, CA $1,192.70 $3,669.80 $4,862.50San Antonio, TX $1,296.70 $1,840.50 $3,137.20Dallas, TX $1,775.70 $2,885.60 $4,661.30SOURCE: IBO.

Table 22003-2004 Property Taxes and Tax Effort

City

Property Tax Share of All

Taxes

per $100 Taxable

Resources

New York, NY 25.30% 2.24

Los Angeles, CA 23.70% 1.6

Chicago, IL 37.50% 2.16

Houston, TX 35.10% 1.92

Philadelphia, PA 20.20% 1.43

Phoenix, AZ 30.30% 1.86

San Diego, CA 24.50% 1.45

San Antonio, TX 41.30% 2.76

Dallas, TX 38.10% 1.94

Non-NYC averag 30.60% 1.85

SOURCE: IBO.

Table 32003-2004 Residential and Non-Residential Property Taxes

City

ResidentialProperty Tax

Share

Non-Residential

Property Tax Share

ResidentialProperty Tax

per $100 Taxable

New York, NY 51.60% 48.40% 1.09Los Angeles, CA 73.10% 26.90% 0.43Houston, TX 62.40% 37.60% 0.72Philadelphia, PA 69.00% 31.00% 0.44San Antonio, TX 70.70% 29.30% 0.81Dallas, TX 67.30% 32.70% 0.63

SOURCE: IBO calculations based on financial reports of local governments

City

ResidentialProperty

CommercialProperty Ratio

New York City 0.639 3.868 7.262

Boston 0.684 2.968 4.251

Phoenix 1.041 3.171 3.127

Chicago 1.498 3.259 2.611

Philadelphia 2.234 2.902 1.559

Houston 2.334 2.791 1.184

Los Angeles 1.139 1.156 1.015

U.S. Average 1.757

SOURCES: IBO; 50-State Property Tax Comparison Study,

Minnesota Taxpayers Association, April 2006

Table 42005 Effective Property Tax Rates

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NEW YORK CITY INDEPENDENT BUDGET OFFICE 48

A Review of Household Incomes By Location and Type of Residence

Aswehavepreviouslyseen,therearelargedifferencesintaxburdensamongresidentialpropertytypes.Class1housesgenerallyhavethelowesteffectivetaxrates,followedbycoopandcondoapartmentsandsmallrentalbuildings.Largerrentalbuilding(thosewith11ormoreunits)facemuchhighereffectivetaxrates,averaging

eighttimeshigherthaninClass1.Theincomesofhouseholdslivinginthecity’sresidentialunitsalsodifferbytypeofproperty,aswellasbyboroughandneighborhood.

Thischaptertakesasummarylookattheseincomedifferencesbylocation,utilizingaU.S.CensusBureaudatasurveythatreportsincomesfordifferenttypesofhousing.Householdsowningtheirownhomes,whetheritisaClass1houseorClass2condoorcoop,havehigherincomesthanrentersinnearlyallareas.Inmostareas,themedianincomeofapartmentownersislessthanthecomparableincomeofthoseowninghouses,yetthemedianincomesofapartmentownersandevenrentersinthecity’smostaffluentareasaregreaterthanthemedianincomeofClass1homeowners.Themedianincomesofseniorsrangefromroughlyathirdtohalfofnon-seniorincomesfordifferentboroughsandtypesofhousing.TheCensusBureauundertakesitsHousingandVacancySurvey(HVS),aspecialsurveyofalargesampleofNewYorkCityhousingunits,everyfewyears.Inadditiontocompilinginformationonthephysicalcharacteristicsofapartmentsandhousesinthecity,HVSdetailseconomicandotherdemographicdataofresidentsofoccupiedhousingunits.1Themostrecentsurveyfoundthatthemedianhouseholdincomeofoccupiedapartmentsand

houseswas$42,000in2005,onlyslightlylessthatthemedianincomecitywidefoundinanothercensussurvey.2

Notsurprisingly,themedianincomeofhomeownersexceedsthatofrenters;itisalmostdouble,$66,000versus$33,900.Table1presentsestimatesofmedian(andmean)incomesfromthe2005HVS.Amonghomeowners,theincomesofownersofone-,two,andthree-familyhomes,taxedasClass1properties,aresomewhatlowerthanapartmentowners’incomes—$65,000versus$70,500forcoopownersand$85,000forownersofcondos.3AllbutsomesmallcondosaretaxedasClass2properties.Inrent-stabilizedandrent-controlledapartments,the2005medianhouseholdincomewas$33,300,comparedto$43,000inapartmentsandotherhousingunitsrentingatmarketrates.4Themedianincomeofthoserentingcondosandcoopsisevenhigher—$52,000—whilethehousehold

incomesoftenantsinpublichousing,Mitchell-Lamarentals,andotherapartmentswithincomerestrictionsarefarlower.5

Table 1Household Income by Type of Residence, 2005

Median MeanType of Residence income income

All units $42,000 $65,375Owner-occupied $66,000 $96,861

House $65,000 $80,993 Condo $85,000 $165,971 Coop $70,500 $124,417 Mitchell-Lama coop $39,000 $51,956

Renter-occupied $33,904 $49,363

Rent stablized or controlled $33,328 $47,781Market rate $43,000 $62,058 Condo rental $45,000 $67,514 Coop rental $59,200 $80,032Public housing $14,784 $20,658Mitchell-Lama rental $22,500 $34,311Other income limited rentals $11,840 $22,751

SOURCE: IBO; U.S. Census Bureau, HVS, 2005.

