UPDATED, Nov. 16, 8:30 p.m.: Despite proud and glowing announcements by Gov. Andrew Cuomo, the Real Estate Board of New York, and the Building and Construction Trades Council of Greater New York, sources confirmed to The Real Deal that they did not actually reach a consensus on a new deal for the 421a tax abatement last week due to differing interpretations on which projects would qualify.
This is the story of how the deal nearly fell apart, and how the stakeholders appear to have rescued the agreement:
Last Thursday, REBNY and Building Trades released a joint statement outlining the basic terms of its long anticipated agreement on a renewed 421a. The agreement noted that developers would receive a critical tax exemption for 35 years on the residential buildings (up from 25), and construction workers would receive higher wages at select projects that received the tax benefit. After nearly a year without the piece of legislation many believe is critical to the construction of rental and affordable housing, things were back on track.
But less than a week later, it appeared as though the fragile peace deal would unravel.
One industry source who was close to the negotiations told TRD that a dispute over which projects qualified for the longer, 35-year exemption had surfaced. REBNY interpreted the agreement to mean that the 35-year exemption for developers would apply to all 421a projects across the city, even if the developer didn’t agree to wage requirements. But the Building Trades union and Cuomo’s office shook their heads, saying that the exemption would apply only to projects that paid higher wages to workers.
According to the terms of the agreement announced in the joint press release by REBNY and Building Trades on Thursday, developers would have to pay construction workers $60 per hour (including benefits) specifically on projects south of 96th Street in Manhattan that had 300 or more units. On projects located on the Brooklyn and Queens waterfronts, workers would receive at least $45 per hour.
A source close to the negotiations said that the actual agreement — not the press release sent out — clearly distinguishes that the 35-year exemption only applies to projects with a wage agreement. The language of the agreement, as provided by the source, specifically states that “eligible buildings” for the 35-year exemption are only those with the wage requirement. A copy of that agreement, however, has not yet been released.
But up until after the original publication of this article on Wednesday, REBNY stuck to the language of last week’s announcement, that unrelated to wage increases, buildings in an amended citywide 421a program “would receive a 100 percent property tax exemption benefit for 35 years.”
REBNY and state government officials confirmed that all sides were aware of the content of the release that was distributed to the media. Administration officials later told TRD that they were not involved in crafting the language. Cuomo’s office distributed its own release at roughly the same time, but notably omitted any details of the 35-year exemption period.
When pressed about the lack of true agreement with Cuomo and Building Trades, REBNY initially only provided a statement from president John Banks that didn’t address the issue. The statement merely rehashed that 421a is necessary to promote the creation of affordable housing in the city, and said nothing about what looked like a clear deadlock between REBNY, the governor and Building Trades. Similarly, the governor’s office simply maintained that the REBNY and Building Trades’ release was incorrect.
“The geographic region outside of the wage zone was never part of the discussion,” an administration official said.
A representative for Building Trades declined to comment.
Then, after this article was first published, REBNY finally released a proper statement addressing the disagreement and backed down from its previous stance that all 421a projects would receive the tax exemption for 35 years.
“There was a misunderstanding between the parties regarding the 35-year provision of the 421-a agreement announced last week,” REBNY Vice President Jamie McShane admitted in the statement, implying that Cuomo and Building Trades were part of the misunderstanding, not just REBNY flipping the script. “The REBNY Executive Committee agreed today that, in the interest of getting legislation passed that will reinvigorate the production of new rental housing, including a substantial number of affordable units, the 35-year tax exemption should only apply to those projects that participate in the wage and benefit agreement.”
It’s still unclear how the embarrassing line-crossing occurred and why it wasn’t resolved up until now.
Although seemingly sorted out, the discrepancy did put a serious damper on last week’s announcement, calling into question how ready a 421a bill will be — even if a special legislative session is called. Although the legislation has been held up by pending wage negotiations between REBNY and Building Trades, a bill still needs to make its way through the state legislature before the currently expired 421a can come back into effect.
REBNY and the governor’s office seem to agree that the new bill will largely take the form of the June 2015 agreement, but the deal reached last week doesn’t specifically address issues like what condo projects will qualify for the tax abatement. In the 2015 agreement, Manhattan condo projects were excluded and only small Queens and Brooklyn projects — consisting of 35 units or less — were allowed to receive the tax break.
Republican Senate Majority Leader John Flanagan and Democratic Assembly Speaker Carl Heastie did not return requests for comment. According to Politico, the legislature has shown little interest in calling a special session to resolve the issue before January. They also might not be too inclined to go to bat for Cuomo on this, since efforts to increase pay for lawmakers — which would have been the first in roughly two decades — fell flat earlier this week.
One government relations attorney told TRD that REBNY gave every indication that the extended term of the tax exemption was to apply to all projects, not just those in prime development zones required to pay higher construction wages. “This is really a surprise to us,” the attorney said.
Clarification: This story was updated to include a statement released by REBNY after the original publication.