City Council Intends to Aid Property Owners with Two Tax Deferment Bills

Public Advocate Jumaane Williams Image Credit: NYC City Council

Public Hearing hinges on interest rates and how property tax deferments affect the City budget. On June 18, 2020, the City Council officially introduced two bills that would defer July 1, 2020, property tax liabilities for COVID-19 impacted property owners. One bill addresses the tax liabilities of primary residences and the other addresses the tax liabilities of businesses affected by the pandemic. The bills were originally heard as preconsidered bills at the June 10, 2020, Committee on Finance public hearing.

Intro 1964

Intro 1964, sponsored by Council Member Margaret Chin, would require the Department of Finance to offer July 1, 2020, real property tax deferments in two scenarios. First, to property owners whose property was occupied by an active business or trade on March 7, 2020 and was subject to Governor Cuomo’s executive order limiting seating, occupancy or on-premises service limitations. Second, if the property owner experienced an unexpected decline in income from March 1, 2020 through June 30, 2020. In both scenarios, the assessed property value must also exceed two hundred fifty thousand dollars.

The interest rate imposed on the deferred taxes would be the same as the rate set for underpayments of general corporation tax (the federal short-term rate plus seven percentage points). The deferral agreement will require the taxpayer the pay 25 percent of the deferred taxes by October 1, 2020 and the remainder by May 1, 2021. The agreement would also require the property owner to provide their tenant, whether commercial, residential or institutional, an option for a forbearance on rent, and shall not charge the tenant an interest rate on late rent payments greater than twenty-five percent of the property owner’s own unpaid deferred taxes.

Intro 1974

Intro 1974, sponsored by Public Advocate Jumaane Williams, requires the Department of Finance to offer real property tax deferments, without interest or penalty, to property owners  who have experienced economic hardship as a result of COVID-19, have a combined annual income of two hundred thousand dollars or less, and whose assessed property value is two hundred fifty thousand dollars or less. The property must also be the taxpayer’s primary residence. The bill will defer the taxes due on July 1, 2020 until October 1, 2020 for the eligible property owners.

Additionally, the bill would increase the income threshold of the Department of Finance’s Extenuating Circumstances Income-Based installment agreement, from nearly $60,000 to $200,000, where the qualifying extenuating circumstance is as a result of COVID-19 hardships. To read CityLand’s prior coverage of the Department of Finance’s COVID-19 payment plans and deferral programs click here. Intro 1974 was also sponsored by Council Members Ben Kallos, Brad S. Lander and Adrienne E. Adams.

Background

On March 7, 2020, Governor Andrew Cuomo issued an executive order declaring a state of emergency to help mitigate the spread of the COVID-19 virus. Subsequent orders required many businesses to close or reduce in-person operations. The result to many small businesses, and residential and commercial tenants has been devastating. While the City began to lift some of the restrictions on June 8, 2020, as part of the Governor’s Phase 1 reopening plan, many will be unable to make up loss incomes and revenues.

The difficulties faced by small businesses and residential tenants have also been felt by property owners. As stated by the Committee Report, the state’s eviction moratorium and rent deferral programs shift the financial burden to the property owner, and “unsurprisingly, rent collections have tumbled.” Interest rates on late payments of property taxes were most recently 7 percent for properties with an assessed value of not more than $250,000 and 18 percent for properties valued more than that. These bills are intended to “avoid accelerating mounting pressures on COVID-impacted property taxpayers,” by relaxing interest rates under the specific scenarios detailed in the bills.

Commentary

The majority of testimony, public comment and commissioner questioning was related to the interest rates for deferred taxes, the City’s cash balances and the dire economic state of so many New York property owners.

Jeffrey Shear, the Department of Finance’s Deputy Commissioner for Treasury and Payment Services, testified on behalf of the city. Shear explained that property taxes are the City’s biggest revenue. Without that revenue, the City would have trouble paying many of its employees and vendors and providing many vital services. Shear stated the Department and Banking Commission supported the Public Advocate’s bill, but expressed that the program should not be over-expanded. The Department’s main qualms related to the bill offering deferrals to properties valued over $250,000, who experienced a decline in income during the COVID-19 months. Shear stated, “the properties in this category account for 70 percent of the $30 billion in property tax revenue,” pointing out that the vast majority of New York City businesses would qualify regardless of the size of the property and the amount of taxes due. Stating, “even if a fraction of eligible businesses opted into this program, the City’s cash position would likely be severely affected.”

Robert Altman, from the Queens & Bronx Building Association, stated his organization was opposed to the legislation. Altman stated, “these bills are nothing more than a façade. They do so little, impact so few, and have such narrow provisions (and in the case of the larger properties such a high interest rate) as to render the bills essentially worthless except for an extremely narrow subset of property owners.” Altman added “the legislation obscenely seeks to make a profit on the pandemic since the City will simply borrow at a much lower rate than 9% for any deficiencies and then collect the 9% later on from the property owner.”

Andrew Rigie, Executive Director of the New York City Hospitality Alliance, testified that the bills “will help alleviate immediate financial pressures on small businesses and landlords during these trying times.” But Rigie also pointed out that the Council must now “focus on commercial rent forgiveness” among other measures to address potential defaults and the economic crisis.

Christie Peal, Executive Director and CEO at the Center for NYC Neighborhoods, testified that the bills were a step in the right direction. Peal stated that “property tax installment plans would be a helpful measure for thousands of households,” but also called attention to the fact that the economic crisis is disproportionately affecting the black and Latinx community. Peal cited a late May, Census bureau survey that provided 94 percent of non-Hispanic white homeowners in New York state made their previous month’s mortgage payment, yet only 69 percent of Latinx and 70 percent of black homeowners in the state were able to make their mortgage payments.

The committee will vote on this bill at a later date. It is important to remember that this article does not substitute for personalized legal counsel.

For New York City-specific COVID-19 updates, the City has established an information site with updates from all major administrative agencies. Agencies include the Department of Buildings, City Planning, Citywide Administrative Services, the Department of Finance and the Department of Transportation among others. You can find that page here.

By: Jason Rogovich (Jason Rogovich is the CityLaw Fellow and New York Law School Graduate, Class of 2019)