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Tax freeze? It all depends.

Tax freeze? It all depends

With a freeze on the average property tax rate in New York City proposed by Mayor David Dinkins for the first two years of his four-year fiscal plan, industry experts were quick to explain that real estate taxes will still go up.

They applauded the move, however, as a signal to businesses that the city is trying to help the local economy and provide some stability.

One administration official, who declined to the identified, noted that a levy freeze on the total amount to be collected might have been more valuable to all property owners, whereas the freeze on the rate might be of more benefit to Class IV commercial buildings.

Taxes will go up for several reason, experts said. Additional taxes have already been approved for the Safe City/Safe Streets program and the Criminal Justice Fund. Tax class shifts are also expected to produce small rate changes. The largest jump in property taxes, however, will go to those owners and tenants in buildings that have rising transitional assessments. The city expects billable assessed value to rise by 1 percent in Fiscal year (FY) 1993 and 1.5 percent in FY 1994. Budget officials said they intend to collect an additional $330 million in property taxes in FY 1995 and another $338 million in FY 1996, both due to a rise in inflation.

Martha E. Stark, special assistant for Tax Reform in the Department of Finance, said property owners will not be paying the same amount they paid this year. "You can't simply xerox your bill and expect that will be your payment for the next two years," she warned.

Steven Spinola, president of the Real Estate Board, said the proposal, "is wonderful news and we wish it was for four years, but it is probably the most important step the Mayor has taken to turn around our economy.

"It's something the Real Estate Board has called for over the last 18 months and we hope every tenant and every business listens," Spinola said. "We're very pleased it's going in the right direction and we thinks it's a critical point in getting the city's economy to turn around."

A freeze, Spinola explained, on the "average" tax rate is as legal as the city can possibly make it to comply with state law. The class shares - or piece of the tax pie each class pays - would have to be "weighted" to come up with the average rate the city is using: $10.591. Budget officials said they divided the total tax levy (approximately $8.32 billion) by the total billable assessed value (approximately $78.47 billion) to equal the $10.591.

The current tax rate for Class II properties is $9.885 per hundred dollars of assessment while Class IV properties pay 10.631. A strict average rate for the four classes would be $11.12.

"This is all smoke and mirrors," said one tax certiorari attorney who asked not to be identified. "They freeze the rate, but the assessments, the assessed valuations and the bills go up."

The mayor also called for work force reductions and new authorities to oversee city functions. Real estate groups have warned that an authority to oversee garbage collection would not be acceptable because it would mean paying separately for garbage collection which is currently provided to residential owners as party of their property taxes. The city will also examine the privatization of recycling and OTB. The mayor's plan also relies on $1 billion from the Municipal Assistance Corp. that may not be forthcoming so fast.

The mayor's budget proposal states: "This freeze, to be implemented so long as the other major elements of the plan are achieved, means that the Administration will not look to the property tax to provide revenue for future budget shortfalls."

This is important, Spinola said, adding, "We will work with the city to see that their other financial concerns are met and hope that they result in a four-year freeze."

A statement put out by City Council Speaker Peter F. Vallone and Finance Chair Herb Berman, said they were pleased the mayor has "accepted our belief that raising taxes is unacceptable in this current climate."

The New York City Partnership and New York Chamber of Commerce and Industry, which had joined real estate groups in asking for a four-year tax freeze, said in a statement that the fact that the proposal includes no new business and personal taxes, along with the two-year freeze on property taxes, is an excellent first step. "We still believe that a four-year freeze on all taxes and a net reduction of 30,000 city-funded workers would better insure the city's economic future."

"That's a crucial point," President and CEO Ronald K. Shelp said, "because that gives you over a billion dollars." Shelp said the mayor has only agreed to a reduction in 16,000 jobs over the four years. "Our biggest concern is the down-sizing," he added.

Shelp did not believe a freeze on the levy was of much concern in this kind of economic climate where values are falling.

"I would love a freeze on the levy," Spinola admitted, but said a freeze on the rate was "the only legitimate thing we could ask for."

If assessments go up, Spinola agreed, the city has no choice but to increase the levy. "We have no problem with people paying more if they are based on true higher values," he said. But Spinola said he was most concerned about the rate going up. "We don't want the city to keep the tax levy constant by increasing the rate."

