The City Wants to Settle a Major Property Tax Lawsuit, Implement Comprehensive Reform

Tax Equity Now NY LLC v City of New York (2017) may finally see a resolution

At a New York Supreme Court hearing last Friday, Steven Banks, Corporation Counsel for NYC, dropped a bombshell in the nearly decade long litigation over NYC’s property tax system: the City wants to settle.

“We’re prepared to put on the table the proposals from the 2021 Property Tax Commission”

It was a stunning turn in a courtroom fight that has seen three mayors, multiple appeals, and even a stop at New York State’s highest court, the Court of Appeals.

An attorney for the plaintiffs, Tax Equity Now NY LLC, said he “was impressed with what [the City] put forward” but was clearly caught by surprise. He added it was “monumental enough and outside of anything I’ve discussed with my client.”

The details provided by Steven Banks on behalf of the City were taken from the 2021 report by the New York City Advisory Commission on Property Tax Reform, a commission formed in 2018 by then Mayor De Blasio and Council Speaker Johnson.

The recommendations of the report, as highlighted by Banks, are

• Combine small residential (10 or fewer units), condos and coops into a new tax class

• Assess the new class based on sales data, not income capitalization

• Getting rid of partial assessments

• Remove assessment growth caps, phase in changes over 5 years instead

Though not explicitly mentioned by Banks as being on the table for mediation, other recommendations included

• A partial homestead exemption

• Circuit breakers for low income property owners

• Replacing the class share assessment caps with sales ratio studies every five years to recalibrate

Valuing coops/condos based on sales data and removing assessment growth caps are by the far the most consequential of the recommendations. The former could solve the problem of rentals, especially stabilized rentals, subsidizing the low taxes on condos and coops. The latter would equalize taxation of similarly valued properties across neighborhoods, ending the tax rate disparity between Park Slope brownstones and Canarsie rowhomes.

Throughout the hearing, Banks emphasized that any relief the court could grant to TENNY would be piecemeal. The Judge supervised mediation he sought would “open a pathway for comprehensive tax reform rather than leaving piecemeal reform to the courts.”

A win for TENNY in this case, as narrowed by the Court of Appeals, could at most result in a lowering of the Class 1 Assessment Ratio (fixing the Park Slope Brownstone problem) and changes to the valuation methodology for Class 2 properties (potentially fixing the overtaxation of rentals to the benefit of condos and coops).

Those are the most consequential pieces of the Commission’s recommendations, however, so they’d make a fine meal in and of themselves.

The Commission report also leaves out any deeper reforms to large rental buildings, beyond separating their valuations from coop and condos. Within large rentals, there are still disparities that should be addressed, such as the artificial capping of operating expenses for rent-stabilized buildings.

Any mediated settlement between the City and TENNY would not be able to stand on its own. The comprehensive reform the City is proposing would require legislation from the City Council and State Legislature, which the Court itself cannot compel. What’s more, the State has long since been removed as a defendant from this case.

Both Banks and Justice Lebovits repeatedly referred back to the Asylum Seeker / Right to Shelter case that had been resolved through mediation by this very same judge and some of the attorneys present.

There was evident pride in their recounting of their work in that decades long case and a clear wish to repeat that here. From Banks’ telling, the unanimity that the parties achieved through Justice Lebovits’ mediation gave clear direction to the City and State legislatures that, as in this case, needed to pass legislation to enable the reforms.

The tone of attorneys for TENNY was one of surprise and cautious optimism. Their main concern was a mediation process dragging on indefinitely without an agreement up front, or compulsion from the court, to come to a resolution. They asked for a deadline of October 1st for signing a Memorandum of Understanding between the parties with the hope it’d result in draft legislation this November.

Another issue that came up was if the mediation should be conducted in public or in private. Referring back to the success of the Asylum Seeker mediation, which was done privately, there seemed to be a lean by the City and Justice Lebovits to take the private approach here as well. For something as far reaching as comprehensive property tax reform, I’d much rather see this conducted in public.

No decisions were made at this hearing. The parties are going to schedule a follow-up hearing with the court to work out the details of how a mediation would work. In the meantime, Justice Lebovits welcomed amici curiae from any and all interested parties on this issue.