I. Background Twenty-two years ago, the New York Public Interest Research Group released a study of New York City’s property tax assessment system for one and two-family homes. The 1981 report — titled City of Unequal Neighbors — found widespread inaccuracies in New York City’s property tax system for homes, with "the poorest of the city’s neighborhoods the most overassessed." In human terms, tens of thousands of "poor homeowners, already unable to cope with rising utility rates, heating costs, and mortgage interest payments simply [found] themselves overwhelmed by a property tax bill that is often two or three times higher than it should be." We concluded that the city did not assess homes at a uniform fraction of their value, as required by state law. Why was the system so unfair? For years, the city failed to keep assessments up-to-date and did not provide city assessors with the resources and the mandate to assess homes uniformly and fairly. It also failed to provide homeowners with clear and understandable information on how the system was supposed to work. The system, we wrote in 1981, was so complex that "it is impossible for most taxpayers to figure out what their rate of assessment is, much less challenge their tax bill when it is wrong." We asked then Mayor Edward I. Koch and the New York City Finance Department to "order an immediate reassessment of residential property in New York City, starting with those neighborhoods which have been identified as glaringly overassessed." In 1983, we issued a follow-up report. At the same time, the state legislature created a small claims court for homeowners to challenge their assessments. In the wake of the report and fearful of massive small claims challenges, the City undertook a massive re-assessment. Over the course of several years, it lowered assessments on hundreds of thousands of homes. As a result, millions of dollars were returned to the local economies of overassessed communities. Tens of thousands of homeowners saved hundreds of dollars and had available funds to maintain and improve their homes. It was a victory for both individual homeowners and the city’s economy. In the years since the reassessments of the mid-1980’s, NYPIRG has periodically discussed the equity of home assessments with Finance Department officials. In 1990, for example, we asked the Finance Department to run an analysis for us. It did not reveal any major patterns of inequities at that time. Our aim was to make sure that assessments did not return to way they were in the early 1980’s. We were especially concerned about the impact of a provision placed in state law in 1981 with the intent of protecting homeowners from steep increases in their assessments. This "home assessment cap" law prohibits the City from increasing assessments on one-, two- and three-family homes by more than 20% in five years or more than 6% in one year. While the provision prevents rapid assessment increases on homes, it can also result in inequalities. Homes in areas with fast rising values benefit, as their assessments lag behind the full market value of their homes. For example, a home might double in value in just a few years, but see an assessment increase of far less over the same period because of the assessment cap. The story would be different for homes in declining or slower growth areas. In the fall of 2002, we renewed the dialogue with the Finance Department about providing NYPIRG with new data on home assessments. The last few years have seen steady and very strong increases in the value of one-, two- and three-family homes in many city neighborhoods. The median sales price of a single-family home in the New York metropolitan area rose by more than 75% since 1998, according to the National Association of Realtors. That compares to a 26% rise across the country. Had assessments remained fair and uniform in a period of rapidly rising values? We wanted to find out. During our discussions, the property tax also became the subject of greater public attention as the City Council and Mayor acted to raise property taxes significantly after years of a freeze.
In April 2003, the Finance Department provided us with data on all 638,221 one-, two- and three-family homes in New York City. The information included the most recently available data on each home’s assessment and full market value as determined by the Finance Department, as well as its location. To understand how we analyzed the data, it is necessary to know the basics about New York City’s property tax system, much of which is regulated by state law. The property tax is based on the value of real property, including building and land. In general, the more valuable the property, the higher the tax. All property owners are expected to pay the tax, unless exempted like churches. Some owners, such as senior citizens, receive partial exemptions. City assessors — working for the City’s Finance Department — annually assess each property, a huge undertaking in New York City. Today, unlike 1981, much of this is done with the help of computers. Properties are broken into four categories. Class One is comprised of one-, two- and three-family homes. These are supposed to be assessed at a uniform percentage of value. A home with a value of $200,000 in one part of New York City should have the same assessment as a home valued at $200,000 in another part of the city. The assessed value of a home is the value assigned to a property by the assessor. It is the figure on which the home’s property tax is based. The Finance Department materials say the agency targets assessments on homes at 8% of full market value. But in reality the median assessment is significantly lower. The citywide median assessment for the 638,221 one-, two- and three-family homes in New York City is actually 5.439% of full market value, according to Finance data. Take as an example, a home that is given an assessed value of $10,000. To determine the property tax bill of this home, the Finance Department multiplies $10,000 times the fiscal year 2003 tax rate of $14.16 per $100 of assessed value — for a yearly tax bill of $1,416. In general, the full market value of a home is based on a variety of factors such as sales prices of comparable homes, location, lot size and market conditions. One key way to determine the market value of a home is its sales price in an arms length transaction. The city has a data base of recent home sales, based on forms filed when owners pay a mortgage recording tax. For many years, this sales data was deemed confidential. For the first time, a new law made sales information available for homes sold after September 2002. NYPIRG opted to use the "full market value" as determined by the Finance Department given the current limited amount of home sales data available. This reflects NYPIRG’s view that the Finance Department does a much better job than it did 20 years ago in gauging market value. But it is important to acknowledge that our reliance on the Finance Department’s determination is a limitation of this study. It likely tends to overestimate the degree to which homes are correctly assessed. In addition, we cannot compare our findings in 2003 to those in 1983. In our earlier report, we used sales data, which we were able to obtain with some difficulty at the time. The Finance Department periodically sends homeowners notices with information on both the assessed value and full market value of the homes, along with answers to frequently asked questions about the city’s property tax system. In theory, homeowners may object to these determinations and seek corrections. But as a practical matter, few do given the complexities of the property tax system and the general fear of dealing with tax officials.
