New York City's Unfair Property Tax System Faces Court Challenge

Richard Erde, 83, bought his home in Park Slope, Brooklyn, in 1980 for about $140,000. Today it's valued at $6.5 million. But thanks to the city's arcane method of setting property taxes, Erde pays an artificially low $15,000 in taxes annually.

“It’s much less than, for instance, it would be if I lived in the Hamptons,” Erde tells The New York Times.

The owner of a nearby brownstone that's valued at $5.4 million pays an annual property tax bill around $12,000 — about 0.2% of the home’s overall worth. “I don’t think it’s fair,” says Mark Young, 60, who owns the brownstone.

He'll get no argument from the owner of a $780,000 home in the Bronx who pays a yearly tax bill of $7,500 — an effective tax rate almost four times higher than Young's.

Now, a decision from the state’s highest court has made it much more likely that the city will be forced to make changes. The decision allows a lawsuit filed by Tax Equity Now New York to move forward, and the court rejected some of the city’s methods that have forced lower-income homeowners and owners of big apartment buildings pay more relative to the value of their properties.

Officials in New York City follow a familiar formula to determine a tax bill. First, the city estimates a home’s market value. Then, it comes up with an “assessed value,” which is a smaller portion of the overall market value. Finally, it applies a tax rate to the assessed value to calculate how much the owner owes.

But the state sets limits on how quickly assessed values can go up. This benefits people like Erde and Young in neighborhoods like Park Slope, where market values have skyrocketed, because it essentially means their tax bills won’t rise as fast as the market value of their homes.

For co-ops and condos, there's an added wrinkle. A state rule forces the city to value co-op and condo buildings based on the value of neighboring rental buildings. But the city often uses rent-stabilized buildings in those comparisons, which means the condos and co-ops are valued too low, according to the court ruling. The result is that the owners of rental buildings — and the people who pay rent to them — are effectively paying much higher taxes than the owners of co-ops and condos. The court said the city should compare co-ops and condos to market-rate apartments.

Revenue from property taxes is extremely important to New York: The city draws in about $32 billion each year in property tax revenue, according to recent figures, amounting to about 30% of the overall $110 billion budget. However, since tax-lien sales were allowed to expire during the pandemic and office vacancies soared, New Yorkers have fallen behind on their tax bills by an all-time high of $880 million.

"The city’s property tax system has been unfair, particularly for Black and Brown homeowners," says Liz Garcia, a City Hall spokeswoman. “Mayor Adams has been clear that it needs reform.”

Every mayor since David Dinkins in the early 1990s has been clear that the system needs reform. Three decades later, New Yorkers are still waiting.