Recap of Class 1 Tax Calculation

Each year, through DOF assessments and the City budget process, taxes are set on properties in NYC.The abbreviated process is:

1. DOF estimates the market value of every 1-3 family home based on comparable sales. These estimates, while not perfect, are pretty good!

2. DOF then multiplies the market value by their assessment ratio, currently 6%, to get a tentative assessed value

3. That assessed value is then capped at a maximum increase of 6% per year and 20% per five years

4. Then any exemptions, like low-income senior programs, are subtracted from the capped assessment value

5. Finally, the capped and exempted assessment value is multiplied by the tax rate and abatements are subtracted from the final bill. For FY26 the tax rate is 19.843%

[cap(Market Value x Assessment Ratio) - Exemptions] x [Tax Rate] - Abatements

One additional wrinkle is that the tax share per class can’t increase by more than 5% in any given year, so the tax rate is set at a level that keeps the proportion of taxes paid by class fairly constant.

How This Maps Out

Interactive Map Here

The most critical feature of the Class 1 tax calculation is the assessment cap. Market values are what they are and don’t get capped, but the assessed value that tax rate is applied to can’t increase by more than 6% a year.

Areas with high growth see their assessments rise at a much lower rate as a result. The side effect is that every other Class 1 property has to pay higher taxes to offset those caps, since the total amount of taxes paid by Class 1 has to stay proportionate year over year.

This is exactly what we see when we take the tax bill each 1-3 family homeowner pays and divide it by the DOF market value. The average homeowner in Brownstone Brooklyn is paying about 0.3%, or a mill rate of 3 in property tax jargon. Meanwhile, folks in the slower growth neighborhoods of Eastern Queens, Staten Island, and the Bronx are paying $8, $9, or $10 per $1,000 of market value.

This is not good!

No one argues that rowhouses in St. George should pay 3x the rate of brownstones in Park Slope and yet that’s the result we have.

How to Fix It

Mechanically, this is easy. The City’s Department of Finance can simply lower the assessment ratio. Yes, really. No City or State legislation required. It probably doesn’t even need to go through the formal rulemaking process (CAPA).

Lowering the assessment ratio effectively raises or removes the assessment cap in a given year. Here’s a simple illustration of how that works for a single property.

The billable assessment value never goes up by more than 6% per year, but the tax bill quadruples over five years. The Comptroller also published a great report on this effect in 2024.

This works because the State law that caps Class 1 assessments applies only to the assessments. Lowering the assessment ratio while raising the tax rate is entirely permitted, as long as the tax rate stays below 100%.

The practical limit of how low assessment ratios can go is just under 1% due to that 100% cap on tax rates. But that’s plenty to work with!

Here’s what effective tax rates would look like if we lowered the ratio to 1% and raised nominal rates to 72%, keeping total Class 1 tax revenue neutral.

Although this map isn’t as aesthetically pleasing as the above one, it is much much more equitable. Click through the tabs in the map to also see the effects of lowering the ratio by different amounts and hover over the shaded zip codes to see more details.

Interactive Map Here

Why Doesn’t The City Just Do This?

There are some arguments against making a change like this, some may be more persuasive than others. The ones I’m aware of are:

Removing the assessment caps will mean some property owners’ tax bills quadruple overnight!

This is basically true and can be destabilizing for house-rich, cash-poor folks who’ve lived in their homes for decades, but it can be softened by phasing in the assessment ratio reductions. Going to 5% this year, 4% next year, and gradually easing in over the next decade is entirely possible. And besides, the 0.12% tax on this $12 million landmarked limestone along Prospect Park probably should be quadrupled.

This is only a temporary fix and doesn’t solve the underlying problems in the tax code

Yes, this only raises or removes the cap in the year the ratio is changed, but that buys us potentially decades before the inequality gets this bad again. Marginal improvements are still improvements!

Property tax reform is a third rail, it would cost a lot of political capital to do this

These changes would benefit a lot of people somewhat and cost some people a lot. Further, the losers skew progressive democrat while the winners skew conservative. Those are simply tough politics to work with for a progressive mayor, who’d ultimately be responsible for directing the DOF to make this change

The City May Have To Even If They Don’t Want To

There is a long-running lawsuit between Tax Equity Now NY (TENNY) and the City of New York that, among other things, seeks to compel the city to lower Class 1 assessment ratios.

Nassau County was pushed into a settlement doing exactly that, following similar litigation, and is heavily cited by the plaintiffs.

