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(Mostly) the Right Ideas on Reforming NYC’s Lunatic Property-Tax System

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(Mostly) the Right Ideas on Reforming NYC’s Lunatic Property-Tax System

New York Post February 6, 2020
Urban PolicyHousingNYC

All fair-minded New Yorkers should applaud almost all the recommendations of the de Blasio administration’s property-tax-reform commission.

Its recent report recounts how, for decades, legislators have resisted the sensible system that most jurisdictions around the country follow: taxing property at the full and fair market value and regularly reassessing to adjust those values and keep taxes fair.

Fear of the changes that would result from the first reassessment in some 40 years has contorted the system, as have nonsensical tax breaks for high-end co-op and condo owners, which are taxed as if they were rent-stabilized units.

The commission enters its own dangerous territory, however, in suggesting a dramatic departure from property tax logic: It wants to link tax bills to a homeowner’s income. The logic is tempting: The commission argues that no owner should be forced from a neighborhood because of rising values — and thus rising tax bills.

But this income link ultimately opens a Pandora’s box.

First, there’s the obvious drawback of discouraging property owners from increasing their household income — or encouraging them to hide it. Why would a city that has long been associated with upward mobility want to build a disincentive to work into the property-tax system (which accounts for almost half the city’s tax revenue)?

This is the same logic built into the subway “fair fares” card (reduced fare for lower-income residents), as well as public housing, where rents go up as household income rises.

The report also overlooks the obvious fact that full market values don’t always go up, and that a fair tax system should, on occasion, lead to lower tax bills. Indeed, if city government can control its expenses, property values could rise without tax bills going up as well.

Even if all property values rise, which would be evidence of a healthy city, some will rise more than others — and, if the budget stays on an even keel, properties with bigger bumps in value will protect those with lower ones from steep tax jolts.

Moreover, linking income to property taxes would inevitably spark opposition from those above any income limit — and risk inviting new charges of unfairness like those that have dogged the tax system since it was last re-examined at the state level in 1981.

Reformers must build a coalition around a simple, fundamental improvement: basing the property tax on full-market values and regular reassessment.

A statewide fair-market approach will draw support in high-cost suburban areas. In many cities and towns in Westchester and Nassau counties, no reassessment has been done in decades. Instead, property values are set through an arcane, indirect system called “equalization”: State officials determine how much values have risen in any one jurisdiction — and adjust the “assessed” values of all properties there accordingly.

This means that homes with values that have actually dropped sharply in relation to others nearby face artificially high tax bills.

In my role on the City of Rye Board of Assessment Review, I regularly see cases of older homeowners whose ranch houses were once new and desirable but have since lost market value. Their assessments continue to be set in lockstep with the town’s McMansions — helping to drive out older homeowners, who sell out to builders undertaking “tear downs.”

Yes, neighborhoods change over time, and longtime owners whose property values rise may end up with higher tax bills than they’d prefer. Change can be difficult — but more than anything, the city should avoid taking steps to freeze neighborhoods in place. That leads to underutilized homes and barriers to newcomers seeking a homestead.

Ironically, progressives elsewhere are concerned about exactly that problem. A new study by a Boston regional planning group found that families with children are “crowded in and priced out” because empty-nesters stay put in homes bigger than what they need.

Gov. Andrew Cuomo should be sympathetic to the city’s new proposals. But let’s keep it simple and avoid introducing tempting new flaws that will undermine real reform.

This piece originally appeared at the New York Post

______________________

Howard Husock is a senior fellow at the Manhattan Institute, where he directs the Tocqueville Project, and author of the new book, Who Killed Civil Society?

Photo by cmart7327/iStock

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