Page 50: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

49 NEW YORK CITY INDEPENDENT BUDGET OFFICE

Tab

le 2

Me

dia

n In

co

me

s a

nd In

co

me

Ca

teg

orie

s, 2

005

by

Boro

ugh

and

Sub

-bo

roug

h

Bro

nx$2

9,00

0Br

oo

klyn

$37,

000

Mo

tt H

ave

n-H

un

ts P

oin

t$1

6,00

0LO

WW

illia

msb

urg

-Gre

en

po

int

$35,

000

L-M

IDM

orr

issa

nia

$17,

364

LOW

Bro

okl

yn H

eig

hts

-Fo

rt G

ree

ne

$43,

000

H-M

IDH

igh

brid

ge

-So

uth

Co

nc

ou

rse

$21,

600

LOW

Bed

ford

-Stu

yve

san

t$2

4,00

0LO

WFo

rda

m-U

niv

ers

ity H

eig

hts

$23,

000

LOW

Bush

wic

k$3

1,20

0L-

MID

Kin

gsb

ridg

e H

eig

hts

-Mo

sho

lu$2

5,80

0LO

WEa

st N

ew

Yo

rk$3

0,00

0L-

MID

Riv

erd

ale

-Kin

gsb

ridg

e$4

7,00

0H

-MID

Pa

rk S

lop

e-C

arr

oll

Ga

rde

ns

$50,

000

H-M

IDSo

un

dvi

ew

-Pa

rkc

he

ste

r$3

2,00

0L-

MID

Sun

set

Pa

rk$4

2,00

0L-

MID

Thro

ng

s N

ec

k-C

oo

p C

ity$4

7,70

0H

-MID

Cro

wn

He

igh

ts$3

4,00

0L-

MID

Pe

lha

m P

ark

wa

y$3

5,00

0L-

MID

Sou

th C

row

n H

eig

hts

$32,

000

L-M

ID

Wa

kefie

ld-B

ayc

he

ste

r$3

5,00

0L-

MID

Bay

Rid

ge

$51,

000

H-M

ID

Que

ens

$45,

000

Ben

son

hu

rst

$36,

000

L-M

IDA

sto

ria$3

9,00

0L-

MID

Boro

ug

h P

ark

$30,

567

L-M

IDSu

nn

ysid

e-W

oo

dsid

e$4

0,00

0L-

MID

Co

ne

y Is

lan

d$2

6,70

0LO

WJa

cks

on

He

igh

ts$3

6,20

0L-

MID

Fla

tbu

sh$3

7,50

0L-

MID

Co

ron

a-E

lmh

urs

t$3

6,40

0L-

MID

Gra

vese

nd

-Sh

ee

psh

ea

d B

ay

$42,

500

L-M

IDM

idd

le V

illa

ge

-Rid

ge

wo

od

$48,

000

H-M

IDO

ce

an

Hill

-Bro

wn

svill

e$2

5,00

0LO

WFo

rest

Hill

s-R

eg

o P

ark

$55,

000

HIG

HEa

st F

latb

ush

$40,

000

L-M

IDFl

ush

ing

-Wh

itest

on

e$4

7,00

0H

-MID

Fla

tlan

ds-

Ca

na

rsie

$59,

800

HIG

HFr

esh

Me

ad

ow

s-H

illc

rest

$51,

000

H-M

IDM

anh

atta

n$5

1,00

0K

ew

Ga

rde

ns-

Wo

od

ha

ven

$45,

000

H-M

IDG

ree

nw

ich

Vill

ag

e-F

ina

nc

ial D

istric

t$7

6,50

0H

IGH

Ho

wa

rd B

ea

ch

-So

uth

Ozo

ne

Pa

rk$5

2,00

0H

-MID

Ch

ina

tow

n-L

ow

er E

ast

Sid

e$3

5,00

0L-

MID

Bays

ide

-Litt

le N

ec

k$6

5,00

0H

IGH

Ch

else

a-C

linto

n-M

idto

wn

$60,

000

HIG

HJa

ma

ica

$46,

000

H-M

IDSt

uyv

esa

nt

Tow

n-T

urt

le B

ay

$79,

000

HIG

HBe

llro

se-R

ose

da

le$5

3,00

0H

-MID

Up

pe

r We

st S

ide

$72,

000

HIG

HR

oc

kaw

ays

$36,

000

L-M

IDU

pp

er E

ast

Sid

e$7

5,00

0H

IGH

Sta

ten

Isla

nd$6

0,20

0M

orn

ing

side

He

igh

ts-H

am

ilto

n H

eig

hts

$35,

000

L-M

IDN

ort

h S

ho

re$5

2,50

0H

-MID

Ce

ntr

al H

arle

m$3

0,00

0L-

MID

Mid

Isla

nd

$65,

000

HIG

HEa

st H

arle

m$2

5,00

0LO

WSo

uth

Sh

ore

$67,

000

HIG

HW

ash

ing

ton

He

igh

ts-In

wo

od

$31,

000

L-M

ID

SOU

RC

ES: I

BO; U

.S. C

en

sus

Bure

au

, HV

S, 2

005.

SOU

RC

ES: I

BO; U

.S. C

en

sus

Bure

au

, Ho

usin

g a

nd

Va

ca

nc

y Su

rve

y ,2

005.

A Review of Household Incomes

Page 51: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

NEW YORK CITY INDEPENDENT BUDGET OFFICE 50

A Review of Household Incomes

MediAn incoMe BY neiGHBoRHood

Acloserlookatmedianincomebycityneighborhoodshowsthatthelargestconcentrationoflow-incomesub-boroughsisintheBronx,whilehigh-incomeneighborhoodsaredisproportionatelyconcentratedinManhattanandStatenIsland.Table2reportsmedianhouseholdincomesbyborough,andbythe55sub-boroughareasdefinedbyHVSwhoseboundarieslargelycoincidewiththeCommunityDistrictsofNewYorkCity.Thesub-boroughsarerankedbymedianincomeanddividedintofourincomegroups:low,lower-middle,high-middle,andhigh(LOW,L-MID,H-MID,andHIGHinthetable).Oftheninesub-boroughswiththelowestmedianincomes,under$30,000,overhalfareintheBronx,oneisinManhattanandtheremainingthreeareinBrooklyn.Tensub-boroughshavemedianincomesof$55,000ormore,withhalfoftheseinManhattanandtherestconsistingoftwoareasofQueens,oneinBrooklyn,andtwoofStatenIsland’sthreesub-boroughs.Thesub-boroughswithincomesinthemiddlearedividedintotwogroups.Thosewithincomesbelowthecitywidemedian(21sub-boroughs),theL-MIDgroup,areamixtureofneighborhoodsfromallboroughsexceptStatenIsland.Theremaining15middle-incomesub-boroughs,theH-MIDgroup,arefromallboroughsexceptManhattan.

Thesub-boroughsarelargeenoughsothatinmost,thedispersionofincomeisgreat.InChinatown-LowerEastSide,incomeatthe75thpercentileisoverfivetimesaslargeasincomeatthe25thpercentile.AnexampleofarelativelyhomogenousareaisJacksonHeights,wheretheratioof75thto25thpercentileincomesislessthanthree.Somesub-boroughs,suchasBrooklynHeights-FortGreene,compriselargeconcentrationsofbothwealthandpoverty.

incoMeS BY tYPe of ReSidence

Incomeswithinboroughsandsub-boroughsvarygreatlybythetypeofresidence,suchasowner-occupiedversusrentals,orClass1housesversusClass2apartments.Table3reportstheHVS-estimatedmedianhouseholdincomeofNewYorkersineachoftheboroughsandsub-boroughs,forselectedresidencetypes.ThefirstfourcolumnsrefertotheincomesofownersofClass1houses,ownersofClass2condosandcoopsinlargebuildingswith11ormoreunits(whicharetaxedsomewhatdifferentlythansmallcondoandcoopsbuildings),residentsofClass2rentalbuildingswith11unitsormore,andresidentsofsmallerrentalbuildings(Class2Aand2B).Inthecolumnsontheright,incomesforcondosandcoopsarereportedseparately,asareincomesforrentersinelevatorbuildingsandwalk-ups.

Medianincomesarenotreportedforsub-boroughsorboroughswherethesampledoesnotcontainatleast25householdsofaparticularmixofareaandresidencetype,becausethecharacteristicsofsmallersamples(suchashouseholdincome)arelesslikelytoberepresentativeoftheallhouseholdsinthatparticulararea.6Asaresult,thenumberofsub-boroughcomparisonsthatcanbemadewiththedataisrestricted.Inparticular,comparingtheincomelevelsofClass1homeownerstoClass2apartmentownersforspecificsub-boroughsisgreatlylimitedbecausetherearenotenoughClass1ownersinManhattanneighborhoodsandnotenoughapartmentownersintheneighborhoodsoftheotherboroughs.

