J-51 Stalemate: Will Tax Break Trump Rent Reform?

J-51 Stalemate

Will Tax Break Trump Rent Reform?

July 2012

For once, tenants and their allies in the state legislature had some leverage this year.

The J-51 tax-subsidy program for landlords expired last December 31. The program was designed to help owners make fire and safety improvements to rental buildings, but it now is largely a giveaway to landlords and market-rate housing. Since then, the city of New York has not been able to give out any new J-51 subsidies. (Existing J-51 contracts are not affected.)

Pro-tenant state legislators and tenant advocates set out to do two things during the 2012 legislative session: to direct J-51 subsidies away from market-rate housing and toward truly affordable projects, and to use renewing the program to win pro-tenant changes to the rent-regulation laws.

In the spring, Assembly Speaker Sheldon Silver (D-Manhattan) looked tenant advocates in the eye at a meeting and pledged that his house would not renew J-51 unless the Senate Republicans agreed to significant reforms to the rent laws. The city of New York weighed in with a bill that included some good but modest reforms, by making high-value co-ops and condos ineligible.

The real-estate lobbyists played a rope-a-dope game, claiming that they did not care if J-51 was renewed. In fact, this subsidy, now more than $250 million and growing every year, is important to them.

As it does every year, the Assembly passed a package of pro-tenant bills, including reform of the preferential-rent system, which now results in rent-stabilized tenants getting hit with increases of hundreds of dollars when they renew their leases; legislation to make rent increases for building-wide upgrades (Major Capital Improvements) temporary surcharges; relief for rent-controlled tenants, who get much higher increases every year than their rent-stabilized neighbors; and modest reform of the way members of the New York City and suburban rent guidelines boards are selected. 

Without any leverage, however, these were all “one-house” bills guaranteed never to see the light of day in the Republican-controlled state Senate, and everyone in Albany understands that. Meanwhile, the Senate Republicans passed a couple of their own one-house bills, to renew J-51 and let landlords escape from rent stabilization by paying their benefits back to the city—a way to annul the 2009 state Court of Appeals ruling in Roberts v. Tishman Speyer that the owners of Stuyvesant Town and Peter Cooper Village had illegally deregulated apartments while receiving J-51 tax subsidies.

Judith Goldiner of the Legal Aid Society came up with a brilliant idea to reform the J-51 program in a way that would do a lot to preserve affordability. As the law now stands, MCI rent increases are reduced by 50 percent of the J-51 benefits owners receive for that work—but many tenants never receive this reduction because they do not know they are entitled to it. The city agency that grants J-51 benefits does not coordinate with the state agency that acts on landlords’ MCI applications. When landlords apply for and receive MCI increases, the Office of Rent Administration does not bother to check with its city counterpart to see if the landlord has applied for or received J-51 subsidies.

Goldiner proposed that landlords would have to apply for J-51 benefits before they could allowed to apply for an MCI increase, thus solving the enforcement problem. She also proposed that the 50 percent offset be raised to 100 percent of the J-51 subsidy, to prevent double-dipping by landlords.

The Assembly leadership liked this idea. A few days before the legislative session ended on June 21, Silver’s top staff reaffirmed that the Assembly would not renew J-51 without significant pro-tenant reforms being included.

For almost six months, there had been no real movement on renewing J-51. Then everything came to a sudden head in the last 24 hours of the session.


“An orderly end to the session”

The week before the session’s end, Governor Andrew Cuomo made a remarkable announcement: He would not grant any “messages of necessity” to allow an immediate vote on new bills.

The state constitution says legislators cannot vote on any new bill until three days after it has been introduced. But there is an out: The governor can issue a “message of necessity” declaring that a vote is needed because the bill addresses an emergency.

Governors have misused this mechanism for many years, and Cuomo is no exception. For example, he issued such a message last month for a bill cutting state workers’ pensions. After he’d negotiated a deal with legislative leaders, the bill was passed with its pages still hot from the printer.

The abuse of messages of necessity is especially prevalent at the end of each year’s legislative session, when hundreds of bills are passed at warp speed and everyone looks punch-drunk. Sleep-deprived legislators can’t find the time to read every bill coming to the floor. Inevitably, they base their votes on their staff’s descriptions of the bills.

Cuomo’s announcement that he would not issue any end-of-session messages was consistent with his claimed adherence to good-government principles. It also meant that any deals between the two houses and the second floor (the governor’s offices are on the second floor of the Capitol, the Senate and Assembly chambers on the third floor) had to be in final bill form and printed by midnight on Monday, June 18, three days before the end of the session.

As often happens in the night sky around Planet Albany, unrelated celestial bodies collide. The Senate GOP crafted some leverage of their own, designed to win renewal of J-51 without having to agree to rent-law improvements.

A popular tax abatement for market-rate coop and condo owners also was expiring. That law assesses the value of co-ops and condos as if they were one- or two-family homes instead of apartment buildings, giving these New Yorkers a steep discount on their property-tax bill. This is a giveaway to mostly affluent people who do not need tax subsidies. But it’s politically potent in districts with significant amounts of this type of housing. Some legislators reported hearing from hundreds of shareholders and condo owners urging its renewal.

Speaker Silver had introduced a freestanding bill to renew this tax program, but the Senate Republicans would not renew it without renewing J-51. Despite his pledge, Silver agreed. The deal was sealed Wednesday night, June 20, and staff set to work putting it into legislative language.

At 1 p.m. the next day—the last scