$175.5 Billion NY State Budget Makes 2% Property Tax Permanent, Includes Controversial Revenue Raisers

John Jordan | April 2019

New York Governor Andrew Cuomo

ALBANY—Gov. Andrew Cuomo and the State Legislature reached an agreement over the weekend on a $175.5-billion FY 2020 state budget that makes the 2% property tax cap permanent and enacts a number of revenue raisers, including congestion pricing for sections of Manhattan, for the beleaguered Metropolitan Transportation Authority to fund capital upgrades to New York City’s mass transit system.

For the real estate industry, the budget is a mixed-bag. The industry had been a strong advocate for making the 2% property tax cap permanent. However, HGAR and other downstate real estate professionals expressed dissatisfaction with changes enacted to the state’s mansion tax for properties in New York City.

“We approve of the property tax cap being made permanent, which will bring certainty to our state and local property taxpayers,” said HGAR Government Affairs Director Philip Weiden. “With that said, we are extremely disappointed with the new New York City transfer taxes, which will have a further cooling effect on the high-end market there.”

Leah Caro, chairperson of the HGAR Legislative Steering Committee, also praised the codifying of the 2% property tax cap, but bristled at the tax increases to downstate real estate.

“I appreciate that New York City and New York State need income to work on aging infrastructure,” she said. “I just wish there were ways to fund those projects without putting it on the backs of real estate transactions. More and more people are leaving New York State for warmer climates with less taxation for sure.”

She added that neighboring states of New Jersey, Connecticut and Pennsylvania are also attractive to those New York State residents who seek a lower cost of living and real estate taxes.

“New York City is struggling right now with a lot of inventory, sales that are down and downward pressure on pricing,” Caro, who is president and principal broker of Park Sterling Realty of Bronxville noted. “I think the timing could not be worse.”

Residential brokerage firms in New York City have reported a decline in volume and average sale price for condominiums in New York City in 2018. Reports on Manhattan’s residential market for the first quarter of 2019 are expected to be released shortly.

The New York State Association of Realtors in a prepared statement said it applauds the governor and members of the New York State Legislature for making the 2%property-tax cap permanent as part of the enacted 2019-2020 state budget. A long-term commitment to help battle New York’s crushing property tax burden is a welcome development.

NYSAR noted, however, “That being said, the imposition of two additional real estate transfer taxes will make residential and commercial property in New York City less affordable and further erode the value of property ownership in New York City. Lawmakers would better serve the people of New York City by making property ownership more attractive, not less attractive. A thriving real estate market will help achieve stronger and more vibrant communities without the burden of unnecessary taxation.”

Other major items from the approved state budget includes legislation to ban single-use plastic bags provided to customers and allows counties and cities to opt in to a five-cent fee on paper bags, with 40% of the revenue supporting local programs to buy reusable bags for low- and fixed-income consumers, and 60% of the revenue supporting programs in the state’s Environmental Protection Fund.

In exchange for reforms to the MTA, the state budget will raise revenues for mass transit through the congestion pricing plan, modifications to the state’s mansion tax and Internet sales taxes.

In terms of the additional real estate transfer taxes, NYSAR reports that there will be an additional transfer tax on residential properties in New York City in excess of $3 million (at a rate of $2.50 per $1,000 of conveyance) {$2 million threshold for non-residential NYC properties]. The new budget has enacted a new mansion tax strictly for New York City residential properties beginning at $2 million (.25%) and increasing thereafter at incremental rates with a cap of 2.9% on transactions involving properties valued at $25 million or more. This is in addition to the existing New York State mansion tax, which begins at 1% for properties valued at $1 million or more.

New York State officials noted that the new mansion tax structure will raise $365 million that will be deposited into the MTA’s Central Business District tolling capital lockbox and will be used to support up to $5 billion in financing for MTA projects. The new rates go into effect on July 1, 2019.

The Manhattan congestion pricing plan will include the installation of electronic tolling devices on the perimeter of the Central Business District, defined as streets south of 60th Street in Manhattan. Tolls will be variable and passenger vehicles will only be charged once per day. The implementation day for congestion pricing will not be before Dec. 31, 2020. This tolling program will leverage $15 billion, which will be dedicated to MTA capital needs and those funds will also be funneled into an MTA lockbox.

Another program modification of interest to the real estate community concerns STAR. According to a published report in Newsday, state legislators and the governor agreed to change how STAR works for homeowners whose household income falls between $250,000 and $500,000. Instead of seeing their STAR exemption applied up front to reduce their school tax bill, those homeowners would have to pay the full bill first, then receive a check at a later date from the state.

According to the New York State Association of Realtors, the budget language of the revenue bill contains an “incentive” to switch from the old version of STAR (exemption) to the new program (STAR credit) where you pay the total property tax bill up front, but then get a STAR credit check at a later date. If the taxpayer does not receive a STAR check before school taxes are due, the taxpayer could be entitled to interest. The new budget language caps the STAR benefit at the existing rate if you stay with the old program. If the taxpayer switches to the new program the STAR benefit would be eligible to be 102% of the prior year’s benefit.

The approved state budget also ensures protections for New Yorkers who receive some form of lawful source of income including non-wage income or subsidies from discrimination in housing. All New Yorkers, including but not limited to, certain domestic violence survivors, veterans, and disabled individuals will be able to file complaints through the New York State Division of Human Rights if they have been discriminated against because of their lawful source of income.

John Jordan
Editor, Real Estate In-Depth