The Co-op That Lost Its Tax Break — and How It Got It Back

When a small Manhattan co-op suddenly saw its budget spike, rising costs weren’t the culprit — it was an administrative filing error. Turns out the co-op had lost its co-op tax abatement worth $60,000 because its management company had missed the rule regarding prevailing wage requirements. Avi Zanjirian, partner at Czarnowski & Beer walks us through how the board discovered the oversight, fixed the problem, and ultimately got the abatement reinstated. Habitat’s Emily Myers conducts the interview.

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Transcript

Emily Myers:

Welcome to Problem Solved! A conversation about challenges facing New York co-op and condo board directors. I'm Emily Myers with Habitat Magazine, and I'm joined by Avi Zanjirian, partner at the auditing and accounting firm, Czarnowski & Beer. Avi, thanks so much for being here.

Avi Zanjirian:

Thank you so much for having me.

Emily Myers:

So, this episode takes a look at a co-op's tax filing error. We'll discuss what boards can do to make sure a building doesn't run into unnecessary violations or expenses. The good news is that some basic compliance preparation can save you a lot of time and money. So Avi, let's dive in with a look at the small Manhattan co-op that came to you with questions about their budget. What was their concern?

Avi Zanjirian:

So they had just received their budget for the new year, and as in most buildings, they're not happy with the increase that they were looking at. But they felt that it was significantly higher than they think it should have been. So they asked us to take a look at it as a second check. So we looked it over and one of the things we noticed, in real estate taxes and a co-op, is its biggest expense. So we said, "Why did it go up so much from last year to this year?" We understand there's increases, but that was a significant jump. So I took a look on New York City's website into the building and realized that the building had previously received the co-op tax abatement, and it had no longer been receiving it. So I knew that that year there was a big change for the co-op abatement related to prevailing wages.

So, just to give a little background there, so the New York State changed the rule for the New York City abatement, that in order to qualify as a co-op to get the abatement, which is about 17.5%, there have been different variations over the years, we can go into them if we need to, that the building, if they were not paying prevailing wages to their employees wouldn't qualify for the abatement. So in order to do so, to qualify, you had to sign an affidavit and submit it, this building. The management company, it was a smaller management company, wasn't aware of the filing, that wasn't aware they had to do the affidavit filing, so therefore it wasn't submitted and New York City just took off. It was about a $60,000 abatement. So their new bill was $60,000 higher than it should have been.

Emily Myers:

So, I mean, that's a big amount of money for a small co-op to lose technically. Were they able to recoup it?

Avi Zanjirian:

So, yeah. So I think after we identified the issue, which obviously, helped them realize why the budget was so significantly, was projecting such a significant increase. They were able to submit the affidavit and get a retroactive fix of this. Obviously, you don't like to have to fork out extra money to New York City, especially, on a smaller building who has a tighter budget, but they were able to get their recoups in a subsequent period.

Emily Myers:

Okay. So basically, if you don't pay prevailing wages to your employees as a co-op, you do lose that abatement. And it was simply down to the fact that they had not filed the correct paperwork. And how had that fallen through the cracks?

Avi Zanjirian:

My basic understanding is that there are new laws that come out each year, and not all of the, I would say smaller outfits, I'm not trying to pick on them, but some of the smaller outfits were aware of it and knew it had to happen. So therefore that's I think why it fell between the cracks in this instance.

Emily Myers:

So then what advice did you give the board to take away, having used your services to figure out why the cost had increased?

Avi Zanjirian:

So I had mentioned to them that once I realized that wasn't something they had, was on their radar, I had mentioned a few other upcoming, what they call New York City Local Laws that, just wanted to make sure they were aware of them and just said to them, "Somebody either on the board level, if it's not going to be on the managing agent level, needs to be informed about what's going on in the industry." Whether you sign up to between the different platforms, between Habitat or other vendors, other magazines, just to make sure they're getting alerts as to what's going on in the industry that they have to keep an eye out on.

Emily Myers:

So which compliance issues most commonly trip boards up?

Avi Zanjirian:

I would say the newer ones. The ones they know about, I think they probably have it on record or they understand they need to do it. The newer ones that are coming up, that again, we could go into a few new ones that are coming up, but it's usually the things that pop out of nowhere. And if they don't have a form of communication to understand, to get that information, they're not going to know about it.

