Budget ∙ COVID Recovery
Raising Revenue for New York City
The New York City Independent Budget Office shows that the city may be facing $3-5bn annual budget deficits for the 2021-2024 period. These numbers were released before the passage in March of the American Rescue Plan Act of 2021, and Andrew Yang has spoken out about the need to conserve the resources the federal government has allocated to the city for the potentially challenging years ahead.
This period will involve difficult choices. We need to do everything we can to protect vital services while making the expenditures necessary to get the city back on its feet in industries the local economy relies on, such as performing arts and tourism. Additional revenue sources must be part of the solution, and a Yang Administration will focus on raising revenue smartly and equitably to help the economy flourish while ensuring that everyone pays their fair share.
Start to reform the property tax system by fixing wasted land assessments.
There are 16,000 privately-owned, vacant parcels in New York City with a buildable lot size greater than 1,000 square feet. Between 2009 and 2018, the city’s population grew by 500,000, but the number of housing units only increased by 100,000. In a period where we’re struggling and failing to produce the housing needed to accommodate the next generation of New Yorkers, as well as other needed construction, developable land sits wasted. That is, appropriately, the private decision of the owners of those parcels. What makes no sense is the current state of property tax assessments in New York, which creates large disincentives to putting land to productive use.
Fortunately, this is one problem that the Mayor and the Department of Finance has the power to fix. Current policy is to assess vacant, wasted land at low values even though New York City land is worth, on average, $5 million per acre. New York City has a four-class property tax system, with different classes taxed at different rates. 80% of vacant land in New York City is in Class 4, a category which captures most commercial vacant land, and this land is valued, on average, at less than 20% of sales-price based market value. The Department of Finance can unilaterally bring these values up to their sales-price based market value.
If wasted land were assessed commensurate with its market value, there would be no more disincentive for investors to build. The problem in the current system is that investors know, once they develop a parcel, it will be reassessed at a substantially higher value. So, in the status quo, while they’re able to collect rent from that developed parcel, the rental income they gain for the cost of construction is in large part offset by the increased tax bill. Assessing wasted land appropriately fixes the disincentivization.
Bringing wasted land values up to their sales-price based market value and adjusting class shares and the property tax levy accordingly would increase city property tax revenue by roughly $900 million. And, it would be a useful prod to investors to develop the wasted parcels they own. Instead of the status quo, where the most profitable strategy for an investor may be to leave land empty, the city would be eliminating disincentives so the most profitable decision an investor could make would be to develop their land so that it offers constituents benefits.
The Yang Administration would exclude community gardens - an important contributor to city life and a very small percentage of vacant parcels. As with any assessment change, owners would be able to engage with the Department of Finance when the new assessment seems off either against market values of comparable properties or because the city Department of Finance misunderstands the developability of the land. To make the matter as clear as possible, property taxes on developed parcels would not be changed by bringing values up to their sales-price based market value on wasted land and adjusting class shares and the property tax levy so the city can capture that incremental revenue. No New Yorker would see higher taxes on their apartment, home, office, or retail establishment as a result of the Department of Finance fixing wasted land assessments.
This land includes large parcels up and down the East River owned by private investors that were already permitted for construction before the 2008 financial crisis. It includes parcels across the boroughs that could be redeveloped into large numbers of single family houses and apartment complexes. Many of these parcels are currently sitting empty, strewn with debris and rodents, behind chain link fences. This blight hardly seems like the highest value use of such a precious resource.
Work with our universities and hospitals to close the budget gap.
New York City is home to some of the greatest and wealthiest universities and medical research centers in the world, including Columbia University, New York University, Presbyterian Hospital, Memorial Sloan Kettering, and Weill Cornell Medical College. Just these institutions together have assets over $80 billion. These institutions are strong because of the incredible work every day of their teams, but also because they’re in New York City.
Leading institutions in Boston/Cambridge such as Harvard and MIT have figured out that it’s in their interest to keep the city they rely on strong, and they pay over $100 million per year in property taxes and other contributions that they are not required to make. In contrast, Columbia is one of only two Ivy League universities without a payment-in-lieu-of-taxes program in place with its home town.
The Yang administration would look to the city’s wealthiest universities and hospitals with assets over $2 billion to help the city through this crisis. If institutions in Boston/Cambridge can contribute over $100 million per year in perpetuity, then the comparable institutions in New York should be able to contribute $250 million per year only for the next 3 years as the city works through its fiscal challenges. Buoyed by strong performance of their large investment portfolios, these institutions have the resources to step up and New York’s strength is their own, so they have a large vested interest in seeing New York recover.
Support the passage of a pied-à-terre tax in Albany.
At different points in this budget process, the New York State Legislature has considered a “pied-à-terre tax”. While different proposals have been put forward, the core concept is that we want precious New York City residential real estate to be put to use with residents generating economic activity for the city. So taxes should be higher on high value residential properties (generally $5 million and above) that are not primary residences. This is ultimately a state issue, and Andrew supports legislation on this front. The Independent Budget Office has estimated that a pied-à-terre tax would raise $232 million annually in tax revenue.
Implement an equitable legalized marijuana market and the marijuana sales tax.
Andrew applauds the recent legalization of marijuana in New York State. As part of marijuana legalization, the city will begin collecting 4% sales tax on marijuana sales, which could result in an additional $50-$100 million of tax revenue for New York City and economic opportunities for those who have been historically hurt by the war on drugs.