Coronavirus Property Tax Relief: Flattening the Curve on Increases
The coronavirus is devastating New York City businesses and employment, and also property values. Stores are dark and retail tenants are asking landlords for rent concessions. Hotels have low occupancy. Garages are quiet. Residential tenants can’t pay their rent. Nevertheless, the property tax bill is coming. Hopefully, taxpayers will finally see relief.
As the largest and most stable revenue source, New York City heavily relies on the $30 billion property tax levy. Since 2014, when the levy was $20 billion, the city’s property tax revenue increased $10 billion, or on average 6 to 7 percent per year. Over that same period, total city expenditures increased $20 billion. The latest (pre-coronavirus) city budget projects continued property tax increases of 4 to 6 percent per year for the next several years. As the city expands services and increases spending, such as providing aid to coronavirus victims, small businesses, and the newly unemployed, then the levy must increase too.
Since the last recession, the real estate market has rebounded. The property tax levy followed the same trend as rising property values and assessments. The city was able to raise additional revenue without increasing the tax rate by relying on property value increases. But when property values and assessments decrease due to the coronavirus, the city can decrease taxes and give owners relief, or increase the tax rate to make up for the shortfall.
What happens when taxpayers’ tenants aren’t paying rent, and landlords can’t pay their property tax bills? For fiscal years ending 2016 to 2018, the tax delinquency has remained relatively constant. The number of delinquent parcels has been around 69,500 per year, of which over 60 percent are one to three family homes. The delinquency rate (percent of tax levy) has been 1.2 to 1.4 percent overall (3 percent for one to three family homes). Total tax delinquency has been $325 to $340 million, split evenly between one- to three-family homes, apartment buildings, and commercial buildings. If the delinquency rate triples, the tax rate would have to increase over 2 percent to make up the difference. That’s an automatic 2 percent tax hike on everyone because buildings aren’t paying their property taxes.
In June, the NYC Department of Finance (DOF) will mail tax bills for payment due on July 1. These property taxes are based on the Final Assessment Roll which DOF will publish on May 25. We already know the tentative assessments that DOF published earlier this year, on January 15. But two months ago was a different world.
The Tax Commission will be busy this year. New York City’s first coronavirus case was confirmed on March 1, one day before the property tax protest application filing deadline. Owners happily collected their March 1 rent checks, oblivious to the calamities that would soon befall their tenants. Unfortunate owners who didn’t timely file can’t do anything about their upcoming 2020-2021 tax bills and must wait until 2021 for relief. Owners who were fortunate enough to timely file will get a chance to argue why their assessments are too high. The Tax Commission will hold hearings between April and November to review the 2020-2021 assessments.
Property owners are requesting property tax relief, even if it’s just temporary. They have a reasonable argument. Just two months in foregone rent means a 17 percent reduction in income, and no one knows if the coronavirus will last two months or more. Landlords will have better arguments for assessment reductions if they provide supporting documentation to show how their gross income potential is declining in 2020. To prepare for their Tax Commission hearings, owners should diligently keep documentation on rent arrears, year-over-year increases in accounts receivable, go dark letters from tenants, rent concessions and abatements requested and provided, and other lease amendments. Additionally, for any newly vacant space, landlords should have estimates of the expected vacancy duration and the asking versus taking market rent because it will be difficult to find good comps.
Though we don’t know the degree to which the coronavirus will ultimately wreck the New York City economy, we do know that property taxpayers need any relief they can get now.
Benjamin Williams is a Member of Rosenberg & Estis, P.C. He leads the firm’s property tax department.