Withineachboroughandsub-borough,homeowners’incomesaregreaterthanthoseofrenters.Butthereisastrongrelationshipbetweenincomesandneighborhoods.Medianincomesofrentersinthehigh-incomesub-boroughsgenerallyexceedhomeowners’incomesinthelow-incomegroup.AndrentersinthemostaffluentManhattanareasalsohaveincomesabovehomeownersinmanyothersub-boroughs.

Intheboroughsandthefewsub-boroughswhereadirectcomparisonofhouseandapartmentowners’incomescanbemade,withtheexceptionoftheBronx,medianincomesofClass1ownersaregreaterthatthoseofapartmentowners.ButmedianincomesofapartmentownersinManhattansub-boroughsaregreaterthanincomesof

Page 52: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

51 NEW YORK CITY INDEPENDENT BUDGET OFFICE

A Review of Household Incomes

Tab

le 3

.M

ed

ian

Ho

use

hold

Inc

om

es

pe

r Uni

t, b

y Su

b-b

oro

ugh

and

Se

lec

ted

Uni

t Typ

es,

200

5

Cla

ss 1

Cla

ss 2

*C

lass

2*

De

taile

d B

uild

ing

Typ

es

Ho

use

Co

op

/Co

nd

oC

lass

2A

/2B

Co

nd

oC

oo

pEl

eva

tor

Wa

lk-u

pA

ll(o

wn

ers

)O

wn

ers

Re

nta

lsre

nta

lsO

wn

ers

Ow

ne

rsR

en

tals

Re

nta

lsA

ll-c

ity$4

2,00

0$6

5,00

0$7

3,40

0$3

3,03

0$3

8,00

0$8

5,00

0$7

1,00

0$3

5,00

0$3

0,81

0

Boro

ughs

Bro

nx

$29,

000

$50,

584

$58,

920

$23,

000

$28,

000

--$5

8,92

0$2

5,00

0$2

1,30

0Br

oo

klyn

$37,

000

$65,

500

$60,

000

$28,

000

$35,

000

--$6

0,00

0$2

5,70

0$3

0,00

0M

an

ha

tta

n$5

1,00

0--

$105

,000

$46,

000

$70,

000

$126

,000

$100

,000

$49,

000

$42,

200

Qu

ee

ns

$45,

000

$63,

000

$50,

000

$32,

756

$39,

000

$40,

000

$50,

000

$35,

000

$30,

000

Sta

ten

Isla

nd

$60,

200

$77,

000

--$2

8,00

0--

----

$24,

600

--

Low

-inc

om

e s

ub-b

oro

ughs

Mo

tt H

ave

n-H

un

ts P

oin

t$1

6,00

0--

--$1

6,00

0--

----

$12,

000

$24,

700

Mo

rriss

an

ia$1

7,36

4--

--$1

6,28

0--

----

$12,

000

$20,

000

Hig

hb

ridg

e-S

ou

th C

on

co

urs

e$2

1,60

0--

--$2

0,00

0--

----

$20,

000

$19,

255

Ford

am

-Un

ive

rsity

He

igh

ts$2

3,00

0--

--$2

1,60

0--

----

$26,

000

$19,

300

Bed

ford

-Stu

yve

san

t$2

4,00

0$5

1,00

0--

$13,

000

$29,

800

----

----

Oc

ea

n H

ill-B

row

nsv

ille

$25,

000

$45,

000

--$3

2,00

0--

----

----

East

Ha

rlem

$25,

000

----

$27,

000

----

--$2

9,00

0$2

5,00

0K

ing

sbrid

ge

He

igh

ts-M

osh

olu

$25,

800

----

$24,

000

----

--$3

0,00

0$1

9,20

0C

on

ey

Isla

nd

$26,

700

$55,

000

--$1

2,00

0--

----

$12,

000

--

Low

-mid

dle

inc

om

e s

ub-b

oro

ughs

East

Ne

w Y

ork

$30,

000

$62,

518

----

----

----

--C

en

tra

l Ha

rlem

$30,

000

--$4

5,00

0$2

4,00

0$3

3,70

0--

--$2

1,40

0$2

6,00

0Bo

rou

gh

Pa

rk$3

0,56

7$7

6,20

0--

$16,

000

$37,

000

----

$12,

000

$22,

100

Wa

shin

gto

n H

eig

hts

-Inw

oo

d$3

1,00

0--

$74,

400

$30,

000

----

$74,

400

$30,

500

$29,

600

Bush

wic

k$3

1,20

0--

----

$30,

000

----

----

Sou

nd

vie

w-P

ark

ch

est

er

$32,

000

$41,

600

--$3

0,00

0--

----

$36,

000

--So

uth

Cro

wn

He

igh

ts$3

2,00

0--

--$3

0,00

0--

----

$30,

000

$28,

000

Cro

wn

He

igh

ts$3

4,00

0--

--$2

5,00

0$3

4,64

8--

--$2

5,00

0$2

5,00

0P

elh

am

Pa

rkw

ay

$35,

000

$59,

000

--$3

3,02

8--

----

$35,

000

$33,

000

Wa

kefie

ld-B

ayc

he

ste

r$3

5,00

0$4

5,00

0--

$27,

032

$23,

000

----

----

Will

iam

sbu

rg-G

ree

np

oin

t$3

5,00

0--

--$3

0,00

0$4

4,00

0--

----

$33,

000

Ch

ina

tow

n-L

ow

er E

ast

Sid

e$3

5,00

0--

$80,

000

$38,

000

----

$76,

940

$31,

000

$40,

000

Mo

rnin

gsid

e H

eig

hts

-Ha

milt

on

He

igh

ts$3

5,00

0--

$70,

500

$35,

000

----

$70,

500

$40,

000

$28,

000

Ben

son

hu

rst

$36,

000

$65,

000

--$2

9,38

0$3

0,46

0--

----

$26,

000

Ro

cka

wa

ys$3

6,00

0$8

4,20

0--

$15,

000

----

--$2

2,00

0--

Jac

kso

n H

eig

hts

$36,

200

$53,

000

$35,

000

$25,

000

----

$35,

000

$20,

000

--C

oro

na

-Elm

hu

rst

$36,

400

$52,

000

--$3

2,00

0--

----

$32,

000

--Fl

atb

ush

$37,

500

$91,

328

--$3

0,60

0--

----

$30,

600

$30,

708

Ast

oria

$39,

000

$36,

800

--$3

6,00

0$4

0,60

0--

--$4

1,00

0$3

0,00

0Ea

st F

latb

ush

$40,

000

$57,

000

--$2

9,75

6$3

0,00

0--

--$2

0,00

0$3

6,00

0Su

nn

ysid

e-W

oo

dsid

e$4

0,00

0$5

7,00

0--

$25,

000

$44,

000

----

$21,

500

$31,

000

Sun

set

Pa

rk$4

2,00

0$4

4,57

5--

$35,

000

$40,

000

----

----

Gra

vese

nd

-Sh

ee

psh

ea

d B

ay

$42,

500

$66,

000

$60,

000

$27,

000

----

$60,

000

$22,

000

--

Hig

h-m

idd

le in

co

me

sub

-bo

roug

hsBr

oo

klyn

He

igh

ts-F

ort

Gre

en

e$4

3,00

0--

$70,

000

$30,

000

$46,

000

--$6

2,50

0--

--K

ew

Ga

rde

ns-

Wo

od

ha

ven

$45,

000

$67,

000

--$3

5,00

0--

----

--$3

6,00

0Ja

ma

ica

$46,

000

$55,

000

--$3

1,35

2--

----

$38,

000

--R

ive

rda

le-K

ing

sbrig

e$4

7,00

0$5

9,10

0$6

6,50

0$3

6,00

0--

--$6

6,50

0$4

0,00

0--

Flu

shin

g-W

hite

sto

ne

$47,

000

$62,

000

$46,

000

$24,

900

----

$48,

000

$25,

000

--Th

ron

gs

Ne

ck-

Co

op

City

$47,

700

$58,

000

----

----

----

--M

idd

le V

illa

ge

-Rid

ge

wo

od

$48,

000

$63,

400

----

$35,

800

----

----

Pa

rk S

lop

e-C

arr

oll

Ga

rde

ns

$50,

000

$102

,000

----

$45,

000

----

----

Bay

Rid

ge

$51,

000

$86,

000

--$3

9,00

0$2

9,00

0--

--$3

9,00

0--

Fre

sh M

ea

do

ws-

Hill

cre

st$5

1,00

0$7

0,00

0$4

0,60

0$4

9,50

0$3

4,62

8--

$42,

000

$47,

500

--H

ow

ard

Be

ac

h-S

ou

th O

zon

e P

ark

$52,

000

$71,

800

----

----

----

--N

ort

h S

ho

re$5

2,50

0$7

0,00

0--

$38,

000

----

----

--Be

llro

se-R

ose

da

le$5

3,00

0$6

4,00

0--

----

----

----

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h-in

co

me

sub

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roug

hsFo

rest

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s-R

eg

o P

ark

$55,

000

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755

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000

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000

----

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000

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000

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nd

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an

ars

ie$5

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----

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else

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000

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$101

,000

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,000

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000

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000

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ide

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le N

ec

k$6

5,00

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----

----

----