A decision is forthcoming on TENNY’s claims aimed at fixing Class 1 and Class 2 property inequities. My own guess is that those claims survive the City’s motion to dismiss and they proceed to discovery. But summary judgement either in favor of TENNY or the City seems very unlikely after nine years of litigation.

All said, even if the City declines to use its powers to reform property taxes, we may see the courts force it to act within the next few years.

NYC and NYS Comptroller’s Supporting Documentation

Less than two weeks later, we have answers! The City Comptroller’s comment on the budget has a section dedicated to the calculation (scroll down to “The City’s Operating Limit”) and the State Comptroller provided the last 10 years of the City’s official filings. Thank you, Mark Levine and Thomas DiNapoli!

There you have it. The Comptroller estimates $384 million of room to spare in FY27 after excluding $1,955 million of abatements, $4,888 million of debt service and $385 million of uncollectable taxes. This is inclusive of the proposed 9.5% increase in property tax rates.

The debt service exlcusion, judging from the prior year filings, is virtually entirely from GO bonds. The Other Exclusions in the filing correspond to the Uncollectable Levy for Debt Service. Everything squares more or less.

The “less” part is a $40 million downward adjustment “to account for NYS building aid and other components” from the $3,182 million you’d see in the Expense, Revenue, Contract Budget adopted in June 2025 (warning: 800+ pg PDF).

Takeaways

There are a few things that fall out from the mechanics of this calculation

• The City can raise property tax rates by 9.5% and stay within the CTL, albeit barely

• The CTL filing is made shortly after the budget is adopted. The FY26 filing was made in July of 2025.

• The GO bond debt service, minus prepayments from prior years, is fully excluded.

• The prepayment for the subsequent fiscal year is not excluded because it’s not in the adopted budget. It ends up there in the modified budget approved in the following year.

• Because expected prepayments of GO debt to the BSA are not in the filings, the actual usage of the limit often realizes lower than what’s in the filings.

• There are no expected prepayments from FY26 to FY27, so debt service exclusions for FY27 are particularly high, supporting a higher effective property tax limit.

• The uncollectable tax projections are very high for FY27, up $130 million from FY26 and doubled from FY25. There may be a story about property tax collection rates and the suspension of tax lien debt sales?

NYC Constitutional Tax Limit Filings for FY2017 through FY2026

These were obtained via a FOIL request to the NYS Office of the Comptroller. These are the actual filings the City made, typically 1-2 months after the adoption of the budget, to demonstrate compliance with the 2.5% limit on the property tax levy. Enjoy!

New York City Ctl 06302026

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New York City Ctl 06302025

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New York City Ctl 06302024

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New York City Ctl 06302023

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New York City Ctl 06302022

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New York City Ctl 06302021

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New York City Ctl 06302020

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New York City Ctl 06302019

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New York City Ctl 06302018

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New York City Ctl 06302017

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But the conversation is missing something. Most of the reserve drawdown that people are reacting to in the proposed FY20272 budget didn't happen when that budget was written. It happened earlier in a category that most people don't think of as a reserve at all.

The Budget Stabilization Account is a reserve

New York City’s fiscal cushion has several components. The ones that get the most attention are the named reserves: the Revenue Stabilization Fund (the Rainy Day Fund), the Retiree Health Benefits Trust3, the General Reserve, and the Capital Stabilization Reserve. These are explicit, they show up in reserve tables, and they’re what fiscal monitors most often point to when they talk about the city’s buffer against a downturn.

But there’s another component that functions exactly like a reserve even though it isn’t called one: the Budget Stabilization Account, usually referred to as “the roll” or the BSA.

Here’s how it works. New York City is legally required to balance its budget every year. One of the main tools for doing that is prepaying next year’s expenses, primarily debt service4, with this year’s surplus. At the end of a fiscal year, whatever operating surplus the city has generated gets rolled forward as a prepayment into the following year’s budget, helping to balance the books before that year even starts.

The 2022 Comptroller’s report Preparing for the Next Fiscal Storm was explicit about this. It included the BSA in its table of the city’s total fiscal cushion, alongside the named reserves. And for good reason: a large BSA roll means the city enters the new year with a meaningful head start. A small roll means it doesn’t. Functionally, the BSA is a reserve. It just isn’t labeled one.

What the numbers actually show

Extending the analysis from the 2022 Comptroller report we can look at the budgeted and realized reserves from the past 20 years. While that report looks at prospective reserves in the Adopted Budgets, I’ve extended it to include the realized reserves reflected in the Modified Budgets.

