The Ever Increasing Property Tax Rates
AM 570 Podcast
Column from The Wave
Like the real estate industry in general, the NYC Property Tax system is shamefully shrouded in misconception and the intentional confusion of the public. NYC's greatest single source of revenue comes directly from property taxes. Property owners in fact cover the yearly payroll for the entire municipal workforce and then some. Every homeowner in this city sees their property tax bill rise every year but what causes it to do that? It comes as no surprise that as property values rise, so too will your property tax obligation; However, what most people don't realize is that the Tax Rate has been raised every year by shameless politicians. This reckless practice makes for a lethal double-edged sword that is slaying the hardworking, middle class homeowners who are already footing most of the bill to run this city and fund politicians' pet projects.
Properties are divided into four tax classes in NYC, each with their own Tax Rate. Class 1 covers 1-3 family homes; Class 2 covers multi-family buildings; Class 3 covers properties owned by the utility companies; Class 4 covers office buildings, hotels and retail stores. The formula deployed by the NYC Dept. of Finance to calculate property taxes is about as straight forward and understandable as advanced calculus, so allow me to put it into layman's terms here: The City first estimates the market value of your home and then multiplies it by a fixed number (6%). That number is then multiplied by the Tax Rate to determine your tax owed for that particular year. Understand however that homeowner's yearly property tax increases don't come from the fixed 6% number of course, it comes from the Tax Rate that is established each and every year by the City Council and the Mayor to meet budgetary needs. Not only have the property values been steadily rising over the last 20 years (and thus driving up the assessed value portion of the property tax calculation) but the rate has been steadily rising as well making for an exponential perfect financial storm for NYC homeowners.
In 1981, the Tax Rate across all four classes was the same (8.95%). Today, however, great disparities exist between the classes. While owners of 1-3 family homes are required to pay 21% of their assessed value, landlords of apartment buildings pay 12.5% while office building owners are only paying 10.5%. How did we get to this point of inequity though? Since 1992 the City has increased the Tax Rate on 1-3 family homes just about every year while the Tax Rate on office buildings, retail stores and hotels has decreased. As a result, the Tax Rate for homeowners has doubled since 2001 while the other classes have remained relatively unchanged.
Why are hardworking homeowners being asked to allocate a higher portion of their hard-earned money to foot the bill while influential real estate tycoons are left alone? Under billionaire mayor Michael Bloomberg's watch the Tax Rate for homeowners doubled while NYC property values concurrently skyrocketed. As a result, many people's property taxes have effectively quadrupled since 2001. Making matters worse is the inequality of the DOF assessment system allowing certain parts of the city, like Mayor Deblasio's Park Slope neighborhood, to be virtual tax havens where a $3M brownstone pays about the same amount in property tax as a similar sized $1M brick house in Flatlands, Brooklyn. Tax rates should not rise unless there's an acute financial emergency. If NYC has been in a financial emergency situation since 1981 then I think it's time we start looking at alternative ways to address the problem other than bleeding out homeowners.
