The Real Deal New York

It’s back: Lawmakers revive 421a as Affordable NY

Tax break won’t expire until 2022
By Kathryn Brenzel and Will Parker | April 09, 2017 11:15PM

three men outside a statehouse
Two years after a punt to the private sector, lawmakers voted late Sunday to revive the 421a developer tax abatement, part of the state’s $163 billion budget.

The program, now called Affordable New York, closely follows Gov. Andrew Cuomo’s proposal from January. The key changes to the abatement — from the version that expired in 2016 — include wage requirements for construction workers on certain projects and a 35-year break from property taxes (up from 25) on large projects that pay these wages.

The state Assembly approved the program on Saturday as part of a revenue bill. The Senate followed suit Sunday evening, in a 53-4 vote on the floor.

Affordable New York was lumped in this budget season’s “big ugly,” Albany parlance for legislation that’s a land mine of controversial issues. The bill now heads to the governor’s desk, and he is expected to sign it.

In a press conference Friday night, Cuomo said that the program also releases $2.5 billion to create 100,000 units of affordable housing and 6,000 units of supportive housing. The funds were part of a memorandum of understanding that has been the subject of considerable finger-pointing between the governor Democratic Assembly Speaker Carl Heastie, Republican Senate Majority Leader John Flanagan and other leaders who gave contrasting explanations for the holdup of their release.

The new program, which runs until 2022, may also leave open the possibility for the city to make certain changes to how it’s implemented. The governor’s initial proposal prevented the city from enacting a local law that seeks to “restrict, limit or condition the eligibility for or the scope or amount of 421a benefits in any manner.” That line doesn’t appear in the new measure, though the legislation also doesn’t specify that the city can enact such a law.

The budget also requires local governments to convene and hatch new ways to reduce property tax burdens, the governor said.

“It is the single biggest problem in in this state,” Cuomo said late Friday. “You need structural changes on the local and county level if you’re going to make a real difference in property taxes.”

Talks on 421a dragged on last week, with reports see-sawing between an imminent deal and total collapse of negotiations. On Wednesday, Cuomo acknowledged that 421a wasn’t yet resolved, saying it was an “ideological [and] philosophical” issue that was holding up a final budget resolution, along with the Raise the Age bill. He also discouraged legislators from linking the tax break to rent regulation, an idea that was ultimately abandoned in the latest revenue bill.

Other casualties of the final deal included the Senate’s earlier proposal to increase the number of eligible condo projects. The Senate introduced its own version of 421a, where condo developments with as many as 80 units could qualify. However, the agreed abatement still only allows condo projects in the outer boroughs with a maximum of 35 units and an average assessed value of no more than $65,000. (The wording on the latter part of this restriction is unclear, and likely doesn’t apply to each individual unit.)

In June 2015, Albany approved the renewal of 421a, on the condition that the Real Estate Board of New York and the Building and Construction Trades Council (BCTC) reach an agreement on prevailing wages to construction workers. The program lapsed in January 2016 when talks between the two groups fell apart, but they reached a deal in November that set wages for large projects (300 rental units or more) south of 96th Street in Manhattan at an average of at least $60 an hour. For projects on the Brooklyn or Queens waterfronts, that average is $45.

A “fiscal officer,” defined as either the city comptroller or “analogous officer” is charged with enforcing these wages once the project is completed. A representative for the city comptroller declined to comment on the role earlier this week. The office already oversees compliance for prevailing wages for building service workers and contractors working on government projects.

Officials and housing advocates have criticized the governor’s proposal for costing the city billions of dollars. The Independent Budget Office estimated it would cost $8.4 billion in foregone property taxes over the next 10 years. (Developers argue that this estimate assumes that projects that would generate this revenue would be built without the abatement). Association for Neighborhood & Housing Development, a housing advocacy group, said the tax break doesn’t go far enough to encourage the creation of affordable housing. The abatement has six different options, where 25 to 30 percent of the units are required to be a different range of affordable.

“There is no acceptable reason that everyone except luxury real estate developers should be expected to pay their taxes,” the group said in a statement. “Taxpayers and tenants should be disgusted.”

During Sunday night’s hearing, Democratic Sen. Gustavo Rivera said the program ensures a level of affordability that is “nowhere” near where it would need to be for residents in his Bronx district to actually benefit from the program. He also noted that once initial tenants move out, property owners don’t have to keep the units rent stabilized (as long as the rents exceed $2,700 per month).

Late last year, The Real Deal and ProPublica published a detailed analysis  of how the real estate industry bankrolls state legislators who support 421a. Cuomo was the largest recipient of donations from taxpayer-subsidized developers.

REBNY released a short statement on Saturday applauding the budget agreement. The lobbying group reiterated a comment it’s repeatedly provided in reference to 421a, which doesn’t make mention of the benefit that its members will reap.

“It will result in the production of substantially more affordable rental housing that is critical to New York City’s growth and future,” John Banks, president of the trade group, and chairman Rob Speyer said in a joint statement.

The budget also includes another potential win for construction workers. A separate part of the revenue bill calls for allowing union members to deduct their union dues from state taxes. A representative from BCTC did not immediately respond to requests seeking comment on Saturday.

“It’s the most effective tool in New York City,” Sen. Catharine Young said on Sunday. “This is an issue of supply and demand. And what this is doing is increasing the supply of affordable housing.”

Sen. Brad Hoylman disagreed, saying that the tax break is likely going to lead to more luxury housing. He said tax dollars should go directly to creating affordable housing, rather than “some cockamamie tax break.” He also lamented the fact that the tax break was lumped in the “big ugly” and that the discussions that led to the agreement occurred largely out of the public’s eye.

“They weren’t conducted by the membership of the state Senate,” he said. “They were done, unfortunately, by private parties with financial interest, behind closed doors.”