Property Tax Reform in NYC

David Goldsmith

All Powerful Moderator
Staff member

David Goldsmith

All Powerful Moderator
Staff member

Progressive lawmakers float property tax break​

Lander, Kavanagh mull solutions to housing shortage

For years, New York’s troubled property tax system has failed to galvanize elected officials to do anything more than create task forces.
Now, two lawmakers are hoping to bite off a chunk of the seemingly insurmountable problem.

City Comptroller Brad Lander is proposing to reduce the tax rate for newly constructed multifamily housing. And state Sen. Brian Kavanagh, who chairs his chamber’s housing committee, said he is planning to work with Lander on legislation to create parity between rental and condo taxes.
A 2021 report analyzing the city’s tax system found that rental projects with more than 10 units were taxed at nearly double the rate of condos.

Ideally, Lander’s change would be part of broader property tax reform, but the comptroller acknowledged, “It does not appear that there is political appetite or bandwidth to confront it.”
A new tax class with a lower rate for large, multifamily projects, however, would reduce the need to provide a special tax break, such as the expired 421a, he said.
“This is to solve one particular problem,” he said. “In my opinion, it is a much more rational solution to a problem that 421a is trying to solve.”
Lander’s office estimates that the tax class he is proposing would reduce property taxes for large, new rental buildings by 30 percent.
The proposal is not new, but could gain new life next year if pressure builds on elected officials to get multifamily construction going again.

Lander has no formal power to pass state legislation, which his idea requires, but could have credibility on this issue as the highest-ranked progressive in city government and an outspoken critic of 421a. When moderates or conservatives propose tax breaks for development, they tend to be assailed as giveaways to the real estate industry.
Lander has also floated a replacement property tax break to replace 421a, the expiration of which in June 22 has all but stopped new rental projects.
Lander’s program would not be as-of-right, but rather awarded by the Department of Housing Preservation and Development based on the cost of a project and its affordability levels. Such a discretionary process would also allow the Department of Housing Preservation and Development to account for labor costs.

In one sense, Lander’s proposal would create more certainty for developers than 421a did because the benefit would be decided upfront. Under the expired program, developers did not find out if they qualified for the tax break until construction was complete.

On the other hand, 421a was an as-of-right program. Adding one with an approval process to an agency that has struggled with staff shortages may lead to a project backlog and complicate project financing. Lander acknowledged that capacity at HPD would be critical.
The Real Estate Board of New York does not support making the tax break discretionary. But the group struck a neutral note when asked about Lander’s proposal.
“We welcome the comptroller’s focus on the need to find ways to create more rental housing in New York City,” a spokesperson for the group said in a statement. “We look forward to reviewing this proposal in more detail.”
Kavanagh is open to the 421a alternative.
“It is a very different way of thinking about 421a,” Kavanagh said. “It might be something that you do in addition to a more traditional 421a approach.”

He said an as-of-right route could be reserved for projects that meet certain affordability criteria and that construction wage requirements. Other projects would need to go through HPD.
The Adams administration announced plans Monday for its own discretionary program. The Mixed Income Market Initiative, or MIMI, would provide city subsidies to housing projects where 70 percent of the units are income-restricted, including 15 percent for formerly homeless individuals.
It is unclear how much money is available for the program or whether it will get buy-in from the industry.
Democratic lawmakers have said they are hopeful of reaching a housing deal next year that includes a property tax incentive for housing and new eviction protections. Gov. Kathy Hochul has not supported good cause eviction, but has indicated she is open to a housing package that includes tenant protections. The state legislative session starts Jan. 3 and ends June 6.

 

David Goldsmith

All Powerful Moderator
Staff member

Bronx landlords sue city for J-51 mess-up, seek $250M in damages​

Lawsuit claims city agreed to expedite court approvals but failed to

Two Bronx landlords claim the city’s failure to approve their applications for the J-51 tax exemption has resulted in millions of dollars in lost sales and financing.
Rent-stabilized landlords Finkelstein Timberger East Real Estate and the Morgan Group, through a few dozen shell companies, sued the City of New York late last month. They allege those delays “forced” Morgan Group to sell a dozen properties for a $10 million haircut and denied Finkelstein $6 million in loans that are now being withheld by lenders.

The suit is Finkelstein Timberger’s second attempt in two years to compel the city to approve his applications. In 2022, the landlord claimed that the Department of Finance agreed to expedite approvals and then failed to.
The disputes date back to 2005.

