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Co-op / Condo Fiscal Cliff: Report Shows Continuing Tax-Abatement Inequality

Frank Lovece in Legal/Financial on January 3, 2013

New York City

Jan. 3, 2013

The report — "Renew, Reform, or Reject? The Coop & Condo Tax Break Has Expired, Giving Albany Chance for Long-Promised Fix" — reveals that the most recent bill addressing the issue, the Senate's S. 7815, still gives preference to Class 1 residences (one-, two- and three-family homes) over Class 2 residences (rental and co-op buildings, and condominiums over three stories high) by continuing to give Class 1 homes, but not Class 2, an annual cap on assessed property value.

Despite this — and despite the fact that assessed value for "Class 1 can be no more than 6 percent of the market value [while most] coops and condos in Class 2 are assessed at 45 percent of their market value" — the report claims that co-op and condo buildings have been undertaxed and as a whole should pay more.

Co-ops / Condo Taxed Too Little?

The report "estimates that about 60 percent of the tax break in 2012 was in excess of what was needed to equalize tax burdens between apartment owners and homeowners," and that Manhattan apartment owners, "particularly those just east and west of Central Park," receive most of the "excess abatement."

The Budget Office statements

about co-ops being

undervalued are outrageous.

"The IBO's statements about co-ops being undervalued are outrageous," says Bob Friedrich, head of the Presidents Co-op Council of co-op and condo board presidents, and a frequent critic of tax policies toward Class 2 properties. While he agrees condos and co-ops along "Central Park West and Fifth Avenue historically have been undertaxed, you can't compare them with co-ops in Queens or middle-class co-ops in Manhattan. But the city looks at those [high-end buildings] and then paints an entire picture with this wide brush."

Analysis, Not Recommendations

"We're not making recommendations," Ana Champeny, primary author of the report, tells Habitat. "We're simply looking at the legislation put forward. We do say at the end of the report that a more direct shift to Class 1 practices [for Class 2] is likely to be more efficient" than current proposals.

Champeny points out that because of New York State's Real Property Tax Law Section 581, co-ops and condos are assessed as if they were "comparable" income-producing commercial properties — i.e., rental buildings. "The original idea was that co-op and condo tax abatement would be a temporary fix to address [the disparity between] co-ops and condos and one- to three-family homes. And there haven't been proposals put forth publicly in Albany that I'm aware of that do anything for the bigger fix. We weren't looking at a broader set of options of the ways the City could address this. We're looking at the bills that were introduced in Albany at end of session" in June.

Limiting Abatement to Owner-Occupiers

In other aspects of the proposed legislation, the report says, "Limiting the tax abatement to owner occupants would cut the cost of the abatement to the city roughly in half compared with simply extending the program without any changes. About two-thirds of the owners still eligible for the tax break would see larger abatements."

The 12-page report concludes, in part, that proposed legislation "does not address the limitations that make the abatement inefficient, particularly the distortions resulting from how coops and condos are valued."

As for the remaining lack of an annual cap on Class 2 property valuations, Friedrich notes that, "The legislation in Albany now, which we've gotten assurances will pass, is just a temporary fix because they're just restoring abatement and [the] J-51" program that offers tax breaks to encourage renovation of residential property. The Presidents Co-op Council, he says, has suggested what it calls "the 8 - 30 solution" of extending the cap that already exists for Class 2 buildings with fewer than 11 unit:  8 percent in one year or 30 percent over five years

"This is a precursor for a battle very much alive and we're gong to be very vocal," he says. "We're not gong to let the city push out the middle class co-op and condo residents. The well is dry."


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