HOW TO FIX NYC’S UNFAIR PROPERTY TAX

THERE is good reason to conclude, as the state Court of Appeals did Tuesday, that New York City’s property-tax system leads to disproportionately high tax bills for minority homeowners. But those high taxes aren’t the result of discrimination; they’re just one example of a dysfunctional tax-assessment system that burdens homeowners and discourages new housing construction — which both progressive city Comptroller Brad Lander and Republican City Councilman Joe Borelli, strange bedfellows indeed, agree needs topto-bottom revision. At stake is how to tax the city’s $1.3 trillion worth of real estate on 1.1 million parcels.

The court did not rule on the system itself but, rather, found that Tax Equity New York’s litigation could proceed in the lower court. But it should be the occasion for the city to act pre-emptively to reform the system. There’s already a good playbook for how to proceed: In the waning days of the de Blasio administration, a City University of New York-led Advisory Commission on Property Tax Reform issued a report that urgently needs to be revisited — both for its diagnosis of the system’s distortions and the fixes it recommended.

Unjust distortions are replete in the system, which the commission described as “opaque, arcane, inequitable.” Staten Island homeowners face higher assessed values than those in gentrifying parts of brownstone Brooklyn — because tax bills don’t reflect actual current market values, which should be the foundation of all propertytax bills. Inexplicably, condos are valued as if they’re rental properties. Small rental buildings in The Bronx are valued more highly than those in Brooklyn. Median assessed home values in Manhattan are lower than those in the outer boroughs — with Staten Island hit hardest. Single-family homes overall face a higher effective tax rate than Park Avenue condos.

Crucially, new multi-family development is discouraged — absent special tax breaks — because it’s taxed at the highest level in a complex system of real-estate classes. That’s why there’s constant jockeying for multi-year tax breaks for new buildings (such as the lapsed state 421-a law) or renovations (J-51). No one should be surprised housing construction fails to keep up with demand; the tax code discourages it. Special tax breaks may lead to new building — but come with political strings attached regarding tenants’ income levels and discourage all but a handful of sophisticated and connected players.

Key recommendations of the commission — which deliberated for 3½ years, only to have Bill de Blasio dump its report in his tenure’s waning hours — are so commonsensical, it’s hard to believe they aren’t already practiced. It suggests, for instance, one- to three-family homes, co-ops and condos be taxed similarly, on “sales-based market value.” This is how it works in most of the country.

It recommends the end of “assessed value growth caps,” which have helped minimize tax bills in neighborhoods where values are rising, creating “inequities” by shifting the tax burden to lower-income neighborhoods with historically higher property valuations. That’s the core argument of the litigation in play.

The commission also understood the COVID pandemic would have a far-reaching effect on property valuations. Commercial real estate has always been asked — as one of four property classes — to carry a disproportionate share of the tax burden. That was fine before work-from-home depressed the office real-estate market and Wall Street giants found out they could move elsewhere. Property values of these buildings — like those of all real estate — have to reflect market values. Duh.

If courts do force Gotham to thoroughly revise its makeshift property-tax system, the city in tandem with the state (on such issues as the property-class-system rules) should avoid at least one third rail: raising taxes.

It will be tempting to soak the Park Slope rich to buffer the Mount Eden poor — but with polls showing a majority of residents are ready to bolt the Big Apple over quality-of-life concerns, it’s the worst moment to raise taxes. It’s time to lower taxes for the over-assessed and hold them steady or even lower them for those whose tax bills have risen less.

That, of course, means the city would have to start living within its means, focusing on delivering basic services — public safety, clean streets and parks, effective schools — at a reasonable cost. Were that to happen, New Yorkers might not mind paying reasonable property taxes.