According to the complaint, Finkelstein and Morgan had started renovations on close to three dozen multifamily buildings in the Bronx. They hoped to qualify for J-51, the city program which incentivizes landlords to upgrade buildings by extending a tax exemption on any increase in appraised value that the improvements cause.
The fixed-up properties include 1226 Sherman Avenue and 230 East 167th Street in Concourse, 104 West 190th Street in University Heights and 2300 Grand Concourse in Fordham.
The city’s Housing Authority approved their applications, the owners claim, but the city’s Department of Finance failed to okay the exemptions. As a result, their tax assessments were “excessive,” the suit reads.
Finkelstein and Morgan then asked for a review of their tax assessments, and in 2019, the finance department retroactively increased the assessed values of the owners’ buildings, taking into consideration the physical improvements.

Still, the agency did not apply the earned exemptions. Instead, it charged the owners for years of back taxes, totaling $2.5 million.

In February 2022, Finkelstein sued the Department of Finance, claiming his lenders had demanded more money in escrow to cover the arrears and withheld about $6 million in loans that would only be released when the J-51 exemption took effect.
The parties settled: The city agreed to expedite Finkelstein’s dozen applications, but ultimately, it approved only five.
In the recent suit, Finkelstein and the Morgan Group now claim that their “false tax bills” also forced Morgan to offload nine properties at 14 percent below market value, according to a PincusCo analysis.
The landlords’ lenders have continued to withhold loans. On some buildings, lenders have siphoned all revenues to cover expenses, including property taxes, debt service and utilities.
If their applications aren’t approved, the owners claim they will be unable to generate enough income to keep their buildings. They are seeking $250 million in damages, in addition to the approvals of their J-51 applications.

The city’s Department of Finance did not respond to a request for comment.
 

David Goldsmith

All Powerful Moderator
Staff member

Hochul proposes new 421a replacement, extension​

Governor would hand baton to city in quest for new rental buildings

If at first you don’t succeed, blame the legislature and try again.
Gov. Kathy Hochul in her State of the State speech today called for a replacement to the property tax break 421a and an extension to the completion deadline for the now-expired exemption.

The governor in 2022 offered a replacement dubbed 485w, but it failed to gain traction with legislators. Last year she pitched a four-year extension of a deadline that requires projects to be completed by June 2026 to receive the 421a tax break. That also failed to pass.
As part of her 2024 agenda, the governor wants the state legislature to let New York City offer a tax abatement for rental construction, seemingly putting the city in position to shape and enact it. But the city would not have carte blanche: The program, like its predecessor, would have to include requirements for affordable housing and wage standards for building service and construction workers.

“I remember last year, many of the loudest voices in opposition said they believed in local control,” Hochul said during her speech, referring to opposition to her broader housing plan last year. “Well, let’s put that to the test. The city of New York, which is a local government, wants to build 500,000 more homes over a decade. I agree. Let them build.”
Without a new tax incentive, “housing construction will slow to a crawl,” according to the governor’s State of the State Book. Hochul also plans to propose an extension to the completion deadline, which the book refers to as a “straightforward matter” for the legislature. But legislators balked at the idea last year, believing that 421a delivers too little affordability for the 35-year tax break it grants to rental projects.
The State of the State Book, which provides some details on Hochul’s policy agenda for the year, does not mention good cause eviction or even ramping up tenant protections in the context of replacing 421a. It does call for a new enforcement unit dedicated to responding to Section 8 discrimination complaints.
Democratic leaders in the Senate and Assembly have tied 421a and good cause together, making clear that any development incentive would need to be accompanied by new tenant protections.
Lawmakers last year hoped to pass a housing plan that included a version of good cause eviction and an extension of the 421a deadline, but a deal never materialized. Hochul has not been supportive of good cause, which would give tenants the ability to challenge rent increases above a certain threshold. Supporters and critics alike have called it universal rent control.

Last week, addressing members in their respective chambers, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie emphasized the need to reach a deal that protects tenants and incentivizes the construction of affordable housing. Stewart-Cousins said the plan would need to include the “principles of good cause.” Lawmakers and tenant advocates spoke out against the governor’s exclusion of tenant protections in her speech.
“Skyrocketing rents are driving New York’s affordability crisis – and yet @GovKathyHochul continues to oppose basic protections against rent hikes and evictions,” Housing Justice for All wrote on the social media platform X. “Renters make up half the state. But Gov. Hochul’s so-called affordability agenda leaves us out in the cold.”
The governor appears exasperated with the legislature and in the book repeatedly notes its inaction on some of her previous proposals.

The line “will again” appears a few times in her State of the State Book: She “will again” push authorizing the city to legalize existing basement apartments. She “will again” propose lifting the city’s cap on residential floor area ratio, which is stuck at 12 and restricts the conversion of aging and increasingly unwanted office stock into housing.