The citywide median assessment for the 638,221 one-, two- and three-family homes in New York City is 5.439% of full market value, according to the Finance Department’s most recently available data. The median ratio of assessment-to-full-market-value is determined by arranging all the ratios from the highest to the lowest and selecting the middle ratio. If you owned a home valued at $200,000 and it was assessed at the median rate, your assessment would be assessed at $10,878 — or 5.439% of full market value. That home would have a yearly tax bill of $1,540. That’s derived by multiplying $10,878 by the fiscal year 2003 tax rate of $14.16 per $100 of assessed value. Under state law, assessments are supposed to be uniform. That means that a $200,000 home in one part of New York City should have a similar assessment — and tax bill — to a $200,000 home in another part of the city. According to the Finance Department’s data, the median full market value for the 638,221 homes is $258,000. In our review, we defined a home as correctly assessed if its ratio of assessment-to-full-market value was within 10% of the 5.439% median ratio. We based this on a standard set by the State Board of Equalization and Assessment, a state agency that provides helps and monitors the administration of the property tax by localities. As a result, a home was deemed overassessed if its ratio was more than 10% higher than the media ratio—or more than 5.982%. A home was deemed underassessed if its ratio was more than 10% lower than the media ratio—or less than 4.895%. We requested that the data be broken down by city neighborhoods. The Finance Department divided the data into 247 neighborhoods as defined by the New York City Department of City Planning. We eliminated from consideration neighborhoods with fewer than 100 homes, deeming these too few parcels for analysis. That left us with 213 neighborhoods for this report to study.
NYPIRG’s Community Mapping Assistance Project then produced a citywide map of the neighborhoods, based on the data.
Our review of the assessments of 638,221 one-, two- and three-family homes in New York City found that: 1. Nearly one-third of 213 city neighborhoods are incorrectly assessed — either overassessed (12.2% or 26 neighborhoods) or underassessed (18.8% or 40 neighborhoods.) 2. Overassessed neighborhoods are scattered mainly throughout areas of the Bronx and Manhattan. These include Throgs Neck (with a median full market value for homes of $273,000), Bay Chester ($273,000) and Riverdale ($448,000), as well as Central Harlem $230,000.) 3. There are a small number of overassessed areas in Brooklyn (such as Coney Island and Bergen Beach) and Staten Island (Todt Hill, Emerson and Concord-Fox Hills, and Rossville-Charleston), but none in Queens. 4. Tens of thousands of homeowners — in overassessed neighborhoods and scattered throughout the city — are paying more than their fair share of property taxes. While we did not find a pattern of poorer neighborhoods being overassessed as we did in our earlier 1981 report, it’s simply not right that these homeowners are paying more than their fair share. (Some illustrative examples can be found in the next section of this report.) 5. Underassessed neighborhoods cluster in Northern Brooklyn, ranging from affluent areas where the median full market values are high like Park Slope (with a median full market value for homes of $756,000), Cobble Hill ($1.16 million) and Carroll Gardens ($493,000) to more middle- and working-class areas like Bushwick ($252,000), Ocean Hill ($258,000), and Bedford-Stuyvesant ($283,000). 6. Another cluster of underassessed homes are in portions of the South and Middle Bronx, including Melrose (with a median full market value for homes of $222,100), Highbridge/Morris Heights ($259,000) and Fordham ($239,000.) 7. Patterns of over- and underassessment can be arbitrary: For example, the Upper East Side between 59th and 79th Streets is overassessed (647 homes at a median assessment ratio of 6.64%), but between 79th and 96th Streets is underassessed (509 homes at 4.797%). The Upper West Side between 59th and 79th Streets is underasssessed (116 homes at 3.787%), but is overassessed between 79th and 96th Streets (246 homes at 6.53%.)
