Posted by Doug Turetsky, June 4, 2013

In April, Cooper Union ended its 150-year tradition of providing students a tuition-free education. Although starting in 2014 the school will no longer be giving all of its students a free education, Cooper Union will still be getting an unusual set of tax breaks from the city—breaks that help fund the school’s annual expenses. These tax breaks cost the city about $20 million in forgone revenue this year, in effect providing a more than $21,000 a year subsidy to each of the highly selective school’s roughly 930 undergraduate engineering, architecture, and art majors.

The largest and most well known of the unusual tax breaks dates back to 1902 and centers on land at Lexington Avenue and 42^nd Street given to the school to boost its endowment by heirs of Cooper Union’s founder Peter Cooper. The endowment paid off for Cooper Union when the school leased the site to Walter Chrysler in 1928 to construct the eponymously named Chrysler Building. The land has remained exempt from property taxes because it is owned by the school. Cooper Union gets rent from the land of about $9 million a year along with payments equal to what the city would collect in property taxes if the site were still on the tax rolls. The payment amounted to $18 million this year.

Schools typically get a property tax break only for locations where classes are held, students housed, or administrative operations conducted. But the unusual property tax exemptions afforded Cooper Union, which include land the school sits on as well as any land it may receive as part of its endowment, date back to the charter granted to the school in 1859 by the state Legislature, provisions upheld in subsequent court cases.

Albany has continued to do its part to keep the break in place. In 1969, Mayor John Lindsay sought legislative help in restoring the site to the tax rolls for a cash-hungry city that several years later would begin to charge tuition to City University of New York students. Albany did indeed pass legislation stipulating that only property directly used for educational purposes could receive a tax exemption. But the legislation only applied to property acquired after the bill went into effect.

More recently, Cooper Union engineered two more commercial deals on land it owns. In order to generate funds, Cooper Union proposed a large-scale development plan that included two locations it would lease much as it did with the land under the Chrysler Building: 51 Astor Place, where its engineering school stood, and 22-36 Astor Place, which was a parking lot. In 1959, ownership of 51 Astor Place–then a city property—was transferred to Cooper Union with the condition that it be used for educational purposes.

To make the sites more attractive to prospective developers, Cooper Union won zoning changes from the City Planning Commission. In addition, in 2007 the Bloomberg Administration released Cooper Union from the requirement that 51 Astor Place be used for educational purposes in exchange for a $980,000 payment to the city and a promise that a portion of the building would be used for school purposes.

Cooper Union leased the parking lot to Related Companies, which built a 21-story luxury residential building on the site. At 51 Astor Place, Edward J. Minskoff Equities leased the site and is seeking tenants for a 13-story “starchitect”-designed office building with a Jeff Koons sculpture in the lobby.

The tax breaks for these two locations, hammered out with the Bloomberg Administration, are more complex than the tax exemption for the Chrysler Building. While both Astor Place buildings will remain fully exempt as is the Chrysler Building, the city will get payments—technically called payments in lieu of taxes—equal to half of what the tax bills would be.

The city can’t collect payments at either site until the office building is ready for occupancy. The residential building opened in 2005 and was exempt from any payments until fiscal year 2011. But the city still has to wait to collect any payments on that property until a certificate of occupancy has been issued for the office building. IBO’s Ana Champeny estimates this cost the city $2.1 million this year in foregone taxes from the residential building. We won’t know the amount of taxes foregone on the office tower until the building is completed and assessed.

When seeking the Astor Place zoning changes, Cooper Union told the City Planning Commission it needed them in part to generate funds to continue to provide a tuition-free education for its students (the school also wanted a new building for its engineering program, which it built at 41 Astor Place). With the public purpose of the unusual tax breaks now mostly a thing of the past (about 25 percent of students won’t pay tuition), some New Yorkers may question why the city should forego tax dollars on Cooper Union’s commercial development deals at a time when the city’s own university system has seen repeated tuition hikes.

Posted by Doug Turetsky, April 19, 2013

Tucked into the state budget adopted last month is a special three-year tax break for New York families with children. The first of three annual rounds of checks for $350 per qualifying family will be sent out in October 2014 (just weeks before the next year’s gubernatorial and legislative elections) at a cost of about $400 million statewide. While New York City families stand to garner a large share of the checks, many will find their mailboxes empty.

An analysis by IBO’s Michael Jacobs, which uses data from a sample of 2010 income tax returns, finds that about 575,000 of the city’s tax-filing families with children will qualify for the check next year. Each of these families will receive a check for $350, bringing just over $200 million into the city.

But that same analysis also reveals that nearly 725,000 New York City families with children—families with an estimated 1.2 million kids—will receive nothing. That’s because in most instances they earn too little to qualify.

Here’s how the tax break, called Family Tax Relief, works: To qualify, a tax-filing family or household with at least one child needs an income after tax-deductions (adjusted gross income in tax-speak) of between $40,000 and $300,000, and they must have owed New York at least a $1 on their 2013 state income taxes. If the family qualifies, they’ll get a check for $350, regardless of whether they have one child or a dozen under the age of 17, and even if the amount they owed is far less than the $350 check they’ll receive.

Family Tax Relief is described as help for “middle class families that are struggling to make ends meet” Yet in a city where the median adjusted gross income for families with children is $38,400, Family Tax Relief’s definition of middle-class is high and wide of the mark. As a result, tens of thousands of relatively well-off New York families will get a check while many low, moderate, and middle-income families with children will not.

