twenty-five years after s7000a: how property tax burdens ...but this approach largely ignores shifts...
TRANSCRIPT
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
Contents
Inroduction 4
PastasPrologue:TheLegislativeRoadtoAdoptingToday’sPropertyTaxSystem 8
CauseandEffect:AnAnalysisofChangesinPropertyTaxBurdensSince1981 14
HowDoNewYorkCity’sCommercialPropertyTaxesComparewithOtherU.S.Cities? 44
AReviewofHouseholdIncomesByLocationandTypeofResidence 48
AlternativestotheCurrentRealPropertyTaxStructure 56
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,
•
Introduction
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.
•
•
•
•
NEW YORK CITY INDEPENDENT BUDGET OFFICE 5
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.
NEW YORK CITY INDEPENDENT BUDGET OFFICE 8
9 NEW YORK CITY INDEPENDENT BUDGET OFFICE
The Legislative Road to Adopting Today’s Property Tax System
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
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,
NEW YORK CITY INDEPENDENT BUDGET OFFICE 10
The Legislative Road to Adopting Today’s Property Tax System
11 NEW YORK CITY INDEPENDENT BUDGET OFFICE
The Legislative Road to Adopting Today’s Property Tax System
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
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.
NEW YORK CITY INDEPENDENT BUDGET OFFICE 12
The Legislative Road to Adopting Today’s Property Tax System
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).
NEW YORK CITY INDEPENDENT BUDGET OFFICE 14
15 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 16
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.
An Analysis of Change in Property Tax Burdens Since 1981
17 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 18
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.
An Analysis of Change in Property Tax Burdens Since 1981
19 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 20
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
An Analysis of Change in Property Tax Burdens Since 1981
21 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 22
Cha
rt 1:
One
-, T
wo
-, a
nd T
hre
e-F
am
ily H
ous
es
Ma
rke
t Va
lue
and
Ass
esm
ent
Cha
nge
s a
nd E
ffec
tive
Ta
x Ra
te
-15%
-10%-5%0%5%10%
15%
20%
25%
30%
35%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Annual Percent Change
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Tax Per $100 of Mkt Val
Cha
nge
in M
edia
n M
arke
t Val
ueC
hang
e in
Med
ian
Ass
esse
d V
alue
ETR
An Analysis of Change in Property Tax Burdens Since 1981
23 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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,
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 24
Cha
rt 2:
Inte
rac
tion
of A
sse
me
nt C
ap
s a
nd T
arg
et A
sse
sme
nt R
atio
s fo
r One
-, T
wo
- a
nd T
hre
e-F
am
ily H
ous
es
0
100
200
300
400
500
600
700
800
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Thousands
1 Y
ea
r Ca
p5
Ye
ar C
ap
Un
de
r Ca
p a
nd
at
Targ
et
Un
de
r Ca
p a
nd
Un
de
r Ta
rge
tO
ver C
ap
(P
hys
ica
l)
An Analysis of Change in Property Tax Burdens Since 1981
25 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 26
Cha
rt 3:
ETR
Fo
r One
-, T
wo
-, a
nd T
hre
e-F
am
ily H
ous
es
by
1980
Inc
om
e o
f Ce
nsus
Tra
ct
0
0.2
0.4
0.6
0.81
1.2
1.4
1.6
1.82
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1st Q
uarti
le2n
d Q
uarti
le3r
d Q
uarti
le4t
h Q
uarti
le
An Analysis of Change in Property Tax Burdens Since 1981
27 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 28
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
An Analysis of Change in Property Tax Burdens Since 1981
29 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 30
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
An Analysis of Change in Property Tax Burdens Since 1981
31 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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,
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 32
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
An Analysis of Change in Property Tax Burdens Since 1981
33 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 34
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.
An Analysis of Change in Property Tax Burdens Since 1981
35 NEW YORK CITY INDEPENDENT BUDGET OFFICE
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 36
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
An Analysis of Change in Property Tax Burdens Since 1981
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.
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 38
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.
An Analysis of Change in Property Tax Burdens Since 1981
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
An Analysis of Change in Property Tax Burdens Since 1981
NEW YORK CITY INDEPENDENT BUDGET OFFICE 40
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
An Analysis of Change in Property Tax Burdens Since 1981
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
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
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
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.
