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A state appeals court on Thursday dismissed a lawsuit that claimed New York City's property tax system discriminates against low-income and minority homeowners, finding that flaws within the complicated statutory structure did not amount to violations of the state and federal constitutions.

A four-judge panel of the Supreme Court, Appellate Division, First Department wrote that while New York City neighborhoods remain "deeply segregated," plaintiffs from the tax-reform advocacy group Tax Equity Now NY had not shown that property-tax disparities disproportionately impacted black and Hispanic residents, compared with white homeowners.

The lawsuit, filed in April 2017, argued that the existing system tends to give wealthier homeowners a break on their property taxes, while unfairly shifting the tax burden to those of modest means. For instance, the lawsuit said, condominiums and cooperatives are often undervalued relative to rental apartments, causing more financial pain for renters, who see higher property taxes reflected in their rent and "can ill-afford to subsidize their more affluent neighbors."

The 94-page complaint, filed by TENNY's Latham & Watkins attorneys, also cited a number of "absurdities" that resulted from the current system, including the example of a $1,300 property-tax bill for a $500,000 house in the relatively affluent and majority-white Park Slope section of Brooklyn. Meanwhile, 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, it said.

A trial court judge in 2018 dismissed claims against the state for violations of the Fair Housing Act and the equal protection clauses of the state and federal constitutions, but left in place all 16 claims against the city.

The First Department's decision, however, reversed that finding, and dismissed the case in its entirety.

TENNY said Thursday that it planned to file an appeal with the New York Court of Appeals.

In its ruling, the First Department said there was a lack of statistical evidence to support claims that the system causes higher rates of foreclosure or discourages the development of rental properties in majority-minority communities.

And though the panel acknowledged a history of segregation in New York City that had "shamefully divided our neighborhoods for a long time," the court said the suit fell short of proving that the property-tax system was to blame.

"The heart of plaintiff's allegations rests on the assumption that New York City residents would elect to relocate to other neighborhoods if defendants applied the property tax system differently," wrote Justice Cynthia S. Kern.

"Such assumption is without basis. A person's decision to relocate or not to relocate is based upon a complex set of considerations of which property taxes are but one factor," Kern said.

She was joined in the decision by Justices Judith Gische, Barbara R. Kapnick and Peter H. Moulton.

With regard to the suit's other constitutional claims, Kern found that lawmakers had a "rational basis" for enacting the system, even though it led to unfair disparities for homeowners, and said the responsibility for reform rested with the state Legislature.

"It is up to the legislature to implement a fair and equitable property tax system," Kern said. "The grievances plaintiff raises are more appropriately addressed by that branch of government."

A commission established by Mayor Bill de Blasio and the City Council has called for a sweeping property-tax overhaul that would address some issues raised in TENNY's lawsuit. On Thursday, Laura Feyer, a spokeswoman for de Blasio, said the mayor "believes strongly that reform should be done legislatively, not through the courts."

"The property tax system should be fair, equitable and transparent," Feyer said in a statement.

"The New York City Advisory Commission on Property Tax Reform has proposed the most comprehensive reforms in 40 years, and we will continue to push for change before the mayor leaves office," she said.

A representative from the New York City Law Department said it was pleased with the court's decision.

In a statement, TENNY said that it "profoundly" disagreed with the First Department's ruling, but had always expected the case to wind up before the Court of Appeals, the state's highest appellate court.

"New York's courts have a deep and longstanding record of striking down government actions that violate state and federal constitutional and statutory guarantees. The preliminary property tax commission report issued more than two weeks ago—after years of delay—coupled with recent comments from elected officials, make it very clear that the political will to change this system doesn't exist and change will only come from the courts," TENNY said.

The New York Attorney General's Office, which represented the state, did not respond Thursday to a request for comment.

The case is captioned Tax Equity Now NY v. City of New York.

 

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