Gov. Kathy Hochul had resisted pressure from the left to raise taxes as she ran for re-election this year, before agreeing to a compromise: a tax on high-end second homes in New York City. The move would secure desperately needed revenue and deliver a win to her ally Mayor Zohran Mamdani.
But what appeared to be a comfortable resolution soon turned into a quagmire, with business leaders feeling vilified by the city’s introduction of the tax and some homeowners confused and outraged after being told they might have to pay — reactions that troubled Ms. Hochul.
“The rollout could’ve been better,” Ms. Hochul said in an interview this week, recounting a conversation she had with Mr. Mamdani earlier this summer. “Absolutely, I said the rollout has to be cleaned up and fixed.”
Ms. Hochul, was concerned about what she saw as clumsy messaging by Mr. Mamdani as he introduced the esoteric tax to New Yorkers. She told the mayor that he needed to be clearer about how the tax would be administered and whom it would affect, according to two people familiar with their talks, who spoke on the condition of anonymity to describe private conversations.
The governor had taken note of how the mayor, a democratic socialist who campaigned on “taxing the rich,” was talking about the policy. In a widely seen video, for instance, the mayor had decided to highlight an especially expensive second home owned by a hedge fund manager, Kenneth C. Griffin.
“There’s a better way to do it,” said, Ms. Hochul a pro-business moderate. “Point to Russian oligarchs and Saudi princes” rather than someone who invests in the city, she added.
She wasn’t the only one to take issue with the execution of an otherwise popular policy, which city officials have estimated will raise hundreds of millions of dollars per year.
As criticism mounted in some quarters, Mr. Mamdani and his administration tried to adjust their messaging. But the response did little to quell the blowback, which included a lawsuit that claimed the administration had mishandled the complicated undertaking of instituting a major new tax on a short timeline.
The mayor is now being forced to justify the rollout in court, with one judge on Staten Island already suggesting that city officials did not act properly. And in almost gleefully pointing a finger at the wealthy, Mr. Mamdani united and emboldened his rivals in their quest to diminish his success.
An examination of the rollout reveals an unsteady process, propelled by an urgent need for revenue and the mayor’s desire to notch a win, and hindered by bureaucracy, poor public communication and a compressed timeline.
For Mr. Mamdani, it seemed a rare stumble, and a reminder to some New Yorkers of his lack of executive experience.
“We warned from the beginning that this tax would be extremely difficult to administer fairly and accurately,” said James Whelan, the president of the Real Estate Board of New York, an influential lobbying group that has criticized Mr. Mamdani.
He added: “The issue is no longer whether the tax is complicated. The issue is whether the city was prepared to implement it.”
City officials have acknowledged the confusion surrounding the tax, but maintained that the rollout was carried out appropriately and in accordance with state law.
A spokesman for the mayor, Matthew Rauschenbach, said in a statement that the tax “is about requiring those who own second homes worth $5 million or more pay their fair share, and we are committed to ensuring that only those who are required to pay do so.”
He said the tax would allow the administration to make “critical investments across the five boroughs and help us build a more affordable city for all New Yorkers.”
Information Gaps
The levy was approved as part of the state budget in late May. Rather than directly taxing the income of high earners or big companies, Ms. Hochul settled on a scheme that would amount to a surcharge on an annual property tax bill. In the first year, it would apply to condos and co-ops that are used as second homes, or pieds-à-terre, and have a “market value” — a complicated Finance Department metric — of at least $1 million. It would also apply to one-, two- and three-family second homes with a “market value” of more than $5 million.
The law directed the Finance Department to come up with rules that dictated how the city would collect the money. One immediate problem was that the city had no simple way to be sure whether a home was the primary residence of the person who owned it.
The city believed that about 17,000 properties were likely to be subject to the tax, though it is not clear how officials identified that subset. About half of those properties appeared to be owned by limited liability companies or trusts rather than individuals, and it was difficult to know who, if anyone, lived in them full-time.
The department said it would try to use documents like state income tax returns and driver’s licenses to make the “initial determination” about whether a given home was a pied-à-terre. Another problem emerged: The most recent income tax filings the state had on hand were from 2024.
It is not clear whether the city pushed for more up-to-date information from the state. The proposed set of rules was finalized on July 14.
