Gerald Lebovits.

New York state and New York City can't shake a legal challenge from a group of property owners and renters who say the city's property tax system gives wealthy residents a break on their taxes while placing an unfair burden on those of modest means.

Acting Manhattan Supreme Court Justice Gerald Lebovits denied the city and state governments' motion to dismiss, finding the plaintiffs, united in a group called Tax Equity Now NY, have standing to bring the suit and preserved due process claims against the two governments that the city's tax burdens have no relationship to real market values.

The group wants Lebovits to declare the city's property tax scheme and the state laws that govern it unconstitutional. 

Lebovits did let the state off the hook on claims that it violated the Fair Housing Act, the equal protection clause and state property tax laws.

But the New York City government had no such luck. The plaintiffs are being allowed to move forward with all 16 of their claims against the city, including that its property tax system violates the FHA because it disproportionately affects majority-minority neighborhoods and that it perpetuates racial discrimination in housing.

In their suit, filed in 2017, the plaintiffs argue that the property tax system tends to undervalue condominiums and cooperatives compared with rental apartments, thus causing more financial pain for renters in the form of higher property taxes for landlords that are passed along as higher rent.

Despite New York City's diversity, the plaintiffs argue, racial segregation in the city is pervasive. According to city data contained in the lawsuit, no one racial group makes up more than a third of the city's population, yet almost half of the city's neighborhoods are dominated by a single racial group.

And there is evidence of tax burdens falling harder on predominantly black and brown neighborhoods, the plaintiffs allege. Among the alleged “absurdities” found under the tax system include a $1,300 in property tax-bill for a $500,000 house in the relatively affluent and majority-white Park Slope section of Brooklyn while the owner of a house of the same value in Brooklyn's Canarsie neighborhood, where the population is about one-quarter white, would pay $5,460.  

Tax Equity Now is represented by a team from Latham & Watkins that includes former Court of Appeals Chief Judge Jonathan Lippman, who is now of counsel to the firm, and partners James Brandt, Richard Bress and Michael Bern.

“We filed our suit because the current system unfairly burdens homeowners in lower-income and minority communities, primarily in the outer boroughs,” said Martha Stark, director of policy for Tax Equity Now, in a news release. “As the result of today's ruling, thousands of New York property owners will have their day in court.”

Assistant Corporation Counsels Joshua Sivin and Andrea Chan are appearing for the city. A Law Department spokesman said the office is reviewing Lebovits' decision.

“We continue to believe this is a topic best addressed by the Legislature rather than the courts,” said Law Department spokesman Nicholas Paolucci. “We've established a commission that is actively considering the issues raised in this action.”

The New York Attorney General's Office declined to comment.

City leaders announced the creation of the commission Paolucci referred to, the Advisory Commission on Property Tax Reform, in May.

The commission has held two public meetings thus far and is planning five public hearings in the coming weeks, with the first set to be held on Thursday night at Public School 58 on Staten Island.

Vicki Been, a New York University School of Law professor who co-chairs the commission, said the commission is concerned about the issues raised in Tax Equity Now's lawsuit, such as “growth caps” that depress tax assessments as market rates increase and disparities between assessments of “Class 2” properties, which generally covers apartments, co-ops and condos.

“Certainly we will be considering those,” she said.     

But Lippman said the Tax Equity Now suit has done more so far to raise awareness about the city's property tax system than the statements of elected officials, and that the case is moving on toward the discovery phase and on a separate track from the work of the commission.

“Commissions come and go and nothing happens,” Lippman said. “That has been the history of New York and we certainly do not intend for that to continue.”

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