Bill Morris in Bricks & Bucks on July 12, 2023
Most co-ops’ and condos’ property taxes will jump by more than 8% as they shoulder the brunt of the cost of paying for the city’s new $107 billion budget for the 2023-24 fiscal year. Commercial properties, on the other hand, are in line for a 1.5% decrease in their property taxes.
On June 29, the New York City Council passed a budget that is $6 billion bigger than last year’s. It preserved funding for some of the council’s cherished priorities — libraries and schools among them — in direct opposition to Mayor Eric Adams’s call for austerity in the face of the migrant crisis, labor deals for city workers and the pandemic-induced decline of the commercial real estate sector.
Lost in the political wrangling over the current budget was how the city will pay for those programs the mayor wanted to cut and the council wanted to keep. One answer, it turns out, is that durable revenue stream: property taxes, which fund almost one-third of city expenses, more than any other revenue source. And since property assessments were set in May, the only way to raise more tax revenue was to raise the tax rate. Which the city is doing for co-ops and condos — even as it lowers the tax rate for commercial properties.
The city has four classes for property taxes. Class 2 includes co-ops, condos and rental apartments; Class 4 is commercial and industrial properties, including office buildings, hotels and retail stores. “The Class 4 tax rate had a 6% decrease, its biggest percent decrease in 16 years and its lowest rate in 22 years,” says Ben Williams, who heads the property tax department at the law firm Rosenberg & Estis. “The Class 2 tax rate had a 5.5% increase, its biggest percent increase in 15 years and its highest rate in 10 years.” (The tax rate and the assessed value are parts of the equation used to calculate the final tax bill. Assessments are a fraction of an apartment’s market value.)
Why the discrepancy between the two tax classes?
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Williams speculates that when the city’s Department of Finance (DOF) sent out its final tax assessment role on May 25, it underestimated the lingering pain Class 4 properties are still feeling from the pandemic. “The property values of hotels, offices and retail decreased significantly,” he says. “Meanwhile, interest rates are high, and hotel and office vacancies are high. My conjecture is that the city council lowered their tax rate to make up for not lowering their assessments enough.”
When it was determined that Class 4 properties were entitled to tax relief, more income from other sources was needed to pay for that $107 billion budget. Co-ops, condos and rental properties were, unfortunately, it.
For co-op and condo boards, the war is not over. They can still request a reduction to their “final” assessments, which is the last option for lowering their tax bill. There are about 50,000 such challenges citywide every year, with the city offering reductions in about one-fifth of the cases. Williams’s firm is currently handling assessment challenges for about 700 clients.
“Co-op and condo boards have to be aggressive about challenging their assessments,” he says. “Even if your assessment stays the same, your taxes will go up 5.5% because of the hike in the tax rate. When the tax rate goes up, you want to be even more adamant about fighting your assessment.”
One thing to remember is that co-ops and condos are assessed not on the basis of a unit’s market value, but on the value of comparable rental properties in the neighborhood. New construction slowed since the death of the 421-a tax exemption, which has reduced supply and helped push rents to an all-time high. “And that,” Williams says, “is going to keep driving assessments up for co-ops and condos.”
There is some good news. The co-op and condo property tax abatement can reduce a tax bill by at least 17.5%. Though it technically expired June 30, the DOF sent the 2023-24 bills with the abatement included since the state legislature had already passed a bill that would extend the abatement through tax year 2026-27. Gov. Kathy Hochul signed that bill into law on June 30.
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