If Subway Is Nearby, Should You Pay More Taxes?

Proponents point to the Upper East Side of Manhattan, where co-op and condominium prices in a 10-block stretch near the Second Avenue subway have risen 6 percent since it opened in January 2017, according to figures from the Corcoran Group, a large real estate firm. In Manhattan’s main business corridors, from 60th Street south, the benefit of being near a subway adds $3.85 per square foot to the value of commercial property, according to calculations by two New York University economists.

The notion that property owners should pay extra for their proximity to the subway is called “value capture” and has long been debated in urban planning circles. Now Gov. Andrew M. Cuomo, a Democrat, has made value capture a prominent part of his plan to salvage the subway system by proposing to give the Metropolitan Transportation Authority the power to designate “transit improvement subdistricts” and impose taxes.

The plan’s final contours are a long way off and would need legislative approval. But at a moment when the subway is facing its worst crisis in decades, there is a growing consensus that property owners should shoulder more of the cost of a subway system that has nourished their bottom lines.

Value capture is “the solution of the moment,” said Kathryn S. Wylde, president and chief executive of the Partnership for New York City, an influential group of business leaders. And Thomas K. Wright, president of the Regional Plan Association, an urban policy organization, called value capture an “innovative financing mechanism” that New York is missing out on, even as the subway “is making some people very, very wealthy without paying into the system.”

The governor’s proposal has opened yet another front in his continuing war with Mayor Bill de Blasio, a Democrat whose aides maintain that Cuomo’s value capture plan would commandeer the process of setting property taxes, a paramount responsibility of the city. They said state officials never discussed the proposal with the city. “This is not the way to address the problems of the MTA,” the first deputy mayor, Dean Fuleihan, said.

Michael Slattery, senior vice president of research for the Real Estate Board of New York, which represents New York’s developers, said the proposal “raises serious questions that need to be evaluated, especially when it deals with a property tax system that we know already has serious problems.”

There is little dispute that access to public transit often results in higher real estate prices. Neighborhoods like trendy Williamsburg in Brooklyn would not have had a resurgence without the access provided by the L line, whose ridership grew at three times the rate of the system as a whole from 1998 to 2012 and which has benefited from an upgraded signal system that allows more trains to run.

The Cuomo proposal calls for before and after assessments in neighborhoods where a new transportation project, like the extension of a subway line, raises property values. Officials would determine the difference between the previous assessment and the new, higher one.

Of the tax on that difference, 75 percent would go to the transit agency and 25 percent to the city.

“It’s not going to pay in its entirety for the capital requirements for any one project,” said Patrick J. Foye, president of the transit authority, “but it could over years or decades provide significant new funding.”

Whether value capture could work, given the antagonism between City Hall and Albany, is an open question. Carl Weisbrod, who was named to the transit agency’s board by de Blasio and was chairman of the city’s Planning Commission from 2014 until early last year, said value capture demanded “close cooperation between the MTA and the city on a case-by-case basis.”

“To simply impose it on the city isn’t going to work,” he said.

State officials said an existing four-person review panel would have the power to veto proposals the city opposed — and one member is appointed to represent the city. Joseph J. Lhota, chairman of the transit agency, said that the panel “works under what I call U.N. Security Council rules,” meaning that if one of the members is against a project, “the entire proposal goes down.”

Some public transportation advocates have been calling for special property taxes for years, and the MTA raised the idea in December after a column by Jim Dwyer in The New York Times discussed the subway’s effect on real estate values.

As proposed, the governor’s value-capture plan would apply only to transit projects costing more than $100 million. It could not be used to pay for already completed projects, like the $4.4 billion segment of the Second Avenue subway. But it could raise money for future segments planned to extend that line north to 125th Street.

The proposal also listed other major projects that value capture could be applied to, including East Side Access, which will connect the Long Island Rail Road to Grand Central Terminal, as well as the existing Metro-North and subway stations along 125th Street in Manhattan.

City officials maintain that including railroad projects is unfair because they largely benefit suburban commuters who would not be charged under the governor’s tax plan. Fuleihan, the first deputy mayor, said 70 percent of the revenue for the transit agency comes from the city through taxes and fares, but suburban commuters who use the subway once they arrive in the city pay nothing but the fare.

The governor’s proposal would allow the transit agency to establish districts around new projects for value capture that could extend as far as a mile from a station. But city officials scoffed, arguing that living a mile from a stop is too far to consider it a convenience.

What improved public transit can mean for a neighborhood is easy to see on the Upper East Side, which became a transit wasteland after elevated trains on Second and Third avenues were demolished more than 60 years ago. Until the Second Avenue subway opened, residents on the eastern edge of the neighborhood had to trudge blocks to squeeze onto the Nos. 4, 5 and 6 trains on Lexington Avenue, the nation’s most crowded subway line.

“It’s all good, plus people love the way the stations look,” said Lydia H. Sussek, a senior global real estate adviser with the Corcoran Group. “I’ve sold new condos as a result of it, and I had a couple who moved to East End Avenue knowing they’d have transportation, whereas before people never would have looked east.”

Christian Moulin, a co-op owner who has lived on East 85th Street between York Avenue and East End Avenue for 17 years, said the Upper East Side used to be “the less expensive place — rents were reasonable.”

“That’s changing,” he added, “and it’s all because of the subway.”

He said one indication was that flyers from brokers seeking apartments now appear in his and his neighbors’ mailboxes every couple of weeks. “We never had that before,” he said.

Beth Fisher, a senior managing director for the Corcoran Sunshine Marketing Group, which is handling sales for three new apartment buildings north of East 86th Street, said the distance to the subway had long been “a metric for how people live” but that value capture put too much of an emphasis on the subway’s influence.

“The Second Avenue subway, sure, is the protagonist, the key driver of value,” she said. “But it is not the only driver. It ought not be singled out in that manner.”

Value capture is a familiar concept outside New York and has been used as a way to fund transit projects in other cities, including Los Angeles, Seattle, London and Hong Kong. In New York, Wright, of the Regional Plan Association, called the Second Avenue subway “a lost opportunity” in terms of value capture.

The extension of the No. 7 line to the Far West Side of Manhattan was financed by what amounted to value capture on Hudson Yards, the megaproject near the Jacob K. Javits Convention Center. Under de Blasio’s predecessor, Mayor Michael Bloomberg, the city took the unusual step of offering to pay the $1.8 billion cost of the extension based on anticipated tax revenues.

But Wright cautioned that value capture in already developed neighborhoods would be more modest.

“In developed areas — say, the Upper East Side where you’re not looking at new virgin development on a rail yard, what you’re talking about is increased values of buildings,” he said. “The New York property tax system is such that that’s not going to generate short-term and immediate returns.”

This article originally appeared in The New York Times.