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Isla

nd

$65,

000

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000

----

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----

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uth

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ore

$67,

000

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200

----

----

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est

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e$7

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,000

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000

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--$1

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er E

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Page 53: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

SOU

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ten

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000

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iam

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000

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son

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708

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$25,

000

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000

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$21,

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set

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rk$4

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ay

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000

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me

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000

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ew

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rde

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od

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ven

$45,

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ica

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ive

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ron

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----

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$50,

000

$102

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----

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000

----

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Rid

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$51,

000

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000

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sh M

ea

do

ws-

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cre

st$5

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$42,

000

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ow

ard

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ac

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000

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re$5

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----

----

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h-in

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----

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k$6

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----

----

----

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nd

$65,

000

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000

----

----

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ore

$67,

000

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----

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ree

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RC

ES: I

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.

A Review of Household Incomes

NEW YORK CITY INDEPENDENT BUDGET OFFICE 52

Page 54: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

homeownersinmostsub-boroughsoutsideofthatborough.AnotableexceptionistheParkSlope-CarrollGardenssub-borough,theonlysub-boroughwherethemedianincomeofhomeownersisgreaterthan$100,000.

SenioR citiZenS And HoMeoWneRSHiP

OnemotivationforconstrainingannualincreasesintheassessedvaluesofClass1propertiesinNewYorkCity’scurrentpropertytaxsystemistoprotecthome-owningseniorcitizensonfixedincomesfromfacingundulyburdensometaxlevies.Seniorsareover-representedamonghomeowners,particularlyamongthosewithClass1properties,andforalmostalltypesofhousinginallboroughs,theirmedianincomeislessthanhalfofnon-seniorincome.

Theaverageageofresidentialpropertyownersissomewhathigherthantheaverageofrenters—54yearsoldversus46yearsoldbasedontheagesoftheheadsofhousehold.Amonghomeowners,thoseowningClass1housesaretheoldest,withanaverageageof55years.Theseagedifferencesinpartreflecttheover-representationofseniorcitizens,

age65orhigher,amongClass1homeowners.Seniorsaccountfor28.4percentofsuchhomeowners,comparedwith19.1percentofheadsofhouseholdinallcityresidences.TheBronxhasthehighestpercentagesofClass1homeownerswhoareseniors,andManhattanhasthelowest.

Table4looksatandcomparesthehouseholdincomesofseniorsandnon-seniors.Becausesamplesizespermitonlyafewreliablecomparisonsatthesub-boroughlevel,medianincomeslevelsarecomparedonlyattheboroughlevelandforthreebroadgroupsofresidences—owner-occupiedhouses,owner-occupiedapartments,andrentalapartments.Citywideandforalltypesofhousing,themedianincomeofseniorsisabout39percentofthemedianincomeofcomparablenon-seniors,withseniorincomesrelativetonon-seniorincomesbeingsomewhathigherintheBronxandQueensandlowerelsewhere.

Inthecityasawhole,theratioofseniormedianincometonon-seniorincomehardlyvariesfordifferenttypesofresidences.Itvariessomewhatmoreattheboroughlevel:medianincomesofseniorsrangefromroughlyathirdtohalfofthemedianincomesofotherresidents,dependingonboroughandtypeofresidence.InQueens,themedianincomesofseniorsrelativetothatofnon-seniorsishigheramongClass1homeownersthanamongapartmentownersandrenters,whileintheBronxitislower.InBrooklyn,themedianincomeratioofseniorstonon-seniorsamongClass1homeownersissomewhatlessthantheratioforapartmentownersandnearlythesameasthatfromrenters.

Table 4Median Household Incomes of Seniors and Non-seniors By Borough and Residence Type

Seniors Non-seniors % of Seniors

BronxClass 1 homeowners, houses $28,000 $65,000 43.1%Class 2 apartment owners* - - - Class 2 rentals* $11,868 $25,000 47.5%All residences** $15,424 $32,000 48.2%

BrooklynClass 1 homeowners, houses $28,424 $80,800 35.2%Class 2 apartment owners* $26,760 $68,000 39.4%Class 2 rentals* $11,664 $33,600 34.7%All residences** $15,500 $43,000 36.0%

ManhattanClass 1 homeowners, houses - - - Class 2 apartment owners* $57,800 $113,000 51.2%Class 2 rentals* $16,800 $54,752 30.7%All residences** $21,000 $61,000 34.4%

QueensClass 1 homeowners, houses $31,000 $78,500 39.5%Class 2 apartment owners* $20,440 $59,000 34.6%Class 2 rentals* $13,800 $38,000 36.3%All residences** $22,260 $51,000 43.6%

Staten IslandClass 1 homeowners, houses $26,000 $89,600 29.0%Class 2 apartment owners* - - - Class 2 rentals* - - - All residences** $25,600 $70,000 36.6%

All boroughsClass 1 homeowners, houses $29,200 $80,000 36.5%Class 2 apartment owners* $29,328 $81,000 36.2%Class 2 rentals* $13,452 $38,800 34.7%All residences** $19,200 $48,800 39.3%

Source: IBO; U.S. Census Bureau, HVS, 2005.

