President and CEO,
Matthew Adam Properties, Inc.
Much of the discussion recently in co-op and condo circles has revolved around a recent state law that removes the property tax abatement for buildings not paying prevailing wages. This applies to non-union buildings, mainly smaller properties.
While an important issue for concerned buildings, the elephant in the room is the disparity between the tax rate for one-three family homes and co-ops, condos and rentals. The latter group pays a significantly higher property tax rate than the first creating a larger tax bill. This unbalance has existed since 1981 despite numerous attempts to equalize it. The power for change rests with the City Council of New York, and progressive members representing districts with many single-family homes predominate.
But, before we get ahead of ourselves let’s look at the tax abatement issue.
Prior to enactment of the recent prevailing wage law, co-ops and condos since 1997 were entitled to an abatement on their property taxes ranging from 28.1 percent on properties assessed below $50,000 to 17.5 percent for properties assessed over $60,000. This is based on assessed valuation, a small percentage of the actual selling value.
The new law, pushed by Local 32BJ and other unions representing building employees, requires co-ops and condos to pay the prevailing wage with benefits, what union members receive, or lose the abatement. Employees included are doormen, porters, handymen, janitors, security guards and others who work at least eight hours a week in the building. In effect, it is the entire building service staff.
Whether or not buildings opt to pay the prevailing wage and maintain the abatement or exit comes down to dollars and cents. Some estimates say that the cost for a union employee is about 50 percent higher than a non-union employee. Buildings, in making the determination, look at the bottom line and analyze if it they benefit with the abatement and paying the prevailing wage, or opting out. In many cases a property gains by opting out.
Co-ops and condos have until February 15 of each year to decide the route for the upcoming year. Properties with more than 30 units and an assessed valuation of more than $60,000 and those with less than 30 units with assessed valuation of $100,000-plus need to file an annual certification that they are paying the prevailing wage.
A sidenote, because of the corporate structure of condos and co-ops, the abatement affects each differently. Shareholders in co-ops pay the real estate tax as part of the monthly maintenance fee. The abated funds are returned to the building but the cooperative must distribute the abatement. What many/most cooperatives do to recover approximately the same amount is to levy a per share assessment on all shareholders at the same time as they distribute the abatement. In condos, the unit-owner pays the taxes directly to the city and the abatement is returned to the unit-owner. To be eligible, the unit must be the primary residence.
While the abatement helps reduce taxes for residents of co-ops and condos, it doesn’t cover the disparity in real estate taxes between them and owners of single-family homes. The city tax rate for single-family homes is comparatively low compared to taxes in the region. To make up the difference for the city coffers, the burden is placed on co-ops and condos. They are classified as Class 2 properties as are rental buildings and valued as income producing buildings.
The actual assessment for co-ops and condos is based on a complex process that establishes a market value taking into account the property’s income and expenses compared to similar rental properties. From this, and other factors, the assessed value, upon which taxes are based, is determined. The result is that the co-op and condo assessment is much higher than it would be if based on the Class 1 single-family formula.
Right now, the focus is on the prevailing wage issue, which does impact a certain number of non-union buildings. Long-term this will have a negative impact on those properties, but the big, real focus is on the overall imbalance in the tax rates. With so much discussion on equity and affordability in housing, it will probably require a Solomon to find a solution, and then not everyone will be happy.
President and CEO
Matthew Adam Properties, Inc.
375 Pearl Street – 14th Floor
New York, NY 10038