SOON-TO-EXPIRE COOP/CONDO PROPERTY TAX BREAK
BENEFITS SOME WHO DON'T DESERVE IT

Abatement Fails to Address Tax Disparities Between City Neighborhoods

A property tax abatement program designed to reduce the differences in tax burdens between coop and condominium apartments and one-to-three family houses is giving tax breaks on apartments that don't deserve them and does nothing to address already-significant disparities in property tax burdens between city neighborhoods, according to a study by the New York City Independent Budget Office (IBO).

IBO estimates that $29 million of the $156 million spent on the abatement in fiscal year 1999-nearly one dollar in five-is unnecessary. This includes $19 million in abatements flowing to Manhattan coop and condo owners who needed no tax reductions because they were being effectively taxed below the one-to-three family home level before the abatement. An additional $10 million is being wasted by giving excessive abatements to coops and condos that needed only small tax reductions to bring their property tax burdens down to private home levels.

The abatement program was instituted three years ago as a stop-gap response to long-standing complaints about the widely varying tax treatment of class 1 (one-to-three family homes) compared with class 2 (larger multiple unit) residential property. Because a provision of state law forces the city to undervalue coops and condos, however, the disparity in tax treatment between class 1 and coops and condos is not nearly as great as initially appears.

Another motivation for the current abatement was to assist coops, primarily outside of Manhattan, that were having financial difficulties in the wake of the collapse of housing prices during the last recession. However, more than three-quarters of all tax abatement dollars flow to Manhattan. The study shows that this is especially unfortunate because in Manhattan undervaluation of coops and condos is much greater and average tax burdens much lower than in the other four boroughs. The current abatement has actually worsened the already significant inequities in tax burdens facing coops and condos in different areas of the city.

For example:

• Before the abatement, a typical $200,000 apartment in Brooklyn had a tax bill of $3,140, which is $1,400 more than it would be if it were taxed like a single family home. In contrast, because of the distortions caused by the current law, a $200,000 apartment near Central Park has a tax bill of $1,493, which is $243 less than it would be if it were taxed like a single family home.

• After the abatement, the tax on the same Brooklyn apartment is reduced to $2,594, which is still $854 more than it would pay in class 1. For the Central Park area apartment, the abatement means that taxes are lowered even further, with a final tax bill of $1,230-$500 lower than it would pay in class 1.

Douglas A. Criscitello, IBO Director, said, "In an attempt to make sure that owners of coops and condos did not bear an unfair share of the total tax burden, the city has tried to bring their taxes closer into line with those paid by owners of one-, two- and three-family homes. But the methods it used in many cases compounded the unfairness of the system."

"Over the long term the city needs widespread tax reform that equalizes the burden among all classes of real estate, and among the taxpayers within each class. In the short term, we need to make sure that the solutions we come up with for immediate problems don't magnify the inequities that already exist," Criscitello said.

Designed as a temporary program, intended to give way to a permanent solution, the coop-condo abatement is scheduled to expire at the end of this fiscal year (June 30, 1999) but a long-term solution was never developed. As a result, the Mayor and the City Council will soon decide whether to ask the State Legislature to extend the program or find a new way to deliver the desired tax benefits. In light of the waste and inequities associated with the current abatement program IBO finds that:

• In the near term, the inefficiencies could be mitigated by reducing tax abatements for coops and condos in some Manhattan neighborhoods.

• In the long-term, however, an efficient and equitable long-term solution would require changing how coop and condo buildings are valued and assessed.

IBO has prepared this fiscal brief to provide policy makers and the public with information to help in evaluating the existing abatement and alternative proposals for residential property tax reform.

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