Notes: *Class 2 data excludes buildings less than eleven units. Medians

reported for all residences include additional types of residences not in table

SOURCES: IBO; U.S. Census Bureau, Housing and Vacancy Survey, 2005. NOTES: *Class 2 data excludes buildings less than eleven units. **Medi-ans Reported for all residences include additional types of residences not in table.

A Review of Household Incomes

53 NEW YORK CITY INDEPENDENT BUDGET OFFICE

Page 55: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

Becauseofsamplesize,seniorincomesofClass1homeownersinManhattanandseniorincomesofapartmentownersandrentersinStatenIslandarenotreported,sointheseboroughsnocomparisonsofClass1andClass2incomescanbemade.Butamongtheboroughs,theratioofseniormedianincometonon-seniormedianincomeisespeciallylowinStatenIsland(29percentversus35percentto43percentinotherboroughs).Amongapartmentowners,theratioofseniortonon-seniorincomeissubstantiallygreaterinManhattan(51percent)thanintheotherboroughs(35-39percent).

Written by Michael Jacobs

end noteS

1Inthissection,allfiguresforhouseholdincomearetakenfromthe2005HVS,unlessotherwisenoted.2TheCensusBureau’sAmericanCommunitySurvey,anotherhouseholdsurvey,estimatesamedianincomeof$43,400amongNewYorkCityhouseholdsin2005.SomeanalystshaveexpressedconcernthatestimatesofincomederivedfrompreviousHVSsurveysappeartobeimplausiblylow,particularlyforupper-incomehouseholds.3Theincomemedianforcoopownersexcludesownersoflimited-equity,Mitchell-Lamacoops,whichcanbepurchasedonlyifhouseholdincomefallswithinmoderate-andmiddle-incomeranges.TheHVS-estimatedmedianincomeofMitchell-Lamacoopownersin2005is$39,000.4Inadditiontounregulatedapartmentsinrentalbuildings,market-raterentalsincludetherentalunitsofmultifamilyhomesandcoopandcondoapartmentsbeingrentedfromowners.5Forexample,in2005themedianincomeofhouseholdsinpublichousingis$14,700,andinMitchell-Lamarentalsitis$22,500.6Forexample,amongallsub-boroughs,theHVSdataindicatethatthemedianincomeofrentersinlarge,elevatorbuildingsishighestinBushwickandalmostthreetimesthecomparablecitywideincome.ButthisimplausibleconclusionisderivedfromonlysixBushwickhouseholdsinthesampleofelevatorrentalbuildings.Ingeneral,thegreaterthesamplesize,themorelikelythesampleaccuratelyrepresentsthegroupfromwhichitwastaken.Whilethereisnothresholdofsamplesizethatguaranteesatotallyreliablesample,estimatesderivedfromasampleof25orabovearemorelikelytoreliablyreflecttheunderlyingpopulation.

A Review of Household Incomes

NEW YORK CITY INDEPENDENT BUDGET OFFICE 54

Page 56: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual
Page 57: Twenty-Five Years After S7000A: How Property Tax Burdens ...But this approach largely ignores shifts in market values. If changes in market values were fully reflected in the annual

NEW YORK CITY INDEPENDENT BUDGET OFFICE 56

Theprecedingchaptersofthisreportdocumentedthewidedisparitiesintaxburdensamongthecity’sdifferentpropertyclassesandevenwithinsomeofthesameclasses.Anefforttoreformthestructuretointroducegreaterequitywouldbydefinitionalsoresultinsignificantshiftsintaxburdens.Indeed,with

thepassageof25yearsunderS7000A,duringwhichsomedisparitieshavegrown,someshiftswouldnowbemoresubstantialthanwouldhaveoccurrediftheLegislaturehadsimplyallowedtheHellersteindecisiontotakeeffect.

Thischapterpresentsseveralgenericreformoptionstogiveasenseofthemagnitudeofchangesthatwouldresult.Thesescenariosarenotintendedtoberecommendationsforreform.Instead,theyshowhowmuchburdenswouldchangeundertheseoptionsandidentifythewinnersandlosers.Wedonotmodelallofthecomplexitiesofthesereformscenarios(suchaswhichexemptionsandabatementswouldbepreservedandwhichwouldbedropped).Weclosewithadiscussionofsomeofthemajorissuesthatwouldneedattentioninatransitiontoanewsystem,includingprotectionagainstsharpincreasesinpropertytaxesforlow-incomehomeowners.

Weexaminefoursimplealternativestothecurrentrealpropertytaxstructure:asingletaxrateforallpropertiesandthreetwo-ratestructures.Inallcases,werequirethatthecurrentlevelofpropertytaxrevenuebemaintained.Thefirstalternativewithasingleuniformratewouldresultinthebiggestshiftsintaxburdens,withverylargeincreasesinClass1leviesoffsettingequallylargedeclinesinClass4.Theotherthreealternativesarebasedonoptionsthathavebeenconsideredatvarioustimesinthepast,includingduringtheperiodleadinguptoenactmentofS7000A.

Alternatives to the Current Real Property Tax Structure

Alternative 1: One Tax Rate

New Tax Change in Levy Share of Levy Share of

Tax Class Rate Dollars (millions) Percent Per Unit New Current Mrkt Value1 Residential 3,610.3 192.9% 5,193 40.8% 13.9% 40.8%2 Residential 828.3 17.8% 418 40.9% 34.7% 40.9%3 Utilities -794.6 -74.2% -1,887,514 2.1% 8.0% 2.1%

4 Commercial -3,644.0 -62.6% -44,759 16.2% 43.4% 16.2%

Total 1.330 0.0 0.0% 100.0% 100.0% 100.0%

By Building TypeTC 1 1,2,3-Fam 3,342.9 190.4% 5,326 38.0% 13.1% 38.0%TC 1 Condo 171.6 701.1% 8,800 1.5% 0.2% 1.5%TC 1 Other 95.8 104.6% 1,993 1.4% 0.7% 1.4%TC 2 Coop 1,094.4 95.7% 2,482 16.7% 8.5% 16.7%TC 2 Elevator -1,007.9 -64.2% -1,513 4.2% 11.7% 4.2%TC 2 Large Condo 651.9 94.5% 4,501 10.0% 5.1% 10.0%TC 2 Walkup -430.4 -68.4% -1,042 1.5% 4.7% 1.5%TC 2A/2B 394.0 71.4% 1,325 7.0% 4.1% 7.0%TC 2C 126.3 172.8% 6,925 1.5% 0.5% 1.5%TC 3 Utilities -794.6 -74.2% -1,887,516 2.1% 8.0% 2.1%TC 4 Condo -367.9 -62.1% -25,988 1.7% 4.4% 1.7%TC 4 Fac/Ware -175.2 -61.9% -15,816 0.8% 2.1% 0.8%TC 4 Gar/Gas -134.6 -67.1% -10,025 0.5% 1.5% 0.5%TC 4 Office -1,980.4 -66.4% -323,655 7.5% 22.2% 7.5%TC 4 Other -445.8 -49.2% -46,478 3.4% 6.8% 3.4%TC 4 Retail -508.2 -63.4% -26,718 2.2% 6.0% 2.2%TC 4 Vacant -31.7 -59.5% -3,958 0.2% 0.4% 0.2%

Total 1.330 0.0 0.0% 100.0% 100.0% 100.0%

SOURCE: IBO.

