NYC facing tax rate quandary - New York, New York

Real Estate Weekly, June 24, 1992 by Lois Weiss

The New York State board of Equalization and Assessment's evaluation of the real estate market, based on January 1989 values, is creating havoc with New York City Mayor David N. Dinkin's call for a property tax freeze.

The City Council and the mayor are trying to agree on a methodology of coping with expected rises in property class shares the SBEA results and still keep the spirit of the mayor's vow to freeze the average tax rate.

The City council and the mayor, therefore, have made differing proposals - that must be okayed by the legislature - to prevent the SBEA's equalization rates from adversely affecting all property owners and Class II tax rates, in particular. In a press conference Monday, the City Council announced that their proposal, not the mayor's, has the support of the state legislature.

Once every three years, the state conducts a major survey to determine the change in market value of each property class in each county or assessment unit - like New York City. The city then makes adjustments to the share of property tax paid by each class. Property owners are outraged because the state is using 1989 rates, which don't reflect the current market.

The SBEA numbers would raise the Class II co-op and apartment buildings taxes by an estimated 8.5 percent and properties by .5 percent while lowering utilities and small homes. Because there sis a 5 percent cap on class share shifts in any year, the 3.5 percent burden would have to be spread among the other classes.

The City Council had explored two options, using the SBEA numbers, which place a 31 cent rise - 5 percent - on class II but sources said the Council was not even considering the SBEA options anymore and concentrating instead on reaching a compromise with the mayor which was not expected until late this week.

Because the SBEA survey of city values has a date of January 1989, the property values are high and do not reflect the sharp drop which has occurred since that time. Department of Finance Commissioner Carol O'Cleireacain charged the SBEA did not calculate the values for co-ops in the manner mandated by state law.

SBEA executive director David Gaskell disagreed with O'Cleireacain's contention that they did not follow the state law in evaluating Class II that states co-ops must be valued as if they were rentals. He said the SBEA calculated its market values based on the law but said the SBEA and the city differed over capitalization rates.

"We agree an imaginary apartment must be created," Gaskell said. "They disagree with our process."

A lawsuit may be filed by the city over the issue.

John J. Gilbert III, president of the Rent Stabilization Association, said they were examining a lawsuit against the SBEA but had been told only the city would have standing in court to challenge the SBEA figures.

"Either they are out of their mind or on drugs to think that values have increased in the City of New York," Gilbert added. "It's clear we are on the same side as the co-op's."

Gaskell said on 938 parcels throughout the city used in the survey, cap rates were used that varies from 8 percent to 17 percent. The city challenged 1787 of the SBEA valuations, particularly in Class II and Class IV, and 118 were adjusted. For instance, for 61-67 East 55 Street, the SBEA claimed a cap rate of 8.5 percent; the city said 12.4 percent and a final determination was made of 9.4 percent.

The SBEA information can be made more timely if the local government would supply the SBEA with additional information, Gaskell said, adding that he was busy trying to obtain a sponsor for such a measure which would have to be passed by the legislature.

Meanwhile, trying to set current tax rates, the mayor's proposal to the legislature would freeze the class shares for two years, while the Council wants to freeze the rate - the promise the mayor had made.

The Council proposal contains a provision to study the real property taxes and the mayor is unhappy with this since the Department of Finance just spent a year studying the issues and problems and already has legislation ready.

The mayor's proposed class share freeze would decrease Class II rates for apartments and co-ops by 16 cents per hundred dollars of assessment. A Council rate freeze would increase, the Class II rate by 2.5 cents per hundred. Doing nothing - using the SBEA results - would increase the rate by 31 cents. The commercial properties remain relatively unscathed through all, rising between 3 cents and 6 cents. Any utility change would be spread through all consumers and while SBEA scenarios would see a decrease between $1.84 and .95, the mayor and Council have both proposed a modest approximately 3 cents increase.

For an average Class I small home, the mayor's changes would result in a maximum increase of 3 percent or $11. This rise has been argues over extensively in Albany and New York. He said in most places, an 8 percent to 10 percent change was not uncommon and 3 percent would be welcomed by most communities.

In the past, the city has billed property owners at the last minute and this could very well happen once again. No matter what, owners will get some bill, due July 1.