Lawsuit claims discrimination in real estate taxes
Today, attorneys from a prominent boutique law firm will file a class action lawsuit challenging New York City's and New York State's real estate taxes, claiming they discriminate against black and Hispanic renters.
“As currently applied, New York City’s property tax classification system has a disparate and adverse impact upon the City’s African-American and Hispanic residents and denies such residents their statutorily and constitutionally protected rights to due process and equal protection,” reads the suit, filed by Newman Ferrara on behalf of African-American Bronx renter Ernest Robinson and Hispanic Queens renter Rosa Rodriguez, and the class of New Yorkers who rent apartments in buildings with 11 or more units.
The plaintiffs argue that under the Fair Housing Act, New York's real estate tax system illegally burdens the black and Hispanic New Yorkers who live in big rental buildings over predominantly white-owned condos and co-ops, and predominantly white- and Asian-owned one-, two-, and three-family houses.
The lawsuit addresses a long-simmering complaint about equity in the city's tax system. One real estate executive described the suit to me as "explosive."
Class Two then gets subdivided into into three categories: condos and coops, properties with 11 units or fewer, and properties with 11 units or more.
Homeowners (Class One) are disproportionately white and Asian.
And though those homeowners own property with more market value than apartment buildings, they pay less in taxes. ("For Fiscal Year 2013, Class One paid only 15.5% of the City’s Real Property Tax, while Class Two paid 37.0%.")
But that's only the half of it.
Within Class Two, condos and co-ops, which are typically located in neighborhoods with more white residents, "receive exceedingly generous treatment, a product of concerted lobbying on behalf of owners who sought similar treatment to that given to Class One property owners."
And so you end with situations like the city taxing an $88 million penthouse at 15 Central Park West as though it were only worth $4 million.
Who pays the taxes, then?
The suit argues its the city's black and Hispanic renters.
"[W]ithin Class Two the property tax burden falls disproportionately upon one type of residential property: rental property with 11 or more units," and black and Hispanic are much more likely to live in those buildings.
That higher tax burden gets passed down to them in the form of higher rent.
In fact, according to the suit, "approximately 30% of the monthly rent reflects the owner’s real estate tax obligation.”
The suit is demanding that the “City and State adopt policies, procedures, regulations and/or legislation that will equalize the tax burdens that are disproportionally borne by African-American and Hispanic residents of buildings with 11 or more units located within the City.”
"If this suit is successful it blows up the City’s property tax system and to rebuild it would be a monumental headache because you [are] either lowering taxes on class 2 (creating a huge budget shortfall) or raising taxes on Class 1 (creating a political headache)," the executive said.
Neither the city nor the state had any comment.
You can read the suit here.
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