17,000 Letters
The administration next had to alert homeowners that they might be taxed. In an effort to adhere to the law’s vague wording, officials published a data set online of nearly one million properties that “may be subject” to the tax. The data set was described as a “supplemental roll,” mimicking the tax rolls that are routinely published in January, but with the label of the new surcharge.
After it was published on July 24, and after Mr. Mamdani trumpeted the rollout of the tax on social media, the outcry from homeowners grew. The city changed the language online, appending an explanation in bold that said, “The vast majority of properties and units listed in the roll will NOT be subject to the surcharge.”
Even though the data set consisted of public information that was already easily accessible, some still saw it as maligning the city’s wealthiest taxpayers.
“The rollout is hardening a viewpoint people have of this administration: that they villainize success,” said Steven Fulop, head of the Partnership for New York City, an influential business group. “To put out people’s names and addresses, and frame it as though people did something wrong, we felt is not the right way to approach it.”
Even city finance officials expressed concern that the rollout had become overly politicized and could create pushback from anxious property owners, which in turn might undermine the city’s efforts to explain the tax to the public, according to several people familiar with the matter who spoke on the condition of anonymity to discuss private conversations. (Politico New York first reported the Finance Department’s concerns.)
Meanwhile, about 17,000 property owners were receiving letters informing them that, if they believed they were exempt, they would have to provide information — like a tax return — to show that they lived in the homes in question. Many recipients protested, saying they had long been full-time residents and that the city was unfairly shifting the burden to them to prove it.
Mr. Mamdani’s supporters have rejected the notion that the city is making an unreasonable demand, arguing that it is simple to demonstrate residency and that the pushback is in bad faith.
“Billionaires have a strategy of saying any tax on their wealth is a burden, but New Yorkers aren’t falling for it,” said Gustavo Gordillo, a co-chair of the New York City chapter of the Democratic Socialists of America.
A Lawsuit and a Skipped Hearing
One of the longtime city residents who received a letter was Randy Mastro, a lawyer and the former first deputy mayor under Mr. Mamdani’s predecessor, Eric Adams.
Mr. Mastro, a prominent critic of Mr. Mamdani who has filed several lawsuits against his administration, felt the letters — and the data set — were an example of government overreach. He sued on behalf of several residents included in the data set, saying the city should have done more work to narrow down the list of people potentially subject to the tax.
While the lawsuit did not challenge the legality of the tax itself, it argued that city officials had acted too hastily and sowed confusion. According to the law establishing the tax, the letters were supposed to be sent out by Aug. 30. But the city had decided to send them out weeks earlier.
Steven Banks, the city’s top lawyer, defended that pace in a court hearing, calling it “a rational decision to make to give people enough time on the back end to appeal, given the time frame in Year 1.”
The letters also did not explain how the city had determined recipients to be subject to the tax, a fact that the judge in the case, Wayne M. Ozzi, appeared to take issue with, and that Mr. Banks appeared to concede.
“Could our notices have been better?” Mr. Banks said in court. “Government notices can always be better. That doesn’t mean anything that was done here was illegal.”
The judge granted a temporary restraining order pausing the rollout, but the city immediately appealed, which stayed the order until an appellate court weighs in.
For now, the city is continuing to roll out the tax. Already, almost a third of the homeowners who received letters have applied for exemptions, the city said, and many have been approved, including one of the plaintiffs in the lawsuit.
The process remains under close scrutiny. City Council members chastised the administration when, in a rare move by City Hall, officials opted not to attend a hearing about the tax rollout on Tuesday, citing the pending litigation.
“Without the administration even here to discuss these things on the record, in public, it is very difficult to address these issues,” said Eric Dinowitz, a Bronx Democrat who supports the tax.
With the first tax bills set to start going out in November, there is still time for the city to adjust its approach. It remains unclear whether the bumpy rollout will prove to be a political liability for Mr. Mamdani, who has continued to resolutely defend his administration.
Preston Niblack, a finance commissioner under Mr. Adams, said that city officials had followed proper procedures and that he did not see “anything technically wrong with the rollout.”
“The Department of Finance did what it was required to do under the state law,” he said.
Emma Goldberg contributed reporting.
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