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Co-op and Condo Boards to Weigh Staff Pay Against Tax Abatement

Bill Morris in Legal/Financial on February 10, 2022

New York City

Prevailing wages, property tax abatement, co-op and condo boards.
Feb. 10, 2022

The board at a Manhattan condominium with 120 residential units and 30 commercial units recently asked its property manager to solve a mathematical puzzle that will soon be faced by nearly 4,000 co-op and condo boards in New York City. With the city poised to require co-op and condo boards to pay prevailing wages to their staffs in order to continue receiving the co-op and condo property tax abatement, the question before the property manager was this: how much will it cost to raise the 12 staff members’ pay to the prevailing wage, and how much do residents benefit from the tax abatement?

Answer: paying the prevailing wage would add $300,000 to the condo’s payroll costs, which would be shared by all unit-owners based on their percentage of common interest; the tax abatement trims the tax bill of fewer than half of the unit-owners by a total of $200,000. (The abatement is available only to apartments that are the owner’s primary residence; limited liability companies are ineligible.) On the face of it, the board should opt for the lesser of two evils and forfeit the tax abatement, right? Not so fast.

Actually, the condo board finds itself in a “pickle,” according to Ben Williams, head of the property tax department at the law firm Rosenberg & Estis, who represents the owner of several commercial units in the condominium. “Without the abatement, an apartment won’t be worth as much to a potential buyer,” Williams says. “But if the board keeps the abatement, common charges will have to increase so the boards can pay prevailing wages, which will also make property values go down. For boards, you’re damned if you do and damned if you don’t.”

Williams adds that as an owner of commercial units, his client is not eligible for the tax abatement and therefore is opposed to keeping something that would require adding $300,000 to the condo’s budget, while bringing no benefit to more than half of the unit-owners.

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The new rule, signed into law by Gov. Kathy Hochul on Labor Day, goes into effect at the beginning of the state’s next fiscal year, July 1. But by April 15, co-op and condo boards that want to retain the tax abatement must sign a notarized affidavit stating that they are paying prevailing wages. (Boards with staffs that belong to the Service Employees International Union’s Local 32-BJ will not be affected by the new rule.) A list of the 2,236 co-ops and 1,523 condos that will need to produce such an affidavit is available here. Prevailing wages (and benefits) are set each year by the city Comptroller. A list by job category is available here.

Eligible for the abatement are properties with an average per-unit assessed value of $60,000 or less, as well as co-ops and condos with fewer than 30 units that have an average per-unit assessed value of $100,000 or less. (A building’s or unit’s assessed value, which is used to calculate property tax bills, is a fraction of its market value.) The abatement ranges from 17.5% to 28.1%, depending on a building’s average per-unit assessed value.

Williams points out another factor that boards will have to include in their calculus. “Once you raise your staff’s wages to the prevailing wage, there’s no going back,” he says. “And yet there’s no guarantee that the tax abatement will be extended after it expires on June 30, 2023 — or, if it is renewed, that the percentages will remain the same.”

One thing is certain. “I represent numerous co-op and condo boards,” Williams says, “and I have a simple message for them: this is a huge change, and it’s bigger than anybody’s telling you.”

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