If the city eases the burden on busi- nesses, fewer . . . will fold.
NEW York City needs desperately to over haul its irrational property-taxation sys tem now — so as to stop feeding the vi cious cycle of the economic downturn.
To give homeowners a break, businesses have been carrying a disproportionate share of the city’s real-property tax burden — they pay 41 percent of the total collected, even though the real estate they occupy represents just 22 percent of the city’s market value. This inflates the costs of commercial space. And the lack of a phase-in period for taxes on improvements discourages investment and good repair.
When times are good, business suffers in silence, but when things hit the skids, the property tax can make a life-or-death difference.
Just look around the city: Businesses are disappearing from every neighborhood.
Because the property tax is the only levy controlled locally — and because it’s the city’s most stable and reliable source of revenue — mayors turn to it whenever times get tough. Sure enough, Mayor Bloomberg and the City Council in January put into effect the 7 percent tax hike that had been planned for July.
Here’s how businesses get hurt: The city has set the assessed value for one- to three-family homes at 6 percent of market value. Meanwhile, all other taxable property in the five boroughs — including apartment buildings and commercial space — is assessed at 45 percent of market value. So tax hikes hit businesses that much harder.
While it’s not unusual for commercial property to be taxed more steeply than residential, New York’s gap is extreme. Take Cook County, Ill., which assesses most Chicago residential property at 10 percent of market value and commercial property at only 25 percent — down from 16 percent and 38 percent, respectively, last year, when its Board of Assessors reduced the rates as the recession loomed.
Like Cook County, New York City could bring into closer alignment the rates at which it assesses residential and commercial property. If the city eases the burden on businesses, fewer of them will fold — and they’ll be able to keep providing the tax revenues the city so desperately needs.
The city should also push for changes to state law. For example, it could get Albany to change the rate at which the city can tax the rise in value from improvements so that it’s lower than the rate at which it taxes the rise in value of the land on which a building sits. Doing so would bring some relief to struggling businesses and encourage more construction.
With income- and corporate-tax collection plunging, a bigger share of city revenues is coming from property taxes. In recent years, the share was about 37 percent, but it will rise to 47 percent next year, says the city’s Independent Budget Office. That proportion hasn’t been seen since the early-’90s and late-’70s recessions.
New York must stop discouraging business investment. It needs to figure out how to restructure the property tax to treat residents and businesses fairly, in good times and bad.
Hope Cohen is the deputy director of the Manhattan Institute’s Center for Rethinking Development.