Emily Myers:

Yeah, and of course, let's think. Sorry, what's my question? I'm trying to think, sorry, Avi, of a way to get into the fact that... Actually, I think you said that this building was actually exempt in the end. Do you remember?

Avi Zanjirian:

No, that was another building.

Emily Myers:

Oh, there's another one. Okay. I just want to think of a question to get us into... So I could say something like, and of course, some buildings are exempt from certain compliance issues.

Avi Zanjirian:

Correct.

Emily Myers:

If for example, I guess a Local Law 97 is the emission caps that is relevant for buildings above 25,000 square feet.

Avi Zanjirian:

Right.

Emily Myers:

And I believe there are also buildings that are exempt from filing for the abatement because they... Is it because they already!

Avi Zanjirian:

The affidavit. Yeah. So with most of these compliance items, not everybody falls under the purview of having to comply. There's building size, building height, building structure, what's it made out of, how big it is, et cetera. I mean, it's all kind of the same thing. But when it came to the prevailing wage, in order to have to comply with this prevailing wages you had to have a building with evaluations over a certain threshold.

So in a different situation, we had another builder who didn't know about it, and called us and was like, "Oh, we didn't know if we should do this. It's a big increase on our budget to go start paying prevailing wages." Most buildings that were union-based buildings were already paying prevailing wages. So there's a lot of buildings so this wasn't an issue for them. But some buildings that weren't union or had one employee is a smaller property.

They were trying to make the decision, is the co-op abatement bigger than the amount... I'm sorry. Is the abatement, is it a larger credit than we're going to end up paying to these employees by increasing their salaries? So this building was one of them. Was coming and saying, "I don't know if it's worth it for us." So I said, "Hey, by the way I think, knowing they were, I think was in Brooklyn, what are your evaluations? And we looked it up. They weren't even subject to it, because they were below the threshold. So they went on and so, so we are proud, I don't want to say we're proud of them, but we're happy that they're on top of the compliance issues, but they didn't even realize that this is something that doesn't even apply to them.

Emily Myers:

Yes, of course.

Avi Zanjirian:

Just trying to understanding what applies to you and what doesn't apply to you is also part two. It's understanding what's there and then does it apply to me or not?

Emily Myers:

Yeah.

Avi Zanjirian:

Is really the end problems.

Emily Myers:

Because of course, jumping through the hoops of compliance for something, it takes time and often money. And if you don't need to comply in the first place, that's going to be wasted time and money.

Avi Zanjirian:

Absolutely. Especially when we know that all the board members are volunteers and they have other things: lives, jobs, family that they want to spend... They don't want to be wasting time doing it. Yes, absolutely.

Emily Myers:

So, then what's your advice to boards in terms of the takeaways from this example?

Avi Zanjirian:

I think it's simply, from one perspective, if a board is with, let's say a larger agent that has a compliance... A lot of larger agents now, managing agents will have a compliance department. The whole, the compliance sphere in New York City has become so big that most of these agents will have their own compliance departments to make sure that all of the different issues that apply to those buildings are being handled, different filing, requirements, etc.

If you're with a smaller agent who may not have a compliance department, it's a conversation with the managing agent, "Hey, can we make sure once a year we look through the different Local Laws or whatever other issues that are out there? Have we done everything? Is there a checklist?" If the managing agent can't provide that or the board has someone who is gung-ho and has the time to do it, maybe it's someone on the board member that creates this checklist of things that we have to make sure we're filing for our FISP, for our Facade, for the Local Law 84 for the benchmarking, for the energy assessments, making sure we're filing annually the affidavit for the prevailing wages. Making sure all this stuff is happening, so there's some checklist and form out there. That would be my recommendation.

Emily Myers:

And obviously, you were able to save this building $60,000. What was the cost of your work for the board?

Avi Zanjirian:

Oh, this, we do, this we do by the bill. This is part of, maybe an hour or so of just reviewing the budget was our professional time. But this is something we are looking at and we understand. We audit about 215 co-ops and condos, so we see this coming up a lot, which is part of our service.

Emily Myers:

Okay, great. Well, fantastic advice for boards. That is Avi Zanjirian, partner at Czarnowski & Beer.

Avi Zanjirian:

Thank you, Emily.