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 has not been 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.

As reported in IBO's fiscal brief, The Coop/Condo Abatement and Residential Property Tax Reform in New York City issued last week, $29 million of the $156 million spent on the abatement in fiscal year 1999-nearly one dollar in five-is unnecessary. Of that, $19 million flows to Manhattan coop and condo owners who need 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 favorable tax treatment of class 1 (one-to-three family homes) compared with coops and condos in class 2 (larger multiple unit) residential property. The disparity in tax treatment between class 1 and coops and condos is not nearly as great as initially appears, however, because a provision of state law forces the city to undervalue coops and condos. IBO's brief discusses the significance of this provision, section 581 of property tax law S-7000a, in detail.

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 the benefit created by the undervaluation of coops and condos is much greater and average tax burdens much lower in Manhattan than in the other four boroughs.

The current abatement has not addressed the 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-$1,400 more than it would have been if it were taxed as a single family home. In contrast, because of the distortions caused by undervaluation, a $200,000 apartment near Central Park had a tax bill of $1,490-$240 less than it would have been if it were taxed like a single-family home.
• After the abatement, the tax on the same Brooklyn apartment is reduced to $2,590- $850 more than it would pay in class 1 while the tax bill on the Central Park-area apartment is lowered further, to $1,230-$500 less than it would pay in class 1.

The accompanying table presents IBO's findings on the effect of the current abatement program on coop/condo tax rates, the after-abatement gap in tax rates between apartments and class 1 houses, and the amount of unnecessary abatement.

• The first two columns report the median effective tax rates (ETRs) on coops and condos before and after the abatement. The ETR is a property owner's tax bill as a percentage of the sales-based value of the property. In almost all Manhattan neighborhoods, median ETRs are lower than the median rate citywide, while outside of Manhattan, in all boroughs the median ETR exceeded the citywide median.
• The third column reports the difference between the after-abatement coop/condo ETR with the class 1 ETR. The negative numbers for several areas near Central Park and around Greenwich Village indicate that with the abatement, the median ETR paid by apartment owners in these neighborhoods is less than that paid by owners of 1-, 2-, or 3-family houses.
• The value of unnecessary abatements-those which bring coop/condo ETRs either below or further below the class 1 rate-are reported in the right-hand column. Over 99 percent of these wasted tax expenditures flows to Manhattan, with 82 percent going to the Central Park neighborhoods.

In light of the waste and inequities associated with the current abatement program, IBO finds that: 1) in the near term, the inefficiencies could be mitigated by reducing tax abatements for coops and condos in some Manhattan neighborhoods; and 2) in the long-term, an efficient and equitable solution would require scrapping section 581 of the state law and changing how coop and condo buildings are valued and assessed.

For a copy of the full, 13-page fiscal brief, call IBO at (212) 442-0632 or access IBO's website at www.ibo.nyc.ny.us.