Class shift may push taxes up.

Without new City Council and legislative intervention, equalization rates determined by the New York State Bureau of Real Property Services (BRPS) that affect the makeup of the city's four property tax classes could cause property tax rates on one- to three-family homes, condominiums, cooperatives and other apartment buildings and utilities to rise up to 5 percent for the 1997 fiscal tax year that begins July 1, 1996. The rise is based on the change in market value of the classes of property.

The Class II properties might only go up 3.9 percent, but may receive overage from the other classes and also go up the full 5 percent. The final result will depend on the advocacy groups lobbying efforts over the next few weeks.

For the commercial properties, the question is how far the taxes will go down. The taxes on the commercial share would go down approximately 8.04 percent, but because the law already requires the classes to be capped at a 5 percent rise, the overage could be placed on both Class II - that would otherwise only go up 3.9 percent - and the commercial Class IV.

While this would bring the Class II's up the full 5 percent, sources say the Class IV tax rate would then only go down 5.2 percent.

Should the legislature intervene, as it did so for fiscal 1993, 1995 and 1996, more of the overage will be placed on the commercial Class IV, and therefore the taxes will go down less or even not at all.

Each 5 percent shift on an approximately 10 percent tax rate causes the amount of tax paid to go up about 50 cents per hundred dollars of assessment, which translates to an enormously large amount of money for some buildings.

Last year, the legislature and City Council agreed to a 2.75 percent cap so that Class IV, scheduled to go down 11.7 percent, instead went down only 2 percent, a change that boosted the tax rate from $10.34 to the current $10.402, even though it was less than the 1995 tax rate of $10.608.

In setting the tax rate, the City Council will also be working within the framework of an unofficial "freeze" on the average rate for all the classes, which is currently $10.366.

"If they don't change the law I would be very happy," admitted Steven Spinola, president of the Real Estate Board of New York (REBNY), on the possibility of legislative interference. "It is not something we will complain about."

Even though Spinola's residential owners could get the boost to 5 percent, he noted that if they reduce the 5 percent shift for the other classes, all the overage will end up on Class IV.

"We hope they live with the law on the books and not surprise people," said Spinola.

Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), a residential middle market apartment owners group, said "Clearly the shock of the full percent shift is not affordable at this time. I sympathize with the commercial sector and understand REBNY's position, but this is an area where there has been compromise and we have to rationalize the system over time."

Tax certiorari attorney Hubert J. Brandt, of Peter H. & Hubert J. Brandt, noted that as the politicians keep shifting the taxes onto Class IV "which they have done right along," it becomes less and less palatable for businesses to continue in the city.

"If you keep shifting you eventually get into trouble," he said of the continual intervention that takes tax burden from homeowners and adds it to income-producing properties.

"The taxes are too high and you can't match the tax breaks that are being given across the river," Brandt continued. "It's unwise, and the residential taxpayers have got to start to pick up their share of taxes."

Brandt points to the very low taxes being paid by city homeowners, compared with surrounding areas like Westchester and Nassau County.

"You can't have the owner of a quarter million dollar home in New York City being assessed at $20,000 and paying $2,200 when the suburban taxpayers are paying three times that or more," Brandt explained regarding the Class I properties.

Most of Class II's cooperative and condominium vertical homeowners, on the other hand, are paying more than the horizontal Class I's, and have been grumbling about that for years. Mayor Rudolph Giuliani has now officially held off on a tax reduction plan for these owners for at least a year, although Council Speaker Peter Vallone is examining ways to save the program that would cost the city $70 million in the first year of the program.

A spokesperson for the City Council, Michael Clendenin, said "the Mayor pulled back and that is one area we are looking at and trying to get back in the budget."

"This shift to increase the Class II tax rate simply underlines the need to do something and get more equitable taxation," said Martin Karp, chairman of the Action Committee for Reasonable Real Estate Taxes. "I can understand the shift in shares, but they continue to throw an increased burden on Class II property on an already inequitable situation."

According to William W. Crotty, assistant director of equalization support services at the BRPS, there is still a small drift downward in full value and that is implied in the higher equalization rates for Classes I and III. The equalization rate for Classes II and IV went down. Other factors are used by the City Council Finance Division to set the class shares that result in the tax rates.

The state survey numbers are based on figures available on January 1, 1994. Each year, the State surveys property sales and also appraises several hundred properties in each tax class to determine the change in equalization rates.

For the equalization ratio or rate to be climbing, explained Brandt, "it's got to mean the assessments are moving up more rapidly than values." The equalization ratios are used for court proceedings, while the equalization rates are used by the City Council to set the base proportions for the class shares.

Nevertheless, the surveys are based on prior years' prices and values. While the information lags the market by at least two years, sources said that some property valuation data for this latest computation titled the 1995 Final State Equalization Rates - was even older.

In the 1970s, discussions were held about moving toward a strictly appraisal-based survey. That was starting to be implemented in the late 1980s when the budget crunches and fall in values hit hard. Now, the pendulum is swinging the other way, as a lack of manpower and financial resources has hit at all levels of government. Albany sources report the Bureau of Real Property Services survey will soon be going to a strictly sales event.

For comparison purposes, the current Fiscal 1996 tax rates themselves are: Class I, $10.725; Class II, $10.807; Class III, $7.922; and Class IV, $10.402. The Fiscal 1995 overall yearly tax rates were: Class I, $10.694 Class II, $10.552; Class III, $7.20; Class IV, $10.608.

Unless the City Council and Mayor come to a quick agreement on the budget - in which case tax bills based on the new tax rate will be sent out - property owners should expect a tentative tax bill based on the Fiscal 96 tax rates in the next few weeks. The forecasted levy is expected to be $7.814 billion, overall the tax classes.

The bill can be paid between June 6 and June 13 to enjoy a 5 percent annualized discount, while a 2 percent annualized discount will be in effect after that.

All payments for the first quarter or first half tax bills are due on Monday, July 1, and if not paying in person, attorneys stress sending the package by certified mail and obtaining a receipt.

But the city will then have to re-bill owners once the final rates are calculated. That will again result in an adjustment for the second half tax bills and could create accounting problems for the Finance Department. They have only recently begun to write apology notes to owners stating their "in-date" interest problems are over.

Margulies of CHIP is still concerned that if the legislature intervenes, it will do so at a time when a tentative tax bill is being generated and SCRIE accounting issues are still being resolved, leading to more confusion by property owners.

"At least for the owners, the city is crediting SCRIE and then will work the administrative issues out later," said Margulies.