"I believe the city will be hitting its head against the billable assessments over the next four years because the new values will have gone down and the billables will no longer be up," he added.

Dan Margulies, executive director of the Community Housing Improvement Program (CHIP) said, "If they don't' freeze the levy and the transitional assessment goes up and they will collect more money, that is not a tax freeze. The question, is, how much more money will they collect under their version of a tax freeze?"

According to the mayor's proposal, the billable assessed value will go up 1 percent in 1993 and 1.5 percent in 1994, plus the rise in the Safe City/Safe Streets tax. The average tax rate will also rise by 2 cents in 1994 for the Criminal Justice Fund and in 1995 levy growth, due to inflation, will go up 4.9 percent adding $330 million in revenue that year and another $338 million in 1996. By comparison, property taxes have risen between 7.5 percent and 12.7 percent over the last four years.

"That's certainly an improvement," Margulies said, "and I think most property owners will applaud it, but it is discouraging that our elected officials can't even be honest about a freeze.

"One has to assume that the mayor's freeze is a real freeze," stressed John J. Gilbert III, president of the Rent Stabilization Association. "If that is not the case it would be a major disappointment, nonetheless, the fact that the mayor's five-year plan decreases future taxes by $3 billion is wonderful news to all New Yorkers."

Gilbert was also troubled by a freeze on the rate and not on the levy that industry groups were hoping for, saying that the mayor's proposal "will create more uncertainty than certainty."

Although this is the most significant and hopeful statement the mayor has made, Gilbert said. The length of the tax freeze is crucial to it working. "We would like to see it stretched out to at least four years because you really need that certainty," he said. "It's not enough time for business and property owners to adjust."

The rate has a distinct effect on only one portion of the taxing equation, Hubert J. Brandt, of Peter H. & Hubert J. Brandt, a tax certiorari attorney said. Assessments can go up and down, and the total amount of money to be collected can also go up or down. "If the mayor is speaking of true tax relief, then on a case-by-case basis, he should seek to drop the actuals and see that the actuals drop far enough down to a level that make sense."

The actual assessments would have to drop below the transitional assessments significantly for an owner to see a big savings. Property owners pay on the lesser of the transitional or actual assessment.

This freeze, Brandt said, is not at all like the freeze in the 70's. "Conditions were such so that the assessors were told to hold things in place or to bring assessments down, and at the same time the Tax Commission was making changes to account for the declining sales," he said.

The rate at that time was frozen at 8.75 percent for four years during Abe Beame's tenure as Mayor - from 1978 through 1981. The class share system, however, was not in please so there was no need to calculate an average.

Today, Brandt said, a cut in an assessment does not go far enough. "They can bring the Empire State Building (assessment) down another 5 percent and freeze the tax rate," explained Brandt who is a tenant in the landmark tower, "and I'm still going to pay more in escalations because the transitional is still going upward."

Charles Rappaport, president of the Federation of New York Housing Cooperatives, representing over 700 member condos and co-ops in Class II said "It's a real con job. People are goint to come to the conclusion that they can budget thinking it is frozen, and it is not."

Rappaport said if the mayor was going to do something, he should freeze everyone except Class I single family home-owners because, he said, "they have been so underassessed and have been paying such low taxes so long." This proposal has also been made by Manhattan Borough President Ruth Messinger, but an oficial said the law would not permit a rate freeze on only some of he taxpayers.

When the class shares were implemented in fiscal year 1983, Class I paid 14.09 percent; Class II 26.32 percent; Class III 18.03 percent and Class IV 41.56 percent of the share of the pie. Because of discretionary shifts made by the City Council, Class I currently pays only 11.45 percent while Class II's share last year was 27.99 percent, Class II was 7.81 percent and Class IV carried 52.74 percent of the tax pie.

"Your can make your money by increasing Class I," Rappaport suggested, "but don't kid the people in Class II and IV which will pay higher taxes. In spite of a freeze, do not assume your taxes will not go up."

If the mayor had called it a "tax adjustment" Rappaport said, it would have been more appropriate. "The word |freeze' is inappropriate, deceptive and politically motivated," he said, "and in the long run, as P.T. Barnum once said, |you can fool some of the people some of the time, but not all of the people all of the time.'"
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:New York City
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 13, 1991
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