Hochul takes another crack at 421a, but throws curveball after speech

Gov. Kathy Hochul on Tuesday unveiled a $233 billion spending plan for fiscal year 2025, including proposals to address what she called the state’s “inexcusable housing shortage.”

Hochul’s executive budget includes replacing the property tax break 421a, extending a deadline for the expired program by four years and authorizing the city to legalize existing basement and cellar apartments, according to a briefing book detailing the plan.

It also pitches lifting the city’s cap on residential floor area ratio, which would enable the city to rezone specific areas or enact citywide change through a text amendment, and a tax incentive for developers who convert office properties into housing. The FAR cap prevents some conversions, and others don’t pencil out without a tax break.

“Why not? The alternative is vacant or underutilized buildings in the heart of New York City,” Hochul said during her budget address Tuesday.

But, answering a reporter’s question after her speech, she seemed to contradict her previous statements about how a new 421a would be approved. Rather than grant the city authority to enact a tax break for rental projects that meet affordability minimums, Hochul said she expects the real estate industry and construction unions to agree on a plan, which the state legislature would then pass.

That is the same way 421a was renewed last time, after a 15-month lapse in the program. That version expired in June 2022.

The governor’s proposed budget also addresses a Supreme Court ruling from May that found when a locality seizes and then sells property from owners who are delinquent on property taxes and other bills, it must provide those owners with any leftover proceeds from the sale.

This could affect the city’s annual lien sale — which has lapsed, but previously did not automatically pay owners the surplus from foreclosure sales — and its paused third party transfer program.

Last month the governor vetoed a measure that established a moratorium on foreclosure programs until June 30. The bill aimed to give officials time to figure out how to comply with the ruling.

Hochul’s budget briefing book did not mention new tenant protections or good cause eviction, a policy that Democratic lawmakers have said is necessary — and if not approved, could stand in the way of passing a new property tax incentive.

Details on these proposals were not available as of Tuesday morning, as the executive budget legislation had not been released.

The budget process is a behind-the-scenes dance with the state legislature, one that will likely result in many of these proposals being dropped or changed in the final agreement, due April 1.

Last year, the governor included her New York Housing Compact in the executive budget. Among many other things, it would have set housing growth targets for every community in the state. Localities that failed to meet them would be subject to a builder’s remedy-type policy, which would allow developers of housing projects that contained affordable units to override local zoning.

Republicans balked at what they saw as a loss of local control over land use, and Democratic lawmakers favored incentives rather than mandates. The targets, along with proposals to extend a key 421a deadline and lift the city’s FAR cap, were left out of the budget, and few housing measures were ultimately passed by the end of the legislative session.

Last week, the governor unveiled her top policy priorities in her third-ever State of the State address. This time around, Hochul billed her proposals to replace 421a and other housing policies as a test of giving local control back to New York City. She left out the housing targets, but indicated that she wants to change the criteria for her Pro-Housing Community program.

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The program gives communities first dibs on discretionary funds if they certify that they have approved a certain amount of housing over the last one or three years. The governor wants to instead make $650 million in funding contingent on localities achieving Pro-Housing certification. So far, the state has received just over a dozen applications for certification and has not approved any funding to localities, according to the Times Union.

The governor’s budget includes $250 million to help build housing on state-owned sites. Another $250 million is expected to be allocated next year.

The spending plan continues Hochul’s $25 billion five-year housing plan, which the budget book indicates is on track to create or preserve 100,000 affordable homes by the end of fiscal year 2027. It also increases funding dedicated to addressing the migrant crisis to $2.4 billion, in part by tapping the state’s reserves for $500 million.