The key differences between budgeted and realized are

• the surplus rolled forward to the next year in the BSA

• the amount used of general and capital stabilization reserves

Keep in mind the FY26 budget was adopted last year, so changes discussed now are mainly to reflect the actual revenues and expenses that were realized since July 1st 2025.

A few takeaways from this graph

• Realized reserves peaked at $13.5bln under the FY2022 budget, the last under Bill de Blasio’s mayoralty, capping an $8.9bln increase over the 8 budgets during his tenure

• Realized reserves started falling in FY2023, the first budget under Adams, and have dropped to $6.5bln, a $7bln decrease over the budgets during his tenure

The reasons to look at the realized reserves instead of the budgeted reserves are

• Removes the impact of the Adopted budgets over- or under-estimating5 the revenues and expenditures

• Includes the roll-forward of surpluses via the BSA

• Reflects the long-standing practice to spend down in-year reserves (General and Capital Stabilization) to near 0

We can further break-down the realized reserves to see which funds have been tapped for that $7bln decrease

It’s not difficult to see where the changes have come from: reductions in amounts rolled forward in the Budget Stabilization Account and, for FY2026, a drawdown of the RSF in order to balance the realized budget.

The reasons for the collapse in reserves are beyond the scope of this, but it’s easy to tell a story about “underbudgeting of key services like shelter, special education, rental assistance, and overtime.” The Comptroller did exactly that in August 2025 when they warned of a $4.2bln gap in the FY26 budget. That gap is what is now being covered by the $3.5bln drop in the BSA roll and a $980mln draw from the Rainy Day Fund.

Looking forward to FY2027

We are where we are and there’s no use in blaming the authors of the current budget for a years long practice of drawing down the City’s reserves.

Switching our view from realized to budgeted reserves, including this year’s proposed budget, we see:

Some things to note here

• The BSA drops off simply because we’ve already used it all, there’s essentially no surplus to roll forward

• The General and Capital reserves start at only $100 million. That leaves little room for the now typical overages

• The RHBT is reduced by $229 million. That level of fluctuation is not unusual, but seeing it baked into the proposed budget is

The preliminary budget hearings have only just begun, so we’re likely to hear much more about this in the coming months before the budget is finalized.

The alarm may be warranted. It's just about four budgets late.

Data Addendum

A combination of sources was used for compiling the reserves, primarily

• The 2022 Comptroller report Preparing for the Next Fiscal Storm

• Office of the Actuary Valuation Reports on the RHBT, to separate the RHBT+RSF data in the above report

• The Comptroller ACFRs for more recent years

• The Financial Plans in the OMB budgets

The RHBT and BSA also aren’t traditionally budgeted in the same way as other reserves. I held the budgeted vs actual RHBT as the same each year and used the prior year’s actual BSA to say what the current year’s budgeted BSA is, essentially saying they hold the roll constant. For transparency, here are the actual numbers I used.

Budgeted Reserve Figures

FY,RHBT,RSF,BSA,Other,Capital Stabilization,General Reserve,Total Budgeted,Change
2003,0,0,,0,0,200,200,
2004,0,0,1417,0,0,300,1717,
2005,0,0,1923,0,0,300,2223,506
2006,1001,0,3529,200,0,300,5030,2807
2007,2594,0,3751,414,0,300,7059,2029
2008,2726,0,4665,675,0,300,8366,1307
2009,2878,0,4635,2726,0,300,10539,2173
2010,3023,0,2914,0,0,300,6237,-4302
2011,2632,0,3646,0,0,437,6715,478
2012,2116,0,3742,0,0,300,6158,-557
2013,1363,0,2462,38,0,300,4163,-1995
2014,2378,0,2807,99,0,450,5734,1571
2015,3397,0,2006,103,0,750,6256,521
2016,4036,0,3601,0,500,1000,9137,2882
2017,4654,0,4038,0,500,1000,10192,1055
2018,4766,0,4180,0,250,1200,10396,204
2019,4680,0,4576,0,250,1125,10631,235
2020,3800,0,4221,0,250,1150,9421,-1209
2021,4221,493,3819,0,0,100,8633,-789
2022,5376,499,6107,0,0,300,12282,3649
2023,5318,1954,6114,0,250,1555,15191,2909
2024,5038,1959,5479,0,250,1200,13926,-1265
2025,5225,1964,4397,0,250,1200,13036,-890
2026,5225,1969,3787,0,250,1200,12431,-605
2027,4996,989,238,0,0,100,6323,-6108

