Real estate tax rates just matter of class

Real Estate Weekly, June 7, 2000 by Lois Weiss

Likely increase to cover all of the classes, despite the complexity of tax scenarios

Property tax rates on commerical properties are expected to go down again for Fiscal Year 2001 that begins on July 1st and residential apartment tax rates are likely to drop a slight percentage.

But utilities and one to three-family homeowners are going to face as large a rate increase as the law will allow - and that has lawmakers seeking a cap on that increase for the eighth year in a row.

"Our estimates are that over the years, and including this year with a 2 percent cap as is being proposed, it will cost Class IV property owners and their tenants in excess of $450 million in shifted tax responsibility," said Steven Spinola, president of the Real Estate Board of New York (REBNY). "And we said, 'That's a big number."'

REBNY has complained to Majority Leader Joseph Bruno who could block such a bill from being passed by the State Senate.

There are four property tax classes and each is responsible for a piece of the tax pie. As values shift, state law limits any increase of a tax class' share of the pie to 5 percent, with the overage then shifted to the other tax classes.

Since homeowners almost always faced an increase, politicians have consistently reduced the 5 percent cap further through yearly City and State legislation. This year apparently will be no exception.

Tax rate caps deja vu

City sources say a 2.5 percent cap, as was used last year, would not help reduce the tax rate enough for the homeowners, which would go up about 20 cents per $1,000 of billable value. Therefore, the politicians are examining a 2 percent cap, instead.

Under each scenario, the overage would be added to the commerical tax Class IV, and while the commercial tax rate would still decrease from last year by at least 10 to 20 cents per $1,000 of billable value, the constant shift to the commercial owners has REBNY concerned.

Current Fiscal Year 2000 tax rates are: Class I, 11.167%; Class II, 10.851%; Class III, 9.396% and Class IV, 9.989. It is expected that the ongoing freeze on the average tax rate will still hold at 10.366%.

While a 1 percent cap would allow for a slight drop in the tax rate for Class One homes, most authorities agree that the Class does not pick up its fair share of taxes as it is, and homeowners' payments don't come anywhere near paying for the cost of their own sanitation, fire, police and school services. Resident homeowners can also claim the state's School Tax Asessment Relief (STAR) and reduce their individual taxes to some extent.

A drop in Class I tax rate has to be balanced against nuturing the businesses that are also employers, and effectively pick up much of the commercial property tax burden. Businesses are also awaiting further reductions to the city's commercial rent tax burden, the elimination of which has long been promised by Mayor Rudolph Giuiliani.

Additionally, some of the increase in utility taxes ultimately is passed along to the consumer.

Final roll released

The tax rate setting is based in part on the final property tax roll which was released by the Finance Department on May 25th. That $83.2 billion in billable assessed valuation, up $3.2 billion over last year, will be used along with an expected $37.34 billion final budget to calculate the tax rates.

If the Council, Mayor and Legislature do not agree on and enact a cap quickly, tax rates may have to be fixed at last year's rates to enable Finance to print and mail out property tax bills, since first half and first quarter payments are due July 1st.

Should bills go out at last year's rates, the tax fixing would have to be done again by the Council. In the past, to avoid confusion by the taxpayer, Finance has waited and simply changed the rates on the January 1st billing to reflect the entire year. But that also causes some calculation problems during sales closings.

Borrowing concerns

Meanwhile, the city is running out of borrowing power because the it is based on a five year average of the full market value of city property, which was depressed in the early and mid 1990's. While that is rising, and will go up in the next few years, it has not risen fast enough to counter city spending needs.

The city has also imposed a moritorium on capital spending projects, which is opposed by the Building Congress. These costs are estimated by City Comptroller Alan Hevesi to require approximately $92 billion over the next decade, just for the upkeep on current facilities. The current City plan is to spend about $52 billion, he says, without including the costs of any new sports stadiums.

Last year, the state legislature authorized the city to borrow up to another $12 billion for its capital program through a Transitional Finance Authority (TFA), and it has used about $7.5 billion. The legislature is now expected to allow the city to use only another $2.5 billion for the moment.

Building Congress President, Richard T. Anderson, said "Within two years the value of the city will increase, and if you start using the later numbers, it increases the debt limits. Presumbably, if they get the $2.5 billion or more, they should be able to remove the moratorium on the capital spending program and it looks like the City will get through the next couple of years."