Ken Griffin and New York’s Distorted Property Tax System

Mayor Zohran Mamdani apparently thought he could both score political points and raise billions in new revenue through his proposed pied-à-terre tax on the Manhattan second homes of the super-wealthy. To make his case, he called out the Citadel hedge fund billionaire, Ken Griffin, by name at his high-end penthouse. A slew of complications are emerging, including the skepticism in a new report from the office of New York City’s comptroller, Mark Levine, as to how many often-empty high-end residences there really are. By spotlighting Mr. Griffin, though, Mr. Mamdani has inadvertently drawn attention to an actually serious problem: the distortions of the city’s (and the state’s) property tax assessment system.Mr. Griffin may have paid $238 million in 2019 for his midtown unit — but it’s formally assessed at less $7 million. That’s just one attention-grabbing example of an assessment system that fails to keep up with market conditions and, by statute, under-assesses some of the city’s priciest residences, while failing to reflect neighborhood change and punishing single-family homeowners in non-pricey Staten Island and Queens.It’s no secret as to how to make a property tax assessment fair: reassess regularly and set taxes based on the value of comparable properties. Yet the city with the nation’s largest property tax base fails that simple test in dealing with the estimated $1.3 trillion of value spanning 1.1 million real estate parcels.A few examples. Condominiums are taxed as if they are rental properties, on the theory that they should be compared to the rents similar apartments might command, rather than the sale prices of other condos. Yet rental prices are set for nearly a million apartments by the city’s rent stabilization — price controls — laws. That pushes rents lower and property tax assessment along with them. As a result single-family homes face a higher effective tax rate than Park Avenue condos. Then there’s the fact that, to buffer owners against precipitous tax increases, the city has adopted “assessed value growth caps.” These increases are limited to 20 percent over five years.As a result, values in, say, gentrified brownstone Brooklyn, are lower than the market level, thanks to the fact that Park Slope was once rife with crack houses and crime. High-end assessments may still lag those in lower-value Crown Heights and Bed-Stuy which were set long ago at a higher base, before market conditions changed. Progressives have characterized this inequity as racial discrimination — but it’s really bureaucratic incompetence to keep up with the housing market. That’s also harming the owners of rental buildings in the Bronx, whose market values have stagnated even as their property tax bills keep going up to help pay for the city’s ever-increasing budget, which Mr. Mamdani has proposed at $127 billion. Rising tax bills in tandem with the new mayor’s signature rent freeze risk driving such owners into foreclosure and even abandonment. Then there’s the housing that doesn’t even get built. Under current law, new multi-family development is taxed at the city’s highest residential rate — discouraging any new construction absent tax breaks. Any mayor who, like Mr. Mamdani, asserts the need for new housing needs to start with the property tax system.Incredibly, the city’s last uber-progressive mayor, Bill de Blasio, was actually aware of the shortcomings of the property tax system. He convened a City University of New York-led Advisory Commission on Property Tax Reform, which released a useful, 72-page report which the current mayor could revisit. It described the current system as “opaque, arcane, and inequitable.” Among its proposals: one-to-three family homes should be taxed at the same rates as coops and condos, pegged to “sale-based market value.” The same standard should be the legal requirement not only in New York City but the Empire State as a whole, requiring routine property reassessments and adjustment of tax bills. As it stands, many localities do not reassess regularly but instead defer to state-mandated adjustments keyed to their share of the overall sales prices of homes in their counties. Complicated and crazy. To be sure, any reform of property taxes in New York — especially in the city — is no excuse to raise taxes, as Mr. Mamdani has made clear he’s eager to do. The goal, in short, is to hold the overall “levy” (the total revenue generated by property taxes) the same — or, ideally, lower — while sharing the burden more fairly.There’s no reason, other than a progressive cash grab to fund a bloated city budget, for Mr. Griffin to pay a higher tax if he uses his Manhattan apartment as a second (or third?) home. If such a tax is imposed, though, value his abode based on something the Citadel executive would surely endorse: value set by the market.

Ken Griffin and New York’s Distorted Property Tax System

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