Realized Reserve Figures

FY,RHBT,RSF,BSA,Other,Capital Stabilization,General Reserve,Total Realized,Change
2003,0,0,1417,0,0,40,1457,
2004,0,0,1923,0,0,40,1963,
2005,0,0,3529,0,0,40,3569,1606
2006,1001,0,3751,200,0,40,4992,1423
2007,2594,0,4665,414,0,40,7713,2721
2008,2726,0,4635,675,0,40,8076,363
2009,2878,0,2914,2726,0,40,8558,482
2010,3023,0,3646,0,0,0,6669,-1889
2011,2632,0,3742,0,0,40,6414,-255
2012,2116,0,2462,0,0,40,4618,-1796
2013,1363,0,2807,38,0,40,4248,-370
2014,2378,0,2006,99,0,40,4523,275
2015,3397,0,3601,103,0,20,7121,2597
2016,4036,0,4038,0,0,20,8094,974
2017,4654,0,4180,0,0,20,8854,760
2018,4766,0,4576,0,0,20,9362,508
2019,4680,0,4221,0,0,20,8921,-441
2020,3800,493,3819,0,0,20,8133,-788
2021,4221,499,6107,0,0,20,10846,2713
2022,5376,1954,6114,0,0,20,13464,2618
2023,5318,1959,5479,,0,20,12776,-688
2024,5038,1964,4397,,0,20,11419,-1357
2025,5225,1969,3787,,0,20,11001,-418
2026,5225,989,238,,0,50,6502,-4499

This post is about the “Property tax surcharge on high value homes” and the implementation challenges it would face.

tl;dr - The proposal inadvertently taxes all co-op buildings valued over $5 million, representing over 80% of co-op apartments. Condos/co-ops are also systematically undervalued, exposing how the city's valuation system makes this kind of proposal extremely difficult to implement fairly

The circulated proposal is rather bare bones, so we’ll have to fill in a few of the details on how it works. If these assumptions are wrong, the analysis that follows may also be wrong.

What Is The 1% Property Tax Surcharge?

Well, we know or can reasonably assert a few things about it.

• It applies to Class 1 (1-3 family homes) and Class 2 (co-op, condo, rental) residential properties

• Per the article, it only applies to “homes,” meaning owner-occupied, and not rental buildings

• The “market value” is the valuation produced by the Dept. of Finance for Property Tax Calculations

• The $725m estimate is of annual revenue from the tax

So far so good. Some other assumptions, which require a little more of a leap, are

• The 1% tax is additive to existing taxes, not a 1% relative increase to them

• The 1% only applies to the market value in excess of $5m. A property’s taxes should not increase by $50,000 if it goes from a $4.999m to $5m

Easy enough. The DOF Property Valuations are readily available from Open Data and every parcel has a classification code that tells us if it’s a co-op, condo, home or rental building.

Does It Math?

Yeah, basically. Following these steps, you should be able to get similar numbers. I used FY 26 final assessment rolls but you’d get similar results with the FY 2027 tentative assessments.

Filters

• Class 1 and Class 2 residential only

• Building codes that correspond to 1-3 family homes (all As, Bs and C0)

• Co-op apartment buildings (C6, C8, CC, D0, D4, DC and R9)

• Condo units (R1 through R8)

• Market Value >= $5m

• Taxable (as in the exemptions are not 100% of the value)

The results looking exclusively at $5m+ homes are

Ok, so $771m total revenue. Not wildly off from their $725m estimate. I may be including some building codes that they are not and maybe they’re reserving a bit for actual collection rates. Seems like a pretty plausible number if I’ve understood their proposal correctly.

So What’s The Problem?

The issues here aren't really with the proposal's intent, but rather stem from longstanding quirks in how NYC assesses property.

• Condos are only generating $3m of revenue across 144 units in 85 buildings. That’s just not very much.

• Co-ops, however, generate over 70% of the revenue ($556m). Getting stranger …

• The average in-scope co-op unit is $188 / square foot and valued at $222k. That’s a lot less than $5m!

The results don’t really make much sense, until you understand a couple things about DOF Property Valuations.

