November 05, 2003

Article at The New York Sun

Abandoning a Bad Tax

The absentee-landlord tax must have seemed like such a good idea when it was first presented by the City Council to City Hall last winter. The strapped city would get some more money - $44 million to $77 million, depending on whose estimate you accept - by imposing a 25% tax surcharge on any absentee landlord who owned but did not occupy any one- to three-family house. The surcharge was on top of last year's 18.5% property tax increase championed by the Bloomberg administration.

A few rich bad guys - absentee landlords - would pay the entire surcharge. The already overtaxed good guys - single-family homeowners - would not be touched. The rationale for what might otherwise look like discrimination was that the city has traditionally kept its property taxes lower on small one- to three-family homes than on other property in order to encourage homeownership.

Why should absentee landlords - speculators - benefit from the lower rates intended for homeowners, asked council members? So after making its budget deal with City Hall, the City Council passed the surcharge into law in late June, to much acclaim. Now Mayor Bloomberg is having second thoughts. Good for him.

This was a bad idea to begin with, for several reasons. First, the underlying property tax has tended to discriminate against poor and working-class neighborhoods, as the New York Public Interest Research Group pointed out in July. A Nypirg survey of more than 600,000 properties concluded that homeowners in poor neighborhoods paid more than twice as much in property taxes as owners of similar houses in more affluent neighborhoods.

The culprit is a 22-year-old tax calculation system that has led to unequal assessments in a third of city neighborhoods. The most over-assessed areas are in northern Manhattan, the northern Bronx, Staten Island, and Brooklyn's Coney Island and Bergen Beach. Annual taxes on a $300,000 single-family house in Brooklyn's upscale Park Slope, for example, are about $1,066. A similar house in Brooklyn's working-class Bergen Beach pays $2,600.

Then the city imposed a surcharge on so-called absentee landlords, who happen to disproportionately own property in over-assessed areas. Nearly 80% of the properties subject to the surcharge are concentrated in black and Latino, low-income and working-class areas in Brooklyn and Queens, according to a report issued by the Independent Budget Office in August. East New York, Bedford Stuyvesant, and Bensonhurst - all in Brooklyn - have the most, with at least 3,400 properties each.

The IBO told its report's story in its title: "Unintended Consequences: New Absentee Landlord Tax Will Hit Poorer Neighborhoods Hardest." This report surprised city officials. Somehow, the idea that poor neighborhoods would be hurt hadn't been on anyone's radar screen - even though any analyst who had lived through the city's fiscal crisis of the 1970s had to have been thinking about it.

As city neighborhoods endured waves of abandonment back then, city government took some 355,000 housing units in tax foreclosure proceedings through the early 1980s. Despite many programs trying to get all units back into private hands, the city still owned some 53,000 units of occupied housing in 1986, and another 49,000 vacant units.

Tremendous efforts by the Giuliani and Bloomberg administrations have brought the city-owned units down to around 6,500. No one wants that number going back up.

The causes of abandonment in the past were many - national recession, depressed local economy, 30% unemployment in some neighborhoods, arson for insurance - but the precipitating factor was the property tax, which went unpaid.

So many New York neighborhoods look solvent today that it is possible to forget that many neighborhoods are still fragile and just barely climbing back from the edge of catastrophe. The surcharge's targeted neighborhoods - such as East New York and Bedford Stuyvesant - cannot easily withstand new burdens.

What's more, the City Council's idea that the landlords themselves would pay up is preposterous. By definition, this housing has fewer than six units, meaning these properties are not covered by rent regulations.

Landlords will be free to pass on the surcharge - roughly $570 a building - to their tenants. Two things might happen: Low-income tenants may come up with the extra money, and simply pay what is for them a regressive tax. However, if the tenants can't or won't pay, then the landlord must. No one knows whether these buildings are profitable or marginal, said the IBO deputy director and author of the report, George Sweeting. The city doesn't do this kind of financial analysis before passing a new tax.

But the real deal-killer for the mayor was that this tax has proved immensely hard and costly to administer. The first newspaper to pick up the problem was the Staten Island Advance, which reported in late September that the commissioner of the Department of Housing Preservation and Development had publicly apologized for mistakenly targeting Staten Island homeowners in an attempt to get small landlords to register their buildings with the agency.

Some 7,400 Staten Islanders had been warned to register their multiple dwellings as part of an HPD "registration amnesty program" - or face fines of up to $500. Irate homeowners were told they had to take a copy of their certificate of occupancy to the local HPD office at Borough Hall to prove they owned a one- or two-family house.

The Staten Island borough president forced HPD to back down. Other borough presidents haven't been so effective. As Newsday reported in late October, a quirk in the City Council's legislation forces owners of one-, two-, and three-family homes to prove they live in their homes. If they fail to do this they must pay the surcharge and then apply for reimbursement.

Mayor Bloomberg has the good sense to know a bad idea when he sees it. This tax had little merit when it burdened landlords. However, if it's also going to enrage single-family homeowners - the very ones the mayor had hoped to help - then he's saying good riddance. The City Council should do the same.