Hochul is also pitching a tax incentive for office conversions that include below-market housing. Sen. Brian Kavanagh has a bill that would do this, and Sen. Peter Harckham recently proposed a similar measure, although it’s not clear that either would be of much use to developers.
The city is separately pursuing zoning changes that would allow buildings constructed before 1990 to be converted, but it would be up to the state to create an incentive and to lift the FAR cap.
The governor plans to propose legislation to prevent insurance carriers from basing coverage of a building on whether tenants receive government assistance or if a property has below-market units. This appears to be the only nod in the book to challenges faced by owners of rent-stabilized housing.
Landlord group Community Housing Improvement Program is pushing for legislation that would create a government-backed insurance program for affordable housing providers amid soaring premiums.
Hochul will not reintroduce the housing growth mandates that were part of her New York Housing Compact in 2023. Last month Hochul acknowledged that the challenges of moving that proposal forward were further exacerbated by elections this year. The compact faced pushback from Republicans, and Democrats favored an incentive-based approach over mandates.

Instead, Hochul has focused on executive actions, including an alternative to 421a for projects in Gowanus. The state has already received 19 applications for that program, which would net 5,500 apartments if all approved. That program could be expanded to other parts of the city.
The governor also launched an incentive program in which localities that are designated a Pro-Housing Community are given priority for discretionary funds. To be pro-housing, local governments must show that they have approved permits that would increase housing stock by 1 percent (if downstate) or 0.33 percent (if upstate) in the past year, or by 3 percent or 1 percent over the past three years.
Hochul plans to adjust criteria for some discretionary funding programs to make it a requirement that localities achieve Pro-Housing certification.
“This new requirement will strengthen the Pro-Housing Community Program and truly test the question of whether an incentives-based approach can drive the change we need to increase housing supply or if stronger mechanisms are needed,” the book states. Housing groups say incentives typically fail to accomplish much because of local sentiment against development.
The governor has also taken action to build housing on state-owned sites that could net as many as 15,000 new units of housing. This year she is seeking to establish a $500 million fund for infrastructure and to aid in the conversion of these sites.

 

David Goldsmith

All Powerful Moderator
Staff member

Highest Court Says Lawsuit Against City's Property Tax System Can Move Forward​

New York City
March 22, 2024
In a ruling sure to generate cheers in the outer boroughs and send chills through brownstone Brooklyn and high-rise Manhattan, the state's highest court has overturned a lower court's decision and will allow a lawsuit against New York City's property tax system to move forward.
In a 4-3 ruling, the state Court of Appeals sided with a coalition of homeowners and real estate industry groups — known as Tax Equity Now New York (TENNY) — who sued the city, claiming the property tax system sets far higher rates on rental buildings and small homes in lower-income neighborhoods than on condos, co-ops and other homes in wealthier areas. The appeals court ruling means TENNY can argue before the state Supreme Court that the current taxation system violates the federal Fair Housing Act and real property tax law, Gothamist reports.
TENNY's claim hinges on one of the arcane rules that determine property taxes in New York City. Class 2 properties, including co-ops and condos, are assessed not on their market value but on the value of comparable rental apartments in the neighborhood. Furthermore, the current system places a cap on annual tax increases, which means rapidly appreciating properties have artificially low tax bills while properties with stable values in middle- and lower-class neighbors pay a proportionally higher share. Property taxes fund about 42% of the city's budget.
Benjamin Williams, who heads the property tax department at the law firm Rosenberg & Estis, tells GlobeSt.com that the appeals court ruling is “a giant step towards property tax fairness across the five boroughs.”
He adds: “This decision will produce winners and losers. Some property owners will see their property taxes go up, especially homeowners in more white areas. Others will see them go down, especially homeowners in more non-white areas. The main issue is that the court is compelling the New York City Department of Finance to assess taxes more uniformly as a percentage of market value. Right now, the 43-year-old system fails to do this, so this decision is certainly a step in the direction of property tax equality.”
Mayors since David Dinkins have promised to eliminate the inequities in the city's property tax system — and failed to deliver on the promise. Most recently, former mayor Bill de Blasio appointed the Advisory Commission on Property Tax Reform, which recommended many of the changes favored by TENNY. The commission's recommendations have resulted in no reforms.
City Comptroller Brad Lander applauds the appeals court ruling. “As my office has advocated, New York needs to overhaul its property tax system because it overtaxes outer borough communities of color, while undertaxing my neighbors in brownstone Brooklyn and high-rise Manhattan,” Lander says. “This ruling is consistent with our calls for Albany to act on New York property tax reform.”
Applause for the ruling also comes from Martha Stark, the policy director at TENNY who served as city finance commissioner under Mayor Michael Bloomberg. “Today," she says, "is a great day for millions of New Yorkers who have been treated unfairly by the city’s unconstitutional property tax system."
Any changes to the laws on city property taxes must come from the state Legislature.
 
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