2012 Owners Magazine

Fuzzy Math: Property Taxes Haven’t Officially Risen in More Than a Decade. So Why Have Collections Doubled?

A few years ago, a city Department of Finance official noticed irregularities in the way certain residential properties had been appraised by the agency, leading to slightly lower-than-normal valuations.

To compensate, the official suggested the department decrease its assessments across the board for the group, which mostly comprised single-family homes and small co-op buildings in an area of one of the boroughs.
Dropping the valuations slightly below usual thresholds would reduce the taxes the city could collect, but only by a few percentage points—a seemingly harmless amount in the face of the billions of dollars the agency assesses—and it would allow the department to restore uniformity and equanimity to its calculations, one of the mandates of its process.

What appeared to be an innocuous adjustment, however, garnered a backlash that was swift and forceful. Top officials at the department were summoned to Mayor Bloomberg’s Upper East Side townhouse. There they were confronted by the mayor and irate senior executives from the city’s budget office, the person said.

Though the theme of the meeting was ostensibly to discuss the irregularities and why the department had chosen lower assessments, the underlying message was clear: don’t trifle with the city’s revenue.

“I feel like we got taken out to the backyard to get whipped,” the source said, requesting anonymity because of the sensitive nature of the meeting.

fuzzy math Fuzzy Math: Property Taxes Haven’t Officially Risen in More Than a Decade. So Why Have Collections Doubled? The episode would seem to lend credence to a complaint that real estate industry executives and advocates have voiced for years. Though the city has not raised real estate tax rates in a decade, these people say it has used a complex appraisal process to arrive at values that essentially accomplish the same thing, albeit far more conveniently, because it allows elected officials to avoid the political repercussions of lifting the tax rate.

Indeed, total collections on commercial buildings have jumped from about $3.8 billion in 2001 to nearly double that today.

Few industry observers would disagree that commercial and residential property has appreciated dramatically in that time. But the fact that property taxes never flagged, even in the aftermath of a serious recession, is evidence, analysts insist, that the city has come to treat real estate as a golden goose for revenue.

“We had four years of falling prices, but real estate tax collections never fell,” said Robert Knakal, a chairman at the real estate brokerage and services company Massey Knakal, said. “How does that even work?”

When Mr. Knakal launched his real estate career in the 1980s, the city used a different method of calculating real estate values that was more closely tied to sale prices. The formula was altered in the early 1990s, he said, a conspicuous juncture for those who feel the city has been leaning too heavily on the industry for revenue, because that was when the recession of that period began pulling values down.

“Values started to drop, and then suddenly the old appraisal system wasn’t good anymore and the city abandoned it,” Mr. Knakal said, suggesting the city had adopted a newer methodology during that period in order to raise collections from the industry.

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