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Council Members Claim Property Taxes Are Illegal and Discriminate

Martha Stark TENNY Director Martha Stark, Director of Policy for TENNY

NEW YORK CITY—The city’s real estate property taxes are hooking up strange bedfellows. On Monday, Democratic and Republican City Council members announced they filed an amicus brief supporting Tax Equity Now New York’s lawsuit demanding tax reform. TENNY is a coalition of New York City homeowners, renters, rental property owners and civil rights groups, advocating reform to a system which they say overly burdens low-income people and minorities.

Martha Stark, director of policy for TENNY, says this support from Council members Fernando Cabrera (D-14th District, the Bronx), Donovan Richards (D-31st District, Queens), Ritchie Torres (D-15th District, the Bronx), Eric Ulrich (R-32nd District, Queens) and Jumaane D. Williams (D-45th District, Brooklyn) marks a significant milestone for their cause. She tells GlobeSt.com that TENNY has brought together a diverse coalition of voices to help people understand the property tax system and will work to force action.

Judge Jonathan Lippman, of counsel at Latham & Watkins and the attorney for TENNY, agrees that the council members’ joining the lawsuit strengthens their case that alleges the tax system violates the New York State Constitution, New York’s real property tax law and federal law.

The original complaint, filed on April 25, 2017, claims the city’s property tax system is regressive, and unfairly shifts tax obligations from wealthy Manhattan co-op and condo owners to renters and homeowners in the outer boroughs, primarily populated by racial and ethnic minorities and lower income families.

It alleges the tax system imposes disparate tax obligations on similarly situated property owners, depending on location, rather than on a rational or equitable connection to the properties’ actual market value. With property assessments, counterintuitively, the wealthiest and most coveted addresses in the city enjoy the lowest tax rates, while their share of the tax burden is transferred to less affluent neighborhood in which properties are less valuable.

The complaint also alleges the tax system perpetuates segregation and is racially discriminatory. It cites a study that New York City ranks as the second most segregated metropolitan area in the country. It underscores although no one racial group makes up more than a third of a city’s population, the city recently acknowledged that nearly half of the city’s neighborhoods remain dominated by a single racial or ethnic group.

The pleading references sections of southeast Queens and central Brooklyn that are nearly all black, compared to Staten Island, the Upper East Side in Manhattan, and Orthodox areas in Brooklyn, which are almost all white. An overwhelming majority of New York City’s neighborhoods either are less than 10% white or less than 10% black.

TENNY states more than twice as many African Americans and almost one-third more Latinos live in 15 districts where one, two, or three-family homes pay the highest tax rates compare to the 15 districts in which such properties are taxed at the lowest tax rates. It points out that a home in Crown Heights, a minority-dominated neighborhood of Brooklyn, in 2015 sold for $150,000. It had the same property tax bill of $4,297 as a home sold that same year for $9,000,000 in Carroll Gardens, a predominantly white area.

The complaint also alleges the city imposes unequal tax burdens on co-ops and condominiums compared to rental apartments. Renters have the lowest median income of any group of residential occupants, yet for the class of property, rental property owners pay the highest tax rate in the city, presumably passing this cost onto renters. TENNY cites a New School report that racial minorities constitute three-quarters of renters and are fewer than half of homeowners. It claims this shows a disproportionate, financial burden on racial minorities, and perpetrates longstanding patterns of segregation in violation of the Fair Housing Act.

To encourage homeownership, the city shifts tax costs from homeowners to commercial property owners. But TENNY claims assigning property market value differently from the real market value results in undervaluation, thus undertaxation compared to other property. Assessment caps limit how much property value can rise as its market value appreciates, giving homeowners with rapidly appreciating properties a tax break.

Asked by GlobeSt.com whether changing the tax system would unfairly burden middle class homeowners with higher taxes than what they anticipated when purchasing their homes, Lippman says, “Our lawsuit is not prescriptive and we are not advocating specific proposals, or any proposals at all. The city’s property tax system penalizes working class homeowners, renters and predominantly minority neighborhoods, rendering it unlawful.” He adds the lawsuit seeks the courts to order elected officials to address the irrationality and unfairness of the system.

Attorney General Eric Schneiderman’s office did not respond to an email request for comment by the filing of this article.

However, on July 7, 2017, the attorney general filed a motion to dismiss TENNY’s case. It asserts the plaintiff did not suffer direct injury, so cannot legally file the lawsuit. The pleading also claims TENNY cannot represent the conflicting interests of all the entities it comprises.

Schneiderman further argues that efforts to prevent a shift of real estate taxes from businesses to homeowners is not “utterly unreasonable” nor “arbitrary.” Plus, the allegations would not be Fair Housing violations because taxation is not an exclusive housing restriction falling within the statute. The government states the complaint fails to show that the tax system does not adversely affect similarly situated non-minority homeowners; or without the current tax system, minority renters would move to less segregated neighborhoods; or that a reduction in property tax on rental buildings would be passed onto renters, lifting constraints on their mobility to leave segregated neighborhoods.

Finally, the attorney general claims under the separation of powers, the legislative and executive branches, not the courts, create and implement tax policies.

With multiple and administrative political implications, it is unlikely that debate over tax reform will be put to bed anytime soon.

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