NOTE: Per unit change in levy is per apartment in Class 2 and per parcel for other classes.

SOURCE: IBO.NOTE: Per unit change in levy is per apartment in Class 2 and per parcel for other classes.

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57 NEW YORK CITY INDEPENDENT BUDGET OFFICE

Marketvaluesareusedasthetaxbase,therebyendingtheSection581discountforcoopsandcondos,andallassessedvaluesareequalto100percentofestimatedmarketvalues.ForClass1,condosandcoopsinClass2,andthesmallrentalbuildingscurrentlydesignatedasClass2Aand2B,IBOestimatesmarketvaluesbasedonsalesdata;DepartmentofFinancemarketvalueestimatesareusedforClasses3and4andtherestofClass2.Assumingthatmarketvaluesareestimatedaccurately,thislaststepeliminatesthedistinctionbetweenactualandeffectivetaxrates.

AlteRnAtiVe 1: SinGle tAX RAte foR All PRoPeRtY tYPeS

Underasinglerateapproach,eachclass’sshareofthetaxlevywouldequalthatclass’sshareoftotalmarketvalue.Thisisnottruetoday.Asshowninthetableforthisalternative,Class1currentlypays13.9percentofthetotallevy,netofrebatesandabatements,buthas40.8percentoftotalmarketvalue;Class4pays43.4percentofthelevy,buthasjust16.2percentofmarketvalue.

Tomaintainrevenueneutrality,asingletaxratewouldbeobtainedbydividingthetotallevyunderthecurrentsystem—netofabatements—bythetotalmarketvalue:

TaxRate=CurrentNetLevy/MarketValue.

Thistaxratewouldbeappliedtomarketvaluesofallproperties,regardlessofuse.

LevychangesforClass1andClass4wouldbehugeandoffseteachotheralmostcompletely.Class1wouldpay$3.6billion(192.9percent)more,whileClass4wouldpay$3.6billion(62.6percent)less.AlthoughthetotaldollaramountofthetaxcutforClass3wouldberelativelysmallat$795million,itwouldbearelativelylargepercentagecutinitstaxbill(74.2percent).Class2wouldhavearelativelymodestincreaseof$828million(17.8percent),whichtranslatesintoanaverageincreaseofabout$418perapartmentperyear.

Withineachofthebroadtaxclasses,differenttypesofbuildingswouldfaredifferently.Ownersofone-,two-,andthree-familyhouses—whichtogethermakeupthevastmajorityofClass1—wouldseetheirlevyincreaseby190.4percent;perparcel,theaverageincreasewouldbe$5,326.Theirshareofthetaxlevywouldbe38percent,upfromunder13.1percent.InClass4,thebiggestbreakwouldgotoofficebuildings—$2billionoverall(54percentofthetotalClass4cut),whichtranslatesintoanaverageof$323,655perbuilding.Theofficebuildingshareofthelevywouldfallfrom22.2percentto7.5percent,inlinewiththeirshareofmarketvalue.

ArelativelymodestincreaseinthetotalClass2levymaskssomelarge,offsettingchangeswithintheclass.Elevatorandwalk-uprentalbuildingswouldhavesharptaxcutsof64.2percent(averaging$1,513perapartment)and68.4percent($1,042perapartment),respectively.Condosandcoopsinlargebuildingswouldhavetaxincreasesof94.5percent($4,502perapartment)and95.7percent($2,482perapartment),respectively,andClass2Aand2Bcondosandcoopsinsmallbuildingswouldhaveanincreaseof71.4percent($1,325perapartment).

AlteRnAtiVe 2: tWo-clASS SYSteM BASed on ReSidentiAl VeRSUS coMMeRciAl USeThistwo-classalternativewouldhaveoneresidentialclasscontainingallpropertiescurrentlyinClass1andClass2andonecommercialclasscontainingallpropertiesnowinclass3andClass4.Wewouldimposerevenueneutralityherebyrequiringthatnetrevenueforeachclassequalthesumofcurrentnetrevenuesfromitscomponentclasses.Theclasstaxratewouldbeobtainedbydividingthesumofcurrentnettaxrevenuesbythesumofmarketvaluesfortheclasscomponents.

Alternatives to the Current Real Property Tax Structure

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NEW YORK CITY INDEPENDENT BUDGET OFFICE 58

Usingonetaxrateandfullmarketvaluesforallresidentialpropertieswouldresultinsomesubstantialshiftsoftaxburdensamongtypesofresidentialbuildings,withsignificanttaxincreasesforone-,two-,andthree-familyhomesandsignificanttaxreductionsforlargerentalbuildings.Ownersofone-,two-,andthree-familyhomeswouldfacea72.9percentincrease(averaging$2,039perparcel)andClass2Cone-to-fourunitapartmentbuildingswouldfacea62.4percentincrease($2,501perapartment).Condosandcoopsinlargebuildingswouldfacemuchsmallerpercentageincreasesof15.8percentand16.5percent,respectively($751and$428perapartment,respectively).Togethertheseincreaseswouldcoverlargecutsinthetaxbillsforlargerrentalbuildings.Elevatorbuildingswouldhavea78.7percentreduction($1,854perapartment)andwalk-upswouldhavean81.2percentreduction($1,237perapartment).

Inthenewcommercialclass,mostchangesintaxbillswouldbefairlysmall;officebuildings,thesinglelargestcomponentoftheclass,wouldseeataxreductionof5.6percent.Amongthelargestchangeswouldbea42.8percentincreasefor“other”Class4properties.Vacantpropertieswouldalsohavea13.9percentincrease.Theseandsomesmallerincreaseswouldfinancea27.4percentcutintaxesforClass3propertiesandmoremoderatechangesforothertypesofcommercialproperties.Overall,commercialpropertieswouldstillpay51.3percentofthelevy,whilecomprisingjust18.3percentofmarketvalue.

AlteRnAtiVe 3: tWo-clASS SYSteM BASed on PURPoSe of oWneRSHiP

Inthisscenario,propertyispartitionedintotwoclasses,basedonwhetherapropertytypeisgenerallyownedforpersonaluseversusinvestment.Towardthatend,weassumethatownersoflargeresidentialproperties—notablywalk-upandelevatorrentalapartments—donotliveintheirbuildings.Ofcourse,somecondoandcoopownersrentouttheirapartments,alongwithsomeabsenteeownersofClass1houses,andsomelargebuildingownersliveintheirbuildings,butthenumberofsuchexceptionsisprobablynotlargeenoughtosignificantlyaffecttheseestimates.1Whatrepresentsa“large”buildingcanalsobedebated.Weconsidertwoversionsofthetwo-classalternativethatdifferonlyintheirplacementofthecurrentClass2AandClass2Bfour-to-tenunitrentalapartmentbuildings.Ineachversion,weimposerevenueneutralitybyclass,asinAlternative2.

