State pushes to revive tax break for property owners

If a tax break for property owners expires during a pandemic, but few people notice, does it still make a sound?

According to state officials, it does.

J-51, a tax incentive provided to owners who renovate residential buildings or convert commercial properties, quietly lapsed last June after the City Council did not reauthorize it. Now, with just a few days left in the state’s legislative session — and no indication the city will revive it — state lawmakers are pushing to once again renew the program.

Queens Sen. Toby Stavisky has proposed a bill to extend the measure through June 30, 2022. Applications for the program have dropped precipitously over the years, in part because landlords and developers view the city’s method for calculating renovation costs as outdated. But Stavisky, a co-op owner herself, said the tax break is an important tool for owners to offset repair costs. Real estate trade groups are also pushing for its renewal.

“This benefits working-class housing, mostly in the outer boroughs, by allowing tenants to enjoy a new elevator, new roof, new heating or electric systems, or new energy-efficient windows,” Jay Martin, executive director of the Community Housing Improvement Program, said in a statement. “Reauthorizing this should be a no-brainer.”

It is unclear why city officials allowed the program to lapse and why there wasn’t more of a public outcry from the industry. In late 2019, the Department of Housing Preservation and Development indicated that it was working to reform J-51. The program has also faced scrutiny following changes to the state’s rent law, which raised questions about if and when J-51 units — which are typically rent-stabilized for the duration of the tax break — can be taken out of regulation.

The state included language in last year’s state budget that authorized cities to renew the tax break through June 30, 2021. But the City Council did not do so.

Some state actions require the blessing of localities through so-called “home rule” resolutions. Such measures are mandated under the New York constitution when the legislature seeks to enact certain laws that affect specific counties — in this case, any city that is subject to the multiple dwelling law.

Though J-51 has been renewed in this fashion previously — with a state and then city authorization — Stavisky said she doesn’t believe a home rule resolution is necessary. A representative for City Council Speaker Corey Johnson did not respond to requests seeking comment. HPD declined to discuss the tax program.

Under J-51, participants are exempt from tax increases resulting from renovation or conversion work for either 14 or 34 years. They can then receive a break on existing real estate taxes of 8.3 percent or 12.5 percent of the cost of the work for up to 20 years.

This fiscal year, 399,213 units are receiving abatements and exemptions through the program, according to an annual report by the city’s Department of Finance. Between 2008 and 2018, applications for the program dropped 69 percent, according to HPD.

In recent years the tax break has been at the center of numerous lawsuits alleging that landlords failed to provide tenants with rent-stabilized leases. One ongoing case, involving tenants at Stuyvesant Town-Peter Cooper Village, could have far-reaching implications for property owners currently receiving breaks under J-51.

Real estate attorney Jay Seiden said he sees an opportunity to use the tax break to incentivize the conversion of vacant office and hotel properties. Basha Gerhards, senior vice president of planning at the Real Estate Board of New York, agreed that the program should be considered as a way to help the city recover from the pandemic.

“This is still a program in their toolbox that is needed right now,” she said, adding that any potential reforms that need to be hashed out by the city and state shouldn’t hold up passage of a one-year extension, given that the legislative session is ending June 10. “It is not great to have that conversation in 10 days’ time.”