Opaque valuations hamper efforts to improve NYC property tax

Of the many failed attempts to overhaul New York City’s unfair property taxes, Sam Stern’s comparatively small-scale campaign on behalf of Williamsburg’s ultra-Orthodox Jewish community may offer the most pointed illustration of why the task is so difficult.

Stern, a Hasidic community activist, set out in 2014 to discover why his neighbors were taxed at higher effective rates than people at pricier addresses. He learned that city officials were setting taxable values for the community’s plain, low-rise condo buildings by comparing them with much more valuable luxury properties. Stern persuaded the city finance department to choose more-relevant comparisons.

Then something bizarre happened. His neighbors’ tax bills increased, Stern said. Years later, he said the city has yet to provide a full explanation. A spokesman for New York’s Department of Finance said city officials were aware of Stern’s concerns, which were highlighted in a 2018 report published by the United Jewish Organizations of Williamsburg and North Brooklyn. The department didn’t respond to specific questions about that report for this article.

Bess Adler/Bloomberg

The tax increases that the UJO described reflect a citywide pattern of inaccurate valuations. For condos alone, faulty methods shift nearly $300 million in annual property taxes from the top 10%, by value, to the remaining 90%, according to a recent study. A Bloomberg News investigation this year found that city assessors are, in effect, making up the numbers they use to value condos — and the numbers they come up with shift the city’s tax burden from its wealthiest condo-owners to working- and middle-class residents.

Any serious effort to improve the system would make the burden more even, reducing taxes for some while increasing them for the political donor class, and that could present a significant challenge.

“It’s never a politically good time to do tax reform,” says Stephen Levin, an outgoing city councilman whose district includes Stern’s neighborhood. But he agrees that property taxes are “incredibly unequal.”

“I have constituents that are in Brooklyn Heights and Boerum Hill, downtown Brooklyn, who live in brownstones that sell for $3 million, $4 million, and pay $8,000, $9,000, $10,000 a year in property taxes,” Levin said. “Then I have people living in condominiums that are valued at $300,000 paying $20,000 in property tax.”

Mayor-Elect Eric Adams is the latest politician to pledge improvements, though he hasn’t yet announced a plan. Adams has said he supports a group of civil rights organizations, community activists and high-end developers called Tax Equity Now New York that has sued the city and state to try to force changes in assessments. After losing in a lower court, the plaintiffs have asked New York state’s highest court, the Court of Appeals, to hear the case. A decision is pending.

Evan Thies, a spokesman for Adams, was apparently referring to that case during an interview earlier this month when he said, “If the final product out of this court process is not sufficient, he will take steps to further reform” property taxes.

Nationwide studies and Bloomberg’s reporting show that residential property taxes, which will raise $500 billion this year, are beset with systemic unfairness: Officials tend to overvalue low-priced properties while undervaluing high-priced ones. One study found the same pattern in more than 70% of U.S. counties. While some local officials acknowledge the problems, improvements have been difficult to achieve.

Many of New York City’s flaws are unique. They begin with an odd state law that has led officials to create hypothetical income estimates for condos and coop units — even though such residences typically don’t generate any income. In most other U.S. cities, property assessors value condos by measuring them against recent sales prices of similar units.

New York’s issues are compounded by the opaque calculations that city officials use to produce their estimates; they use data from so-called comparable properties but then adjust the numbers in ways that defy market reality. One comparable might be used to value 20 buildings or more — with wildly different income values for each comparison, Bloomberg’s investigation found.

Since 1993, at least three citywide commissions or task forces have investigated ways to improve the system, but their efforts have thus far achieved only modest results, if any. Now, Adams has said he wants changes. “We must have a fairer system, and I believe it should be done immediately,” Adams told Bloomberg Television on Oct. 29, two weeks after Bloomberg published its investigative report. “It is my desire to get this resolved within the first year.”

Then he added: “Let’s put together a task force that sits down and comes up with real recommendations and solutions.”

Actually, there’s already a task force in place that has been studying the issues for more than three years. On Wednesday, that group, empaneled by Adams’s predecessor, Mayor Bill de Blasio, published a final report. Among other things, it called for changing the way residential properties are categorized and valued — revisions aimed at allowing New York officials to assess all residential properties, including condos and coops, based on their fair market values, not hypothetical revenue streams.

“The report is doing everything but shouting ‘the ship is sinking,’” said Carol O'Cleireacain, a member of the latest task force who previously served as New York’s finance commissioner. “It won’t be fair to property owners, to the general public, if it doesn’t produce as much thought and considered action as has been put into it.”

Thies, the spokesman for Adams, didn’t respond to requests for additional comment.

Making major changes would require state legislation, and it’s unlikely that any would be filed before city officials request it. “It is the city’s tax money,” said state Senator Brian Kavanagh, a Democrat who chairs the Senate Housing Committee. “It would be better if it was done in a way that’s collaborative with the city government.”

While it’s unclear how soon Adams may act, his transition team includes two people who are pushing for change: Martha Stark, a former city finance director who serves as policy director for TENNY, the group that’s suing the city; and Stern, who has worked on tax issues in conjunction with the UJO.

That’s a positive sign for those who want an overhaul. But Stern’s fellow activists, who’ve waited years for meaningful change, remain wary.

“We strongly feel that ending the unfair adjustments is a no-brainer and should be dealt with separately from any larger tax reforms,” said Rabbi David Niederman, executive director of the UJO. “However, it's too early to say if the incoming administration will finally tackle this injustice.”

Stern says he knows all too well that the city’s opaque valuation process is resistant to change. City officials told him they didn’t have to share the “work product” that underpinned the adjustments in their calculations, he said.

“We have no idea, and they’re still not saying what their adjustments are based on,” Stern said.

One simple but profound improvement would be to make the system more transparent and understandable, some officials say.

“It’s sort of like if you gave the IRS a bunch of data about your income and assets and gains, and they said ‘this is the tax bill based on your situation, and we don’t have to show the math,” says Kavanagh, the state senator. “For a lot of people, their tax bill is still a bit of a mystery and that’s a very bad thing in a tax system, because it undermines the integrity of the system and people’s faith that they’re paying their fair share.”

— With assistance from Elaine Chen and Jason Grotto