Cities’ #PropTax reliance faces a reckoning. Property owners prepare! An analysis of a recent CBC News article: $9B plunge in NYC commercial real estate sets up brutal political fight over shrinking tax pie.
Last week, we used this space to highlight a WSJ article citing the precipitous decline in office building values becoming problematic for city budgets.
Just how big is this problem?
On the heels of this, the New York Post has followed up by quantifying the potential shortfall in this January 21st article by its Editorial Board.
According to New York’s Finance Department, the city is short of its most recent high by somewhere in the order of $9 billion. As it stands, a third of the city’s $106.4 billion budget comes from real estate taxes (residential and commercial), which are earmarked not just for public services but to pay down general-obligation bonds. In the past, cities could heavily rely on predictable year-over-year property tax revenue. But sudden shifts in situational dynamics have thrown such reliability on its head.
The $9B shortfall comes about as tenants in office, retail, and hospitality shrink their footprints. Technology and changing work patterns in turn lower demands for space. Despite such upheaval, the structural nature of multi-year leases (5-10 years are standard) may result in taxing authorities defaulting to the status quo until those leases begin rolling over. They could very well be aggressive in the way they try to extract as much tax revenue as they can, while they can.
On the surface, this could be dismissed as a New York story. In fact, it appears to be a script that is and will continue unfolding in major cities across North America in the coming months.
This context sets the groundwork for a pending tug of war between property/portfolio owners and those municipalities responsible for sending out tax bills. Battle lines will inevitably be drawn if the random nature of past practices and protocols associated with sending out tax bills are any indication of how this shakes out.
Clearly the implications of this are significant for Rethink Solutions, as itamlink provides a tool offering a highly structured and logical approach to managing a company’s property tax obligations. If there were ever a time portfolio owners required a robust solution to stay in front of their property tax obligations, it’s now.
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