Unequal Assessments?

Breaking news from the tax front: the tentative assessment roll for New York City’s 2006-2007 tax year was posted on the Department of Finance’s (DOF) website on January 15, 2006, and was officially made public at the finance commissioner’s press conference on January 17. The assessments show an overall market value increase of 9.25 percent from May 2005. That increase is smaller than the 14 percent raise seen last year, and reflects slower growth in home sales and increased costs to maintain cooperatives, condominiums, and apartment buildings. But this doesn’t tell the whole story.

First, some background: most Tax Class 2 properties, which includes all residential cooperative and condominiums of four or more units, are valued using the “capitalization of income” approach. The Department of Finance compiles data on income-producing properties and takes their net income, subtracts depreciation and debt service, and then applies a capitalization rate to ascertain full market value. DOF maintains a 45 percent equalization ratio so that, in practice, the full market value is multiplied by 45 percent to come up with an assessed value. In other words, the actual total assessment represents 45 percent of market value. Although co-ops and condos are not income-producing, the city relies on its vast storehouse of compiled income and expense data to impute income and expenses from similar properties in the neighborhood and to generate values for the co-ops and condos.

The publication of the tentative assessment roll brought a surprising and totally unheralded change: the residential properties having between four and ten units were being assessed at 15 percent of market value while all residential property of eleven units or more were assessed at 45 percent of the city’s stated full market value.

The finance commissioner, Martha Stark, claimed that she was simply equalizing the assessed values of this four- to ten-unit segment of Tax Class 2. Without the creation of an entirely new tax class for these smaller residential properties, however, this action might be held to be illegal, inasmuch as current tax law requires that all real property within a tax class must be assessed at a single uniform rate. For the past 20-plus years, in fact, despite much gut evidence to the contrary, the city has maintained this rate at 45 percent.

On February 10, after apparently being further advised by the city’s corporation counsel, DOF mailed letters to about 32,000 buildings setting forth revised assessed values based on the traditional 45 percent market value ratio. The individual assessments for these four- to ten-unit buildings were also revised subject to their legal additional percentage caps (i.e., no increase of more than 8 percent per year nor more than 30 percent over five years). All of these assessment changes were implemented soon thereafter and tax bills beginning July 1 will – for the most part – reflect these latest assessments and not those received in January.

One of the other remarkable features of this role that is also only discerned by looking at individual properties has occurred in Queens. Last year, there were significant increases in the assessments of co-ops, condos, and condops. At that time, there were increases in many co-ops with elevators in the range of 40 to 70 percent. This year, however, many of the assessments of these very same buildings have decreased in the range of 25 to 40 percent. In some of these cases, the assessments are below the values established before the turn of the century, although in most cases, values are below those of the 2002-2003 assessment roll. I cannot comment on these changes, but only report them as being an interesting anomaly to this roll. Such large assessment fluctuations also make it very difficult to accurately project taxes for budgetary purposes.

Eric Weiss is a partner at Tuchman, Katz, Schwartz, Gelles, Korngold & Weiss, a law firm. This information originally appeared in a slightly altered form, in the newsletter of the Action Committee for Reasonable Real Estate Taxes.