Finance jumps gun on J-51 law change

Real Estate Weekly, Feb 24, 1993 by Lois Weiss

A move by the Department of Finance has increased property tax assessments for more than 400 buildings in the 11th year of their J-51 program even though the City Council has not passed the local law that is required for these changes.

While the local bill may pass as early as this week, officials differ on whether properties currently obtaining J-51 benefits will fall under the New York State enabling legislation or if only new properties entering the program will be affected. That bill was passed last year to modify and extend the J-51 program.

The J-51 program allows ownersincluding co-ops and condominumsto ake building wide-improvements and in return receive either an exemptin of the property taxes or an abatement of a portion of their property taxes. Under the old rules, the exemp- tion would end abruptly after either 12 or 32 years.

The enabling legislation passed by the New York State Legislature last year added years 13 and 14 to the program and began phasing out the exemption at 20 percent per year beginning with the 11th year. A similar two-year program (now 34 years) would not affect properties for another 15 to 20 years.

Although many experts, including Council officials and an Assemblyman who voted for the bill, believe the state measure applies only to new buildings entering the program, the legislative assistant who shepherded the bill insists it applies to buildings entering their 11th year of the J-51 program.

A Finance official has therefore raised the assessments of 404 buildings in their 11th year of the current 12-year program on the assistant's advice and in anticipation of the City Council measure being passed and signed by the mayor in time for the July property tax bills.

A City Council official, who spoke on condition of anonymity, was highly distressed over the Finance action. 'I had always read it to apply to new buildings,' the official said, 'If they are reading it differenfiy then we have to set them straight and be sure the legislation reads very clearly.'

'It's going to surprise a lot of people,' said Andrew Hoffman, president of the Community Housing Improvement Program and the owner of London Terrace and other properties. 'They sit down to do budgets last year and now they are going to get socked with a tax bill they didn't know they had.'

Assemblyman Howard Lasher, chairman of the Housing Committee, said he thought the bill was supposed to apply to new buildings entering the program. "If somebody does something pursuant to a Statute, builds in costs, then somebody goes and changes the statue it's not right," he agreed.

Lasher also questioned the constitutionality of Finance's move, noting the courts might have the final say.

Both the Council of New York Cooperatives and the Federation of New York Housing Cooperatives representatives testified at City Council hearings last fall and requested an 'opt-in' for the city's. local law. A provision for buildings to 'opt-in' to the new program was removed from the final state legislative version.

Jack Freund, director of research for the Rent Stabilization Association, agreed the city should either make the measure prospective or allow current program beneficiaries the option of the new phase-out or old 'cliff' ending.

While some properties might benefit from stretching out the payback, Freund observed, rental apartment owners have counted on vacant apartments becoming exempt from rent stabilization at the end of the exemption period.

'They will become exempt if a lease rider has been in place,' he said.

Additionally, the apartment has to become vacant after the end of the exemption period. "If you stretch it out, some owners might lose out on the deregulation potential,' Freund added.

They might also keep apartments vacant for one or two years if they can afford to do so.

"There's been a history of administrative actions that run counter to the legislative intent,' Freund continued. "The key here is knowing what to expect."

Co-ops in particular have complained bitterly about the abrupt ending which in some cases brought property taxes from $0 to many thousands of dollars, and have lobbied for a phase-in of taxes. But as CNYC Executive Director Mary Ann Rothman put it, they wanted the phase-in after the 12 years. 'They are helping by sticking their hand into your pocket earlier,' she said.

Under the modified bill passed by the state, the exemption would begin to phase out after 10 years but stretch to 14 years while the other J-51 program would phase out over years 30 to 34. No buildings will be reaching the 30-year point for another 15 to 20 years and are not affected by Finance' s move.

During the first year of the phase-out -- year 11 -- a building would be 80 percent exempt and paying 20 percent of its tax bill. By the fourth year -- year 14 - the building would pay 80 percent going to the full 100 percent when the program is over in year 15.

So buildings that were to pay no taxes for another year or two are being faced with up to a 20 percent payment this year, although the effect may be tempered with "abatement dollars."