Alternative 2: Two Classes, Residential and Commercial

New Tax Change in Levy Share of Levy Share of

Tax Class Rate Dollars (millions) Percent Per Unit New Current Mrkt ValueResidentialTC 1 1,2,3-Fam 1,279.6 72.9% 2,039 22.6% 13.1% 38.0%TC 1 Condo 92.2 376.9% 4,731 0.9% 0.2% 1.5%TC 1 Other 20.0 21.8% 416 0.8% 0.7% 1.4%TC 2 Coop 188.5 16.5% 428 9.9% 8.5% 16.7%TC 2 Large Condo 108.8 15.8% 751 6.0% 5.1% 10.0%TC 2A/2B 11.2 2.0% 38 4.2% 4.1% 7.0%TC 2C 45.6 62.4% 2,501 0.9% 0.5% 1.5%TC 2 Elevator -1,235.2 -78.7% -1,854 2.5% 11.7% 4.2%TC 2 Walkup -510.8 -81.2% -1,237 0.9% 4.7% 1.5%Class Total 0.792 0.0 0.0% 48.7% 48.7% 81.7%

CommercialTC 3 Utilities -293.7 -27.4% -697,703 5.8% 8.0% 2.1%TC 4 Condo 38.7 6.5% 2,731 4.7% 4.4% 1.7%TC 4 Fac/Ware 20.1 7.1% 1,818 2.3% 2.1% 0.8%TC 4 Gar/Gas -15.4 -7.7% -1,146 1.4% 1.5% 0.5%TC 4 Office -167.7 -5.6% -27,402 21.0% 22.2% 7.5%TC 4 Other 387.4 42.8% 40,386 9.6% 6.8% 3.4%TC 4 Retail 23.2 2.9% 1,220 6.1% 6.0% 2.2%TC 4 Vacant 7.4 13.9% 925 0.5% 0.4% 0.2%Class Total 3.737 0.0 0.0% 51.3% 51.3% 18.3%

SOURCE: IBO.

NOTE: Per unit change in levy is per apartment in Class 2 and per parcel for other classes.

SOURCE: IBO. NOTE: Per unit change in levy is per apartment in Class 2 and per parcel for other classes.

Alternatives to the Current Real Property Tax Structure

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59 NEW YORK CITY INDEPENDENT BUDGET OFFICE

Alternative 3: Two Classes, Personal Use versus InvestmentVersion 1

New Tax Change in Levy Share of Levy Share ofTax Class Rate Dollars (millions) Percent Per Unit New Current Mrkt Value

Personal UseTC 1 1,2,3-Fam 407.5 23.2% 649 16.1% 13.1% 38.0%TC 1 Condo 58.7 239.9% 3,011 0.6% 0.2% 1.5%TC 1 Other -12.1 -13.2% -251 0.6% 0.7% 1.4%TC 2 Coop -194.3 -17.0% -441 7.1% 8.5% 16.7%TC 2 Large Condo -120.7 -17.5% -834 4.2% 5.1% 10.0%TC 2A/2B -150.6 -27.3% -507 3.0% 4.1% 7.0%TC 2C 11.5 15.8% 631 0.6% 0.5% 1.5%

Class Total 0.564 0.0 0.0% 32.3% 32.3% 76.1%

Investment UseTC 2 Elevator 19.9 1.3% 30 11.8% 11.7% 4.2%TC 2 Walkup -67.3 -10.7% -163 4.2% 4.7% 1.5%TC 3 Utilities -288.4 -26.9% -685,005 5.8% 8.0% 2.1%TC 4 Condo 43.0 7.3% 3,038 4.7% 4.4% 1.7%TC 4 Fac/Ware 22.2 7.8% 2,006 2.3% 2.1% 0.8%TC 4 Gar/Gas -14.1 -7.0% -1,052 1.4% 1.5% 0.5%TC 4 Office -148.3 -5.0% -24,240 21.1% 22.2% 7.5%TC 4 Other 396.3 43.7% 41,313 9.7% 6.8% 3.4%TC 4 Retail 28.9 3.6% 1,518 6.2% 6.0% 2.2%TC 4 Vacant 7.8 14.7% 977 0.5% 0.4% 0.2%

Class Total 3.763 0.0 0.0% 67.7% 67.7% 23.9%

Version 2Personal UseTC 1 1,2,3-Fam 324.6 18.5% 517 15.5% 13.1% 38.0%TC 1 Condo 55.5 226.8% 2,847 0.6% 0.2% 1.5%TC 1 Other -15.1 -16.5% -315 0.6% 0.7% 1.4%TC 2 Coop -230.7 -20.2% -523 6.8% 8.5% 16.7%TC 2 Large Condo -142.5 -20.7% -984 4.1% 5.1% 10.0%TC 2C 8.3 11.3% 453 0.6% 0.5% 1.5%Class Total 0.543 0.0 0.0% 28.2% 28.2% 69.0%

InvestmentTC 2A/2B 1,641.2 297.3% 5,520 16.3% 4.1% 7.0%TC 2 Elevator -267.1 -17.0% -401 9.7% 11.7% 4.2%TC 2 Walkup -168.7 -26.8% -408 3.4% 4.7% 1.5%TC 3 Utilities -429.8 -40.1% -1,020,825 4.8% 8.0% 2.1%TC 4 Condo -71.8 -12.1% -5,068 3.9% 4.4% 1.7%TC 4 Fac/Ware -32.9 -11.6% -2,971 1.9% 2.1% 0.8%TC 4 Gar/Gas -47.8 -23.8% -3,558 1.1% 1.5% 0.5%TC 4 Office -660.0 -22.1% -107,856 17.3% 22.2% 7.5%TC 4 Other 161.1 17.8% 16,796 8.0% 6.8% 3.4%TC 4 Retail -121.1 -15.1% -6,367 5.1% 6.0% 2.2%TC 4 Vacant -3.2 -6.0% -401 0.4% 0.4% 0.2%

Class Total 3.083 0.0 0.0% 71.8% 71.8% 31.0%

SOURCE: IBO.

NOTE: Per unit change in levy is per apartment in Class 2 and per parcel in other classes.

SOURCE: IBO.NOTE: Per unit change in levy is per apartment in Class 2 and per parcel in other classes.

Version1:Class2A/BIncludedInPersonalUseCategory PersonalUseCategory:Class1,Class2Coops,Class2CondosinLargeBuildings,Class2CCondosin SmallBuildings,Class2Aand2BSmallRentalBuildings.

InvestmentUseCategory:Class2ElevatorRentalBuildings,Class2Walk-upRentalBuildings, Class3,Class4.

Alternatives to the Current Real Property Tax Structure

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Thetaxrateforthenewpersonalusecategorywouldbelessthanhalfthesizeofthetaxrateunderthesingleratestructure(Alternative1),becausethecurrenttaxburdensofClass4andlargeClass2buildingswouldnotbeshiftedtotheseproperties.Ownersofone-,two-,andthree-familyhomeswouldstillfacesignificantlyhighertaxbillsthanunderthecurrentsystem(23.2percentoveralland$649perparcel),buttheirshareofthetotaltaxlevywouldremainconsiderablybelowtheirshareoftotalmarketvalue.Class2Cwouldalsofaceataxincreaseinthisversion,albeitarelativelysmallone.Coopsandcondosinlargerbuildingswouldactuallygettaxcutsofroughly17percent($194millionand$121million,respectively),paidforbyincreasesforotherpropertieswithinthepersonaluseclass.Asunderthecurrentsystem,thepersonaluseshareofthetaxlevywouldbe32.3percent,whileitsshareofmarketvaluewouldbe76.1percent.