• Condos and Co-ops are valued at a fraction of their true market value due to the DOF valuing them as though they were rentals. Mostly rent-stabilized rentals to boot

• Condos are valued at the unit level. Typically the DOF values the whole building first and then allocates to units based on their square footage, but importantly each unit gets its own valuation and tax bill

• Co-ops are valued and taxed at the building level. There are no unit level values. Taxes are passed-through from the building to the share-holders, but ultimately there’s just one tax bill for the whole building

Here’s the entire universe of condos/coops/homes to put this into context. Note the implausibly low values for condos and co-ops of $347 and $185 per square foot.

All this together explains why co-ops have such a large share and condos have such a low share: this tax applies to all co-op buildings over $5m but only condo units and 1-3 family homes that are over $5m. Those are very different!

Half the co-op buildings representing 80% of co-op units would be subjected to this tax. Suffice it to say, far less than 80% of co-op apartments are truly worth more than $5 million dollars.

You Obviously Did It Wrong

Well, maybe? But I don’t see another plausible reading that makes this proposal math. If you think of a better interpretation, please please please let me know and I can update this.

There are very few co-op units that DOF could plausibly value over $5m for the same reason there are so few condos over $5m: their methodology undervalues them by ~2x-4x their true market value.

A co-op or condo the city values at $5m is probably worth $10m, $20m or even more. There just aren’t that many apartments that sell for 8-figures. What’s more, the DOF has no ability to value individual co-op units. The data and methods simply aren’t there.

If the city completely overhauled its valuations of co-ops and condos, I could see this working. But that’s a big lift and probably not what the proposal contemplates.

This Is Silly, Why Would The Mayor Want To Increase Taxes On 80% Of Co-op Apartments?

I seriously doubt he does. My best guess is whoever prepared the revenue estimate was not aware of the landmines lurking in NYS Real Property Tax law. It’s easy to miss that co-ops are taxed at the building level and that both condos and co-ops are systematically undervalued.

In their defense, this is in the category of “Other revenue proposals supported by the City.” It is not in their top priorities and I think it has little chance of going anywhere.

However, it is still concerning to see such a glaring issue with one of the Mayor’s property tax proposals. The 9.5% proposed increase is also challenging and possibly capped by the Constitutional Tax Limit. These issues highlight how difficult it is to tweak the current system without a overhaul to the underlying structure.

Conclusion

Property Taxes in NYC are super complicated. I wrote 3,000 words about it and that was only scratching the surface. I didn’t even cover the unit vs building level assessments for condos and co-ops.

There are a lot of ways that our property tax system can be made more equitable and raise more money from taxing the wealthiest. Some of them can be done quickly by the City itself, but true and lasting reform may require a refactoring of the system.

The simplified formula for Property Taxes is

(Market Value * Assessment Ratio - Exemptions) * (Tax Rate) - Abatements

… but the actual calculation is anything but simple.

Some Takeaways

The rest of the post fleshes out the details, but if you want to skip to the end

• The NYC Department of Finance (DOF) is responsible for Property Valuations and Assessments

• Total Valuations limit the amount of Property Taxes the City can levy for its Operating Expenses under the State Constitution. The City is VERY close to the Property Tax limit and it is unclear how much they can be raised

• State law constrains how the DOF can fulfill its role, but the DOF has far more power than you might think

• The DOF can, in effect, raise or lower Assessment Caps on 1-3 family homes taxes by lowering or raising their Assessment Ratio. This can ameliorate or exacerbate the tax inequity between neighborhoods that have appreciated rapidly (Park Slope) and those that haven’t (Canarsie)

• The DOF is not required to, and arguably forbidden from, valuing older Co-ops as though they are rent-stabilized buildings. However, that is what they do which means the most desirable pre-war co-ops pay similar taxes per square foot as pre-1974 stabilized rentals

• Valuations within a Class mostly do NOT affect the overall Property Taxes of that class since tax rates are set to hold the Class share of taxes constant. Low absolute values for Condos don’t matter in and of themselves, but their low value relative value to rental buildings shifts the tax burden onto renters.

• Active litigation (TENNY v City of New York) has the potential to compel the City to change Class 1 and 2 Assessments to reduce these inequalities

A subsequent post will demonstrate how this works as applied using property level tax data, but I have to get a lot of words out of the way first. Sorry!

Property Classes

There’s more history here than we need, so we’ll start somewhere in the middle. For tax purposes, there are four classes of property in NYC as defined by NYS RPT Article 18. Nassau County, another Special Assessing Unit, also uses this system while the rest of the state follows a different system.

