Why property tax bills will rise, despite de Blasio’s boast
Many New York City homeowners are facing another spike in their property tax bills, even as the mayor said this week he is “proud” his Fiscal Year 2015 budget did not raise taxes, since overall rates aren't increasing.
This merely continues a dichotomy that has frustrated the city’s property owners year after year, but is further complicated this time around by an unusual bit of news—for the first time in decades, the city's tax rate is actually going down for one- two- and three-family homes. The rate also went down for co-ops, condominiums, rental buildings and utilities.
In fact, only commercial and industrial properties saw their tax rate rise for Fiscal Year 2015, which began July 1. It is up about 3.5 percent.
Yet due to a combination of factors, including an increase in overall assessed value, a Fiscal Year 2015 budget that banks on more money from the real-estate levy than last year and a state-mandated increase in bills, most homeowners will indeed pay more this fiscal year.
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“This is the first year in many years that the class shares for classes 1, 2 and 3 declined from their respective prior-year class shares. This was caused by the class share formula that compares relative market value in a current year to the base year of 1990," said Michael Hyman, a deputy commissioner at the city's Department of Finance, which oversees property-tax collections.
The city splits property into four classes, with Class 1 covering one- two- and three-family homes; Class 2 covering co-ops, condos and rental buildings; Class 3 covers utilities; and Class 4 covers commercial and industrial property.
The rate is only part of the equation when figuring a tax bill.
Because the overall value of property rose for the fiscal year, the city was able to budget for a collection of $22.6 billion, up from about $21.3 billion in F.Y. 2014. That’s a more than 6 percent increase. After accounting for abatements and delinquent property owners, the actual collection for F.Y. 2015 is anticipated to come in at around $20.8 billion, up from $19.9 billion last year—a $780 million spike that amounts to 3.6 percent more, according to budget documents.
“You had some rate reduction, but you have an assessed value increase,” Hyman said in an interview.
The biggest chunk of the gross levy increase will be laid at the feet of commercial property owners—from office buildings and factories, to warehouses and parking garages. The gross levy for all those Class 4 properties is up nearly 11 percent. Class 3 properties, which are owned by utility companies, are the only ones to have a decrease in the gross levy this year, falling by almost 6 percent.
Some experts and tax critics say it would be difficult to support the argument that taxes haven’t gone up. Yes, the tax rate may be flat, but that alone is not a good measure of whether the average New York property owner will see a bigger bill this year, they say.
“The tax rates, I don’t want to say are meaningless, but it all has to do with assessment,” said James Nelson, a partner at Massey Knakal Realty Services. “I don’t think he’d be the first politician to say that taxes aren’t going up since the rates aren’t going up. But the rates have been pretty consistent at that level.”
The city sets its levy by multiplying the total assessed value by the overall tax rate, which did not change this year.
Then the City Council splits up the overall share of what each class owes, which cannot increase by more than 5 percent over
the previous year. Typically, the Council lowers that 5-percent cap each year, which then pushes the burden off of Class 1 homeowners and onto other groups.
But this year, the rates went down due to a complex formula set by Albany.
According to a chart provided by the Council, the tax rate for Class 1 dropped slightly, from $19.191 per $100 of assessed value in F.Y. 2014 to $19.156 this year. The rate for Class 2 went down from $13.145 per $100 to $12.855. Class 3 decreased the most, from $11.902 per $100 to 11.125. Class 4 went up, from $10.323 per $100 to $10.684.
One property tax official in the City Council said the rates likely went down because the market rates of commercial property grew at a faster rate than residential real estate. (Assessed values are based on a percentage of market value.)
Another reason bills are likely to increase is that the state caps how much taxes can go up for certain classes. For instance, Class 1 property owners cannot get increases of more than 6 percent a year or 20 percent over five years. So even when market values decline, homeowners are often still paying more from that lag.
All this adds up to mean that city taxpayers will, in fact, pay more money.
And yet, following the pattern of mayors before him, Mayor Bill de Blasio has said taxes are not going up.
Asked earlier this week how he can afford additional education programs this year, de Blasio said, “The money is part of our budget that was adopted a few days ago. Obviously, there was not a tax increase as part of that budget—something we’re proud of.”
It's an assertion financial experts are accustomed to hearing. It’s not a tax increase because the rate didn’t change, said Nicole Gelinas, a fellow at the fiscally conservative Manhattan Institute.
Gelinas said she doesn’t see the levy increasing as a tax hike if it’s the result of property becoming more valuable.
“I would think of it more like the sales tax or the income tax,” Gelinas said. “Those taxes are much simpler. If you get a raise, then your income tax will go up.”
But saying taxes didn’t increase because the rate didn’t go up is disingenuous, some financial experts and tax critics said. They say the city is spending more money and collecting more revenue from property taxes, which means many receive higher property tax bills—how is that not a tax increase?
“If you're a property owner, all you really care about is your tax bill,” Nelson said.
In a number of towns in New York State, people talk about tax increases in terms of how much the levy goes up, not the rate. But there’s been something of a tradition in the city of celebrating small or nonexistent rate increases, the way the mayor just did. It doesn’t mean much, yet it’s something of an accepted measurement.
“People see their taxes are going up because [the city’s] spending is going up,” Gelinas said. “But I still wouldn’t say de Blasio’s increased the property tax.”
Still, if the city spent less, some of the same owners that are now expecting bigger tax bills could actually see a decrease. Gelinas said it’s a “fair point” that “the city has benefited enormously from increase property values.”
Her colleague E.J. McMahon, another Manhattan Institute fellow and president of the Empire Center for Public Policy, notes that the rest of the state is subject to a 2 percent cap on tax levy increases—not rate increases.
“Interestingly, if the city had a tax levy cap like the rest of the state, it would prevent this,” McMahon said.