Residents of Boulder Ridge condominiums, a luxury gated townhouse community where Town Supervisor Paul Feiner has lived for many years, are breathing huge sighs of relief this week because, at Mr. Feiner’s urging, the Town Board Tuesday went along with him in unanimously rejecting the so-called “Homestead” tax classification.
The “Homestead” tax classification refers to a state law which allows towns that are completing reassessment to create two classes of tax assessable property – one for commercial property owners and the other for residential property owners.
The purpose of the law is to protect residential property owners from the immediate economic effects of a property revaluation that dramatically increases the assessed value of residential property compared with the assessed value of commercial property. Because the total amount of taxes to be collected is supposed to remain unchanged as a result of revaluation, the effect of the change in assessed value is to shift a substantial portion of the property tax burden from commercial property owners to owners of single family homes.
Rather than residential property owners bearing the brunt of the change resulting from revaluation all in one year, the “Homestead” classification gives towns in New York the flexibility to phase in changes in assessed value gradually over time, usually five years.
The law allows towns to create two tax classifications – residential (or “homestead”) and commercial – and fixes the relative amount of the tax levy at the rates that were in effect just before revaluation took place. Thus, instead of commercial property owners paying property taxes based on the new rate after revaluation, which could be substantially less than what they are paying now, with residential property owners having to pick up the slack, the commercial sector would instead get its tax break phased in gradually over a period of five years.
But the state law, which was enacted to encourage revaluation in municipalities that, like Greenburgh, haven’t done a reassessment in 60 years, has an important catch. The catch is that owners of condominiums, which are taxed today as if they were commercial properties, would now have to be taxed as if they were residential properties – and therein lies the rub.
When condominiums are taxed as if they were commercial properties, they are valued based not on what the fair market value of the condo is worth, but rather on the amount of rent the unit might receive. Using this method, condo owners pay far less in property taxes, which means single family homeowners have been subsidizing luxury condo owners for years.
The reclassification only applies to condominiums; it does not apply to co-ops or rental apartments. The idea is that million dollar condominiums, like those at Boulder Ridge, where Mr. Feiner lives, should as a matter of fairness be taxed at the same rate as those who live in million dollar single family homes. Indeed, the whole idea behind revaluation is tax fairness.
The issue is controversial in certain wealthy communities, such as Scarsdale, where the condominiums there are worth millions of dollars – but without Homestead, their owners enjoy a huge tax break.
Some property owners in Scarsdale feel that owners of luxury condos should be treated the same as owners of single family homes, while others feel that because some of the residents of luxury condos may be elderly or on fixed incomes or are unlikely to have children in the schools, they should not be required to pay property taxes on the same basis as single family homeowners. On the other hand, the same may be said about owners of single family homes, many of whom are likewise elderly, on fixed incomes or are unlikely to have children in schools — yet they too must subsidize the taxes paid by million dollar condo owners, like Mr. Feiner.
The same debate might have taken place in Greenburgh too, but Mr. Feiner wouldn’t hear of it. He got his colleagues on the Town Board to vote to cut off the discussion in Tuesday’s work session before the public even found out it was an issue.
State law gives municipalities undergoing revaluation the right up to 60 days before the revaluation is adopted to elect to opt in to the Homestead tax system. Greenburgh’s reassessment project is expected to be completed this spring.
Mr. Feiner’s argument was that while revaluation did result in an increase in the percentage of property taxes being paid by residential taxpayers, as compared with those paid by the commercial sector, the increase was not substantial enough to warrant adopting Homestead.
But his real concern was the impact on co-op and condo owners. He reasoned that enacting Homestead would immediately subject luxury condo owners, like his neighbors at Boulder Ridge, to an immediate tax hike because they would now be treated for property tax purposes the same as residential property owners.
But he went further than that and warned that if Homestead were enacted, owners of co-ops (who tend to vote in Democratic primaries) would likewise have to pay more in property taxes because their immediate tax benefit, as a commercial property owner, would instead be phased in over a five-year period, instead of all at once.
The same is true for the Town’s other commercial properties and Mr. Feiner says he is worried about them having to pay higher taxes in the near term with Homestead enacted than they might otherwise have been required to pay.
Whether it makes sense to say no Homestead, though, depends on a number of factors which the Town Board did not address, or allow the public to address.
For example, how many condos would actually be affected? And how much would their being reclassified as residential properties help reduce the otherwise increased residential tax burden? And why is it fair for condo owners in Greenburgh to pay less in property taxes than owners of comparably priced single family homes? How much more in property taxes would the owners of the million dollar condos in Boulder Ridge have to pay if they were taxed at the same rate as those living in million dollars single family homes? And how much less would residential property owners have to pay if condo owners, like Mr. Feiner, would be required to pay their fair share?
Decision-makers might also want to know what the dollar impact revaluation is likely to have on the Town’s commercial sector if the effect of revaluation is implemented all at once, or if, under Homestead, it was implemented gradually over a five-year period.
That’s a discussion town officials, led by Mr. Feiner, concluded Greenburgh residents are not entitled to have.
The issue is of particular concern in Edgemont. By law, school districts can “opt out” of Homestead, if a town adopts it, but school districts that might benefit from Homestead, where a town does not adopt it, cannot “opt in.” Consequently, even if Homestead made sense in Edgemont, the school district cannot adopt it even if it wanted to.
On the other hand, if Edgemont were an incorporated village, it would have the right to adopt Homestead, even if the Town rejected it. Indeed, if Edgemont were an incorporated village, it could actually discuss the issue; as a result of Tuesday’s action by the Town Board, however, unless Edgemont incorporates, that discussion will not be allowed to take place.
The possibility of Edgemont incorporating is also a relevant consideration for a different, but related issue. One of the consequences of revaluation is that the portion of taxes Edgemont pays to the Town for municipal services is likely to increase from around 25% to as much as 30% or more.
The Town currently raises about $50 million in property taxes from unincorporated Greenburgh. At 25%, Edgemont’s share is $12.5 million; but at 30%, Edgemont’s share would be around $15 million. Those favoring incorporation would argue that, at $15 million a year, Edgemont can easily afford to purchase its own municipal services, elect its own village government, control its own zoning and planning, and thereby dispense with Greenburgh altogether. And if enacting Homestead were in its economic interest, an incorporated Edgemont could at least legally have that discussion. Right now though, after Tuesday’s action by the Town Board, that discussion cannot occur at all.