*2a, 2b and 2c are sub-classes of Class 2 with special Valuation Methods and Assessment Caps. They do not have independent Assessment Ratios, Class Shares or Tax Rates
https://www.nyc.gov/assets/omb/downloads/pdf/tax/methodology-2025-10.pdf

Every property is assigned to a Class and that forms the basis for the subsequent calculations.

Market Value

Given these classifications, the DOF estimates the Market Value for over 1 million parcels in NYC.

The valuation method they use depends on the class, shown in the table above. These methods aren’t codified in statute, but are generally accepted per State guidance and NY Court holdings.

Sales Comps - Just what it sounds like. The DOF looks at sales prices of comparable properties to estimate market value. Corresponds closely to a true market value. This is the preferred method for Class 1 and what NYC uses.

Income Capitalization - For rental buildings, DOF estimates Net Operating Income (NOI) from buildings’ annual Real Property Income and Expense (RPIE) filings and divides by a Capitalization Rate (Cap Rate).

Market Value = NOI / Cap Rate

The higher the Cap Rate, the lower the Market Value. Here’s an example

The DOF estimates NOI as $974,680 and divides that by a 13.068% Cap Rate to get a $7,459,000 Market Value.

If you are familiar with typical real estate Cap Rates, that number will sound far too high. This is because the DOF excludes tax expenses in calculating NOI and then uses an add-on to the Cap Rate to account for it

That’s not the normal way finance folks do it, but in New York we like to use our own definitions (see also: New York Supreme Courts and the NYC Administrative Code)

The Base Cap Rates shown here are a little more apples-to-apples with what real estate investors would expect

Arguably the DOF could switch to a Sales approach for rentals, but this would be somewhat unusual and subject to challenge (Merrick v Board of Assessors 1978 affirms income capitalization as the standard method for rental property but doesn’t foreclose a sales approach where reliable data exists). Practically, there is also far less sales data for rental buildings which would make this challenging.

So far so good. Where this gets strange and highly controversial is how this applies to co-ops and condos.

The DOF uses “comparable” rental building data for their valuations as they don’t typically have rental income. Why would they use rental income at all? Because NYS RPTL Section 581 says co-ops and condos have to be valued no higher than as if they were rentals.

Within these bounds, it is mostly up to the DOF to select which rentals are used for the comparison. They provide the comparables they use for each Co-op and Condo building here

It is not hard to find absurd comps. In fact most of the rental buildings used are Rent Stabilized which artificially depresses the valuation of co-ops and condos. As noted by the Court of Appeals in TENNY

The assessment methodology for these properties is undisputed: “[a]s a matter of [DOF] policy, all cooperative and condominium units constructed before 1974—a category that includes 98% of cooperative apartments in the City—are valued under the income approach by comparison to rental properties that were built before 1974” and, “[b]ecause of the City’s rent stabilization laws, this effectively means that older cooperatives and condominiums are compared to buildings whose income is suppressed by rent stabilization, even though those cooperative and condominium units do not and could not qualify for rent stabilization and are, in fact, sold (and rented) at much higher market values.

Here is a full-service Prospect Heights Coop with sales prices around $1000 / sqft. It is valued as though it were a rent stabilized building worth $156/sqft, charging $2,000 a month for a 2 bedroom apartment. Seriously.

The DOF has interpreted 581 as essentially requiring the use of rent regulated buildings for older co-ops and condos, however the Court of Appeals has indicated otherwise in TENNY v City of New York 2024 (discussed further below).

Nothing in the plain text of RPTL 581 requires municipalities to assess a luxury condominium or cooperative as if it were a regulated apartment where the properties differ in meaningful ways. Instead, the RPTL requires municipalities to treat condominiums and cooperatives like other similarly situated rentals. Therefore, to the extent that condominium and cooperative properties would not be subject to rent stabilization if they were not held in ownership, the proper comparable is a non-rent-regulated unit.

It is not clear how comprehensive the RPIE filings are for Market Rate rentals, however they are generally required for larger buildings so they are likely available.

Gross Income Multiplier - DOF estimates the gross income per square foot of comparable rentals and multiplies it by a factor to estimate market value. This is essentially the income capitalization method by another name. The key distinction is small buildings don’t have to file RPIEs so it’s a little more hand-wavey.

Replacement Cost - Technically the Reproduction Cost New Less Depreciation method. This is an estimate of the cost to rebuild the property. It is used for Class 3 (Utilities) and is calculated either by the NYS Office of Real Property Tax Services (ORPTS) or the NYC DOF depending on the type.

