The Coop & Condo Tax Break Is About to Expire, Renewing the Existing Bill Will Cost the City Millions in Unintended Benefits

Posted by Doug Turetsky, May 17, 2012

With about five weeks to go in the New York State legislative session, there are still some controversial issues to resolve such as the push to increase the minimum wage, the DREAM Act, and pay hikes for legislators. One issue that has received little if any public notice is the impending expiration in June of New York City’s tax break for coop and condo owners.

If Albany doesn’t act to reauthorize the tax abatement, roughly 365,000 New York City coop and condo owners could see their property tax bills jump. But if legislators simply renew the existing bill, they’ll be giving far steeper tax breaks to many coop and condo owners than originally intended and costing the city hundreds of millions of dollars in foregone revenue.

In the early 1990s, many coop and condo owners complained that the city’s property tax system was unfair, burdening apartment owners with higher tax rates than those paid by owners of one- to three-family homes. A special commission to look at problems with the city’s property tax system was appointed by Mayor David Dinkins and Council Speaker Peter Vallone. The commission concurred with the complaints of coop and condo owners and recommended that taxes on homeowner apartments be brought into line with those one- to three-family homeowners. (For more details on the commission and inequities in the property tax system, see IBO’s Twenty-Five Years After S7000: How Property Tax Burdens Have Shifted in New York City.)

Fixing the inequity between apartment owner and homeowner taxes proved difficult under the constraints of the broader property tax system crafted by the state. In 1997, at the behest of the City Council and then-Mayor Rudolph Giuliani, the state Legislature enacted what was supposed to be a temporary fix for coop and condo owners.

But the temporary fix has in effect become permanent, renewed four times—at no small cost to the city treasury. The total cost of the abatement in 2012 is about $445 million in forgone revenue. An estimated $260 million of that is a tax break for coop and condo owners whose tax burdens are actually lower than what they would face if they were simply moved into the homeowner tax class, according to calculations by IBO’s Ana Champeny. And many of these coop and condo owners live in some of the wealthiest neighborhoods in the city, particularly east and west of Central Park and brownstone Brooklyn.

Why do many apartment owners have lower tax burdens than homeowners? Under state law coops and condos are assessed as if they are rental buildings, meaning that in many instances the properties are greatly undervalued—especially in neighborhoods where values have risen dramatically over the years.

The effect of the state’s assessment rule becomes clear when IBO estimates coop and condo building values using actual sales data rather than the assessments the city is required to use. Take the example of 101 Central Park West. The Department of Finance market value is about $630,000 per unit while the average sales price for apartments sold since January 2011 has been $8.4 million. Using our sales-based market value ($5.8 million per unit) for the building, 101 CPW has an effective tax rate for of 63 cents per $100 of market value in 2012. That’s 19 percent less than the city-wide average effective tax rate of 78 cents per $100 of market value for the one- to three-family homes—before applying the coop and condo abatement. With the coop and condo abatement, apartment owners at 101 Central Park West have an effective tax rate of 52 cents per $100 of market value.

As the clock winds down on this year’s legislative session with no bill as yet introduced to make the promised adjustments to what was supposed to be a stopgap measure, it is likely the coop and condo abatement will simply be renewed as it has been before—an outcome with repercussions for the city’s budget. The $260 million in revenue foregone by providing a benefit for some apartment owners that goes beyond the intended level of tax relief is enough to restore some of the most contentious cuts in the Mayor’s budget for 2013 such as reductions in after-school programs, the subsidy to the city’s libraries, and the closing of 20 fire companies.