To put that observation into numbers: more than 190,000 New York City families with children and adjusted gross incomes from $100,000 to $300,000 will be receiving checks worth more than $66 million combined. But roughly 660,000 families with adjusted gross incomes under $40,000 will find their mailbox empty. Among those left out are about 126,000 families—most of them single mothers with children—with incomes below $40,000 but who still owe income tax to New York State.

IBO’s Julie Anna Golebiewski estimates that about 60 percent of all the households with children in the Bronx will not qualify for the credit, based on data from the American Community Survey. In nearly all cases, the households won’t qualify because their incomes are too low. In Staten Island, about 28 percent of households with children won’t qualify and in Queens about 36 percent. In Brooklyn and Manhattan, roughly half of all households with children are expected to get a check. About 16 percent of Manhattan households with children won’t get a check because their incomes are too high, giving Manhattan the largest share of over-the-limit earners among the five boroughs.

New York’s Family Tax Relief bears some similarity to a 1991 proposal by former New Jersey Senator Bill Bradley to provide a $350 tax credit to families in the U.S. for each of their children. But Bradley’s plan called for the program to be universal, with everyone regardless of income getting help. If a family was too poor to owe taxes they would get the benefit in the form of a direct payment rather than a tax credit.

IBO’s Jacobs calculates that making the New York State program universal so that it covers all families with children—regardless of their income level or state tax liability—would more than double the cost of the program in New York City to about $453 million in 2014, even if the checks are capped at $350 a family no matter the number of children. Alternatively, if Albany were to let those single mothers and other families with incomes below $40,000 qualify for relief while maintaining the requirement that families have some tax liability, it would raise the total cost to the state of the Family Tax Relief program in New York City to roughly $245 million—about $45 million more than under the current legislation.

Posted by Doug Turetsky, February 12, 2013

Last month the Mayor presented his Preliminary Budget for 2014, which included the projection that revenue from the property tax would increase by more than $900 million in the fiscal year that begins July 1 and total $19.4 billion. But don’t start spending all of that additional revenue quite yet.

The property tax revenue projection is derived from the most recent estimate by the city’s Department of Finance of changes in assessed value of properties across the city. A quick look at the latest assessment roll by IBO’s Ana Champeny finds that the city seems to be adding some unlikely sites to its roll of taxable properties.

Photo Credit: Flikr/Simon English

Take the Chrysler Building as a prime example. It has been tax exempt for decades in order to help subsidize tuition-free education at Cooper Union. Yet the Chrysler Building shows up on the city’s initial tax assessment roll for fiscal year 2014 with a taxable assessed value of $184.4 million. This is the amount used to compute tax liability and should not be confused with the city’s estimate of the building’s market value, which the finance department lists at $448.7 million. (The city’s property tax system can be mind-numbingly complex. To learn more about the system and how it got this way, see IBO’s 2006 report.)

You’ve probably heard of the Barclays Center in Brooklyn, that big new arena that was the source of much controversy right up until Jay-Z took the stage the night it opened. A lot of the controversy centered on the city’s subsidy and the use of the funds the developer would otherwise owe for property tax to instead go towards paying the annual interest and principal on the money borrowed to build the arena. Under this deal the property should be recorded as fully tax exempt. But the arena shows up on the 2014 tax roll with a taxable assessed value of $329.1 million.

How about the Museum of Modern Art’s Museum Tower? The tower was developed through an arrangement with the Trust for Cultural Resources that enables cultural organizations like MOMA to generate revenue by spinning off part of their property for private development, which remains exempt from the property tax. Although the trust’s board of directors includes the city’s Deputy Mayor for Economic Development and the head of the city’s Economic Development Corporation, Museum Tower shows up on the tax roll for the first time since it was built in 1985 with a taxable assessed value of $79.6 million for 2014.

There are many other examples as well such as Interchurch Center, which is part of Riverside Church; 3040 Broadway, owned by Columbia University; and the Church of the Heavenly Rest, which has been at 90th Street and Fifth Avenue and fully tax exempt for more than 80 years.

When the Mayor’s budget office forecasts property tax revenue, it assumes that some of the initial increase on assessments will be rolled back due to challenges by property owners and administrative changes by the finance department. But some of the jump in assessed values for 2014 is driven by these unusual shifts in exemption status, and may augur a larger number of properties than usual with assessment changes before tax bills are sent in June. Right now, these six buildings alone account for about $70 million in potential property tax revenue, which is about 8 percent of the anticipated growth in property tax collections next year.

Perhaps the appearance of some buildings on the roll of taxable properties could be explained by an effort initiated by the finance department last year to ensure that only eligible properties are getting tax exemptions. This effort requires owners to file annual applications for the exemption. But the failure to submit the necessary paperwork doesn’t explain why schools and parks department sites are also showing up on the assessment roll as taxable properties. Don’t think, though, that the glitches are limited to those showing higher assessments. The sale of buildings owned by the Jehovah’s Witnesses in Brooklyn Heights received a fair amount of press attention over the past couple of years. For the city, the sales should mean the return of tax-exempt church property to the tax rolls.

Somehow, 161 Columbia Street and 50 Orange Street are still listed in the property records as receiving tax exemptions as houses of worship. Together, the mistaken exemptions for the two buildings are worth more than $420,000 in tax savings for the property owners in the coming fiscal year.