Here is how it all adds up

You might be wondering if every Coop, Condo and Rental in the city combined is really only worth $395bln. Probably not, but it underscores just how much using rent-stabilized comps for co-ops and condos lowers their valuation.

Assessment Ratio

After estimating a Market Value, the DOF applies an Assessment Ratio that State law requires is uniform for a given class. The Assessment Ratios are set administratively by the DOF pursuant to their powers under Section 1505 of the NYC Charter. Huh?

Yup, the DOF can simply change the class Assessment Ratios to anything between 0% 100%. This matters, but slightly less than you might think due to Assessment Caps Class tax share constraints detailed below.

The DOF has in fact done this several times since the passage of S.7000-A in 1981, the foundation of the current property tax system in NY. Class 1 began at 18% in 1983, was lowered to 8% in 1991, and finally to 6% in 2006 where it stands today. Class 2 and 4 began at 60% and were lowered to 45% in 1985. (sources disagree slightly on the exact years, perhaps due to calendar year vs fiscal year confusion. I went with the timeline from this 2006 IBO report)

Assessment Caps and Phase-Ins

Unlike the Assessment Ratio, these are not at the discretion of the DOF. The caps, which apply to Class 1 and Class 2a/b/c properties, set maximum annual and quinquennial increases in Billable Assessment Values. 6% per year and 20% every 5 years for Class 1 and 8%/30% for Class 2a/b/c. These caps are lifted when properties undergo substantial renovations, typically upon their completion and work sign-off by the DOB.

Classes 2, 3 and 4 have no Assessment Caps. Class 2 and 4 have 5 year phase-ins for Billable Assessment Value increases, but there is no hard limit, while Class 3 has no phase-in at all.

Take a Class 1 property that has a Market Value of $500,000 and a Billable Assessment Value of $30,000. Its Billable AV could increase by no more than 6% * $30,000 = $1,800 in the following year, even if the MV doubled to $1,000,000.

What happens to the caps if the DOF lowers the Assessment Ratio for Class 1? The cap, in terms of the actual tax bill, is effectively reduced or eliminated for that year. The extra piece that makes this work is the City is required to raise Class level Tax Rates to offset the lowering of Assessment Rates for reasons detailed later on.

Despite the 20% cap on 5 year assessment increases, somehow its tax bill quadrupled over the same period. Fun!

But don’t just take my word for it. The NYC Comptroller examined this in 2024 and concluded the same.

To emphasize, this is not a secret or me being especially clever. It is a key part of how the system works.

Exemptions and Abatements

These are largely governed by State law and are analogous to tax deductions (exemptions) and tax credits (abatements).

Exemptions reduce the Billable Assessment Value. Examples include the 100% exemption for Public Authorities like NYCHA, the 50% reduction for low income seniors and the controversial, now-expired 421-a program. The post-exemption value is referred to as the Taxable Value.

Abatements reduce the tax owed after multiplying the Taxable Value by the Property Class Tax Rate. Examples include the Co-op/Condo Abatement and the J-51 program (which has both an Abatement and Exemption component to make things even more confusing)

You can find these all on the quarterly property tax bills issued by the DOF:

Class Share Caps

Another creature of State law, Class Share Caps limit how much the tax share of any one Property Class can change year to year. The maximum is 5% and State legislation can lower that to below 5% for NYC, as it has many many many times.

The 5% is relative to a Class’s current share of the overall levies, which are calculated after Exemptions are applied but before Abatements.

The Mayor’s Office of Management and Budget estimated that as 14.866% for Class 1 in 2026. That means its share can’t increase to more than 14.866% * 1.05 = 15.609% for 2027. This strictly limits how much the City can shift taxes between Property Classes in any one year.

Tax Rate

The Tax Rates are set annually at the Property Class level by the City Council, but their discretion is extremely limited. Due to DOF’s power over Assessments and the State limits on changes in Class Shares, the setting of tax rates is mostly formulaic.

The Council simply sets the rates at levels that preserve the relative Class Shares and, when multiplied by the Taxable Assessment Values, produces enough revenue to fund the Budget after accounting for non property tax revenues. If the budget is under-funded by other revenue sources, it is accounted for by an across the board increase in Tax Rates.

Assessment Reductions

There is also a process for property owners to appeal to the DOF to reduce their Assessments, which I will not detail here but am listing for completeness.