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
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.
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
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
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--
----
----
----
Hig
h-in
co
me
sub
-bo
roug
hsFo
rest
Hill
s-R
eg
o P
ark
$55,
000
$86,
755
$70,
000
$50,
000
----
$70,
000
$50,
000
--Fl
atla
nd
s-C
an
ars
ie$5
9,80
0$7
5,00
0--
----
----
----
Ch
else
a-C
linto
n-M
idto
wn
$60,
000
--$1
01,0
00$5
1,50
0--
$101
,000
$100
,000
$56,
000
$45,
000
Bays
ide
-Litt
le N
ec
k$6
5,00
0$7
2,00
0--
----
----
----
Mid
Isla
nd
$65,
000
$73,
000
----
----
----
--So
uth
Sh
ore
$67,
000
$83,
200
----
----
----
--U
pp
er W
est
Sid
e$7
2,00
0--
$120
,000
$63,
000
$70,
060
--$1
17,0
00$6
2,50
0$7
0,00
0U
pp
er E
ast
Sid
e$7
5,00
0--
$118
,400
$62,
500
--$1
45,0
00$1
16,0
00$6
9,00
0$6
0,00
0G
ree
nw
ich
Vill
ag
e-F
ina
nc
ial D
istric
t$7
6,50
0--
$112
,500
$60,
000
$93,
200
--$9
0,00
0$6
5,00
0$5
8,00
0St
uyv
esa
nt
Tow
n-T
urt
le B
ay
$79,
000
--$1
15,0
00$7
0,00
0--
$110
,000
$120
,000
$62,
000
$80,
007
SOU
RC
ES: I
BO; U
.S. C
en
sus
Bure
au
, HV
S, 2
005.
NO
TES:
Cla
ss 2
bu
ildin
gs
ha
ve a
t le
ast
ele
ven
un
its, C
lass
2A
/2B
bu
ildin
gs
ha
ve f
ou
r to
te
n u
nits
.
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.
NO
TES:
Cla
ss 2
bu
ildin
gs
ha
ve a
t le
ast
ele
ven
un
its, C
lass
2A
/2B
bu
ildin
gs
ha
ve f
ou
r to
te
n u
nits
.
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--
----
----
----
Hig
h-in
co
me
sub
-bo
roug
hsFo
rest
Hill
s-R
eg
o P
ark
$55,
000
$86,
755
$70,
000
$50,
000
----
$70,
000
$50,
000
--Fl
atla
nd
s-C
an
ars
ie$5
9,80
0$7
5,00
0--
----
----
----
Ch
else
a-C
linto
n-M
idto
wn
$60,
000
--$1
01,0
00$5
1,50
0--
$101
,000
$100
,000
$56,
000
$45,
000
Bays
ide
-Litt
le N
ec
k$6
5,00
0$7
2,00
0--
----
----
----
Mid
Isla
nd
$65,
000
$73,
000
----
----
----
--So
uth
Sh
ore
$67,
000
$83,
200
----
----
----
--U
pp
er W
est
Sid
e$7
2,00
0--
$120
,000
$63,
000
$70,
060
--$1
17,0
00$6
2,50
0$7
0,00
0U
pp
er E
ast
Sid
e$7
5,00
0--
$118
,400
$62,
500
--$1
45,0
00$1
16,0
00$6
9,00
0$6
0,00
0G
ree
nw
ich
Vill
ag
e-F
ina
nc
ial D
istric
t$7
6,50
0--
$112
,500
$60,
000
$93,
200
--$9
0,00
0$6
5,00
0$5
8,00
0St
uyv
esa
nt
Tow
n-T
urt
le B
ay
$79,
000
--$1
15,0
00$7
0,00
0--
$110
,000
$120
,000
$62,
000
$80,
007
SOU
RC
ES: I
BO; U
.S. C
en
sus
Bure
au
, HV
S, 2
005.
NO
TES:
Cla
ss 2
bu
ildin
gs
ha
ve a
t le
ast
ele
ven
un
its, C
lass
2A
/2B
bu
ildin
gs
ha
ve f
ou
r to
te
n u
nits
.
A Review of Household Incomes
NEW YORK CITY INDEPENDENT BUDGET OFFICE 52
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
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
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.
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
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
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
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
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
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