The best way to "bring home" the inequity is to offer specific examples. Two sets are offer on the two following pages. The first set compares two Brooklyn homes:
The Finance Department values the home in Bergen Beach, Brooklyn at $338,000 and the home has a yearly property tax bill of $3,142. (That’s based on a $22,195 assessment with a fiscal year 2003 tax rate of $14.16. As a result, the home is assessed at 6.6% its full market value, well above the citywide median ratio of 5.439%.) Yet, the other home below in Cobble Hill, Brooklyn is valued at $1.4 million and the home has a yearly property tax bill of $3,288. (That’s based on a $23,223 assessment with a fiscal year 2003 tax rate of $14.16. As a result, the home is assessed at 1.7% its full market value, well below the citywide median ratio of 5.439%.) The second set compares two other Brooklyn homes:
The Park Slope home is valued at nearly four times the Sheepshead Bay home — yet both pay nearly identical property tax bills. The Finance Department values the home in Sheepshead Bay at $393,000 and the home has a yearly property tax bill of $3,894. (That’s derived by multiplying a $27,504 assessment by the fiscal year 2003 tax rate of $14.16. As a result, the home is assessed at 7% its full market value, well above the citywide median ratio of 5.439%.)
Yet, the other home below in Park Slope, Brooklyn is valued at $1.52 million and the home has a yearly property tax bill of $3,963. (That’s based on a $27,993 assessment multiplied by a fiscal year 2003 tax rate of $14.16. As a result, the home is assessed at 1.8% its full market value, well below the citywide median ratio of 5.439%.) Such disparities are unfair and exist all around the city. Tens of thousands of homeowners are paying more than their fair share of property taxes. This inequity needs to be addressed.
VI. Recommendations Why are nearly one third of city neighborhoods incorrectly assessed for one-, two- and three-family homes? The leading reason is "home assessment cap" in state law. The 1981 provision prohibits the city from increasing assessments on one-, two- and three-family homes by more than 20% in five years or more than 6% in one year, as noted above. While the provision prevents rapid assessment increases on homes, it also can result in inequalities. Homes in areas with fast rising values benefit, while homes in slow growth areas find themselves increasingly overassessed. In addition, the system is so hard to understand that few homeowners challenge their assessments and there is little dialogue on how to make the system fairer. What can be done? NYPIRG’s recommendations are as follows: 1. The most immediate step would be for the Finance Department to lower assessments on overassessed homes. This would require tough choices for the City Council and Mayor. They could either forego the significant revenue lost through assessment relief, which the Finance Department estimates to be $127 million. Or the city could raise the tax rate to make up for the annual losses. State legislation might also be necessary to implement home assessment relief without causing additional losses from other classes of property. 2. Longer term, broader reforms should be considered, such as assessing homes at their full market value. Full-market value assessments would be much easier for homeowners and policy-makers to understand. A correct assessment would simply equal the value of the home, not some hard to determine fraction of its value. A move to full market value assessments would raise many challenges, including how to maintain homeowner confidence that it would be done in a revenue neutral way rise in tax bills. At a 100% assessment, the tax rate for homes would drop to 87 cents per $100 from the current 2004 rate of $14.19 per $100. 3. NYPIRG also recommends that the Finance Department issue its own periodic reports on assessment equity. A recent law makes data public on the selling prices of individual homes sold after September 2002. NYPIRG recommends that the Finance Department periodically conduct analyses of assessment equities using this sales data. A sales review would provide an independent double check on the fairness of assessments. 4. The Finance Department should make it simpler for homeowners to understand and challenge overassessments. Right now, the Finance Department tells homeowners that the "target" rate for assessments on one-, two- and three-family homes is 8% of full market value. This leads many homeowners to believe that their assessment is fair if it’s below 8% of the full market value of their home. But, as the Finance Department’s own data shows, the current median assessment for homes is actually 5.439%. A home assessed at 8% would be greatly overassessed compared to the median assessment-to-full-market-value ratio. The Department and the Tax Commission which reviews challenges by homeowners to assessments should make this clear to homeowners. In addition, homeowners should be provided with information on the selling prices of comparable homes in their areas. Since the early 1980’s, the Finance Department has made great progress in making home assessments fairer. It is NYPIRG’s hope that this report will assist city assessors in making the system fairer still.
Background | Our Methodology | Rate of Assessment
| Findings | Some Examples | Recommendations
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