Constitutional Tax Limit

This is where it gets weird(er). Article VIII Section 10 of the NYS Constitution places a limit on the amount NYC can tax real estate. In substance, NYC cannot levy more than 2.5% of the five-year trailing average of the full valuation of taxable properties for Operating Expenses. The actual calculation of “full valuation” is slightly more complicated as detailed in the 2024 NYC Comptroller report, but it is practically as described above.

Property taxes for debt service on long-term bonds issued for capital purposes are not subject to the 2.5% limit. That’s likely the bulk of the 2.6bln number in the below State Comptroller report

The 2.6bln number is somewhat opaque as the detailed filings are not public. It appears to be the “Funded Debt Outside Constitutional Limit” in the Comptroller’s Annual Comprehensive Financial Report

combined with the required transfers to the General Debt Service Fund for levies in excess of what was needed for that year

That still falls a little short of $2.6b of the exclusions in the State Comptroller report. The remaining difference may be from PAYGO financing exclusions authorized under Article VIII Section 11, which aren’t separately reported, or simply errors on my part. The general concept of the Constitutional Tax Limit [CTL] is straight-forward but its calculation is anything but.

A further wrinkle is that the “full valuation” essentially follows from the DOF’s practice of systematically undervaluing Condos and Co-ops as noted above. One scenario in the 2024 Comptroller report estimated the effect as $350bln for FY 2024. Though its focus was the debt limit (a separate 10% limit on indebtedness), the same “full valuation” is used for the 2.5% tax levy limit. That would have raised the cap by $8.75bln, providing plenty of room for increases.

Notably, NYC is quite close to this limit (95.58% in 2025) which may limit how much property tax rates may be raised. Nominally the debt service on NYC’s General Obligation bonds is a little over $4.4 billion for FY 2027, however that full amount can’t necessarily be excluded.

Large prepayments of future debt service in prior years limit how much of that $4.4 billion will actually be paid out of that year’s revenues. These prepayments have been steadily decilining though and current projections put them at just $238 million across all bond types.

That may leave just enough room for a potential 9.5% / $3.7bln increase in Property Taxes while maintaining a minimal buffer.

What happens if we go over?

When the CTL is exceeded, the State Comptroller is required to withhold State Aid payments by the amount of the excess.

Yikes!

Limits on intra-class Inequity

Two parts of the State RPTL have increasingly come into conflict: the Class 1 Assessment Caps under RPTL 1805 and the uniform assessment requirement of RPTL 305. If some properties appreciate much faster than the Assessment Caps they will necessarily be taxed at a lower rate than slower appreciating properties.

Some decades ago, Coleman v County of Nassau tested this apparent conflict, albeit in a roundabout way we’ll gloss over. As summarized by a later decision, a class of property owners

contended that because market values for houses in affluent areas had increased sharply while market values had remained stagnant or declined in low-income areas, poor and minority homeowners were shouldering a disproportionate and discriminatory share of the countywide property tax burden

The County ultimately settled and, in a State-Court-approved consent decree, agreed to

“update and modernize [its] assessment rolls for residential properties,” and to “adopt a revaluation system and tax assessment roll to that end that [was] fair, nondiscriminatory, scientific and equitable”

To comply with the consent decree

the County’s only option was to lower the fractional assessment percentage for class one property

Nassau did exactly that and some property owners who lost their caps sued. The County’s lowering of Assessment Ratios was ultimately upheld in a 2007 Court of Appeals decision, O’Shea v Board of Assessors that weighs heavily on current litigation between Tax Equity Now New York LLC (TENNY) and the City of New York.

That case began in 2017, against both the City and the State, and is still proceeding in New York County Supreme Court, after a detour to the Court of Appeals. Building on O’Shea, the Court of Appeals in a 4-3 decision allowed the TENNY case to proceed against the City while allowing the State to be dismissed. The procedural details are complicated, but ultimately they are seeking for the City to reduce intra-class inequality within Class 1 (as in Nassau) and Class 2, which is somewhat novel.

TENNY is currently seeking summary judgement that the City is violating RPTL 305(2) as applied to Class 1 and Class 2 properties. Oral Arguments were held in October 2025 and a decision is pending

Reading the tea leaves a little, it seems unlikely the Judge will immediately require the City to lower Class 1 Assessment Ratios and change the Class 2 valuation methodology for co-ops and condos. However, that is ultimately the direction this appears to be headed, in my opinion. Whether it gets there via several more years of litigation, voluntary changes by the City, or State level reforms remains to be seen.

Who wants to create a Polymarket for this?