Theinvestmentusecategorywouldhaveataxratenearlythreetimesthatofthesingleratewiththisversionofthetwo-classsystem,leavingitmoreinlinewithcurrenttaxrates.Inturn,mostchangesfromcurrenttaxbillswouldbesmall.Class4officebuildingswouldhaveataxbilljust5percentlessthantheircurrenttaxbill.Class2elevatorbuildingswouldhaveanincreaseofjust1.3percent.Themostsignificantchangeswouldbea26.9percent($288million)cutforClass3,offsetbya43.7percent($396million)increaseintaxesfor“other”Class4,whichincludesindustrialproperties.Overall,theinvestmentclassshareofthetaxbillwouldbe67.7percentanditsshareofmarketvaluewouldbejust23.9percent.

Version2:Class2Aand2BIncludedinInvestmentUseCategory PersonalUseCategory:Class1,Class2Coops,Class2LargeCondos,Class2CSmallerCondos.

InvestmentUseCategory:Class2ElevatorRentalBuildings,Class2WalkupRentalBuildings, Class2Aand2BRentalBuildings,Class3,Class4.

ShiftingClass2Aand2Bbuildingstotheinvestmentusecategorymakesabigdifferencenotjustforthatbuildingtype,butalsoforothersintheinvestmentusecategorybecauseClass2Aand2Bbuildingsfacearelativelyloweffectivetaxrateunderthecurrentsystem.Thetaxincreaseforthesesmallrentalbuildingswouldbe$1.6billion—297.3percentoranaverageofabout$5,520perapartment—morethanfourtimestheincreasewithashiftfromthecurrentsystemtoasingleratesystem.ThislargeincreaseforClass2AandClass2BwouldpayforbiggertaxdecreasesforthepropertytypesintheinvestmentcategorythathaddecreasesinVersion1,andamuchsmaller17.8percentincreaseforClass4“other,”lessthanhalftheincreaseexpectedwithVersion1.

iSSUeS to Be conSideRed

Transition.Becausesometaxbillchangeswouldbesignificant,anymovetoanewtaxsystemwouldprobablyneedtobespreadovertime,perhapsfiveortenyears.Ifareformplanwaspremisedonrevenueneutrality,thenthetransitionwouldrequirecalculationsundertheoldandnewsystemsduringthetransitionperiod.2

Capitalization.Overtime,wewouldexpectthechangeineffectivetaxratestobecapitalizedintomarketvalues—movingmarketvaluesdownforpropertieswithtaxincreasesandupforpropertieswithtaxdecreases.

Changesinpropertytaxrevenueduetothesechangesinpropertyvalueswoulddependontherelativesizeandspeedofmarketvaluechangesacrossclasses.Thepointinthetransitiontoanewtaxsystemwouldalsomatter.Undercurrentpropertytaxrules,upwardadjustmentoftaxliabilitiesand,therefore,revenueswouldphaseinslowlyoverseveralyears,whiledownwardadjustmentswouldbeimmediate.

Phasing in Value Changes.Anewtaxsystemcouldalsohaveaphase-inperiodforadjustmenttochangesinpropertyvaluessimilartothefive-yearphaseinthatnowappliesinClass2andClass4.Assumingoneofthe

NEW YORK CITY INDEPENDENT BUDGET OFFICE 60

Alternatives to the Current Real Property Tax Structure

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61 NEW YORK CITY INDEPENDENT BUDGET OFFICE

goalsindesigningthenewsystemistoenhanceequitywithinpropertytypes,thesephase-inruleswouldreplacethecurrentassessmentcapsinClass1andClass2Aand2B.Suchaphase-inperiodwouldtemporarilydeferthetaxationofsomemarketvaluegrowthjustascurrentphaseinpoliciesdonow,butbecausemarketvaluegrowthwouldnolongerbelosttotheassessmentcaps,suchachangewouldresultinalargertaxbase.Withalargertaxbase,cityleaderswouldhavethechoiceofmaintainingthetaxratethatwouldyieldadditionalrevenueforthecityorcuttingtheratetooffsetsomeofthegaininthebase.

Class Shares.Anytwo-classsystemwouldprobablyincludesomesortofclassshareprotectiontokeepchangesinthesharesofthelevyinlinewithchangesinthesharesofmarketvalue.

Ability to Pay.Oneofthegoalsofadoptinganewtaxstructurewouldbebetteralignmentofpropertytaxburdenswithpropertymarketvalues.Asingle-ratesystemwouldlinethemupexactly.

Fornewpropertybuyers,thenewtaxstructurewouldbeknownandincorporatedintothebuyingdecision,thusensuringtheirabilitytopay.Buttaxliabilitiescouldriseaboveareasonableshareofincomeforsomepropertyowners—inparticular,long-termownersofClass1homesinareasthathaveexperiencedextraordinaryincreasesinpropertyvalues.Withasingle-ratesystem,theaveragetaxincreaseforone-,two-,andthree-familyhomeownerswouldbeabout$3,300,assumingnochangesinmarketvalues;taxchangescouldbemuchhigher(orlower)forindividualpropertyowners.Moreover,totheextentthattaxincreasesarecapitalizedintosalesprices,thesehomeownerswouldrealizesmallercapitalgainsuponthesaleoftheirproperties.

Atpresent,assessmentcapsofferprotectionagainstsharpincreasesinpropertytaxesforallownersofClass1andClass2Aand2Bproperty.Additionalprotectionexistsforlow-incomeseniorsthroughNewYorkCity’sSeniorCitizenHomeownerExemptionprogram.NewYorkStatealsoprovidespropertytaxrelieftoeligibleseniorsthroughtheincometaxsystem.Withanewtaxstructurelinedupmorecloselywithpropertyvalues,expansionoftheseshieldsagainstsharpsurgesinpropertytaxbills(oftencalled“circuitbreakers”)forseniorsmightbeappropriate.Thecityandstatemightalsoconsiderexpandingeligibilityfortheseprogramstoincludelow-income,non-seniorhomeowners.

Written by Theresa Devine

end noteS

1Ifaresidentialversuscommercialclasssystemwasadopted,ownerresidencycouldbeverifiedbyadministrators.ThisiscurrentlydonetoestablisheligibilityforSTARprogrambenefitsandthe$400homeownerrebate.2Inafive-yeartransition,revenueneutralitycouldbemaintainedasfollows: 1.Calculatetaxesunderthecurrentsystemforallproperties. 2.Constructpropertytaxbillsintwoparts,IandII: a.InyearT,charge[100-(Tx20)]%oftheindividualcurrenttaxbillforPartI. b.Calculateasecondtaxrate: PartIITaxrateinT=[(Tx20%)xCurrentLevy]/MarketValue c.ApplyPartIITaxrateinTtomarketvaluesforallpropertiestoobtainPartIIoftaxbills.

Alternatives to the Current Real Property Tax Structure

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IBONew York City

Independent Budget Office

Ronnie Lowenstein, Director

110 William St., 14th Floor • New York, NY 10038

Tel. (212) 442-0632 • Fax (212) 442-0350

e-mail: [email protected] • http://www.ibo.nyc.ny.us

mailto:[email protected]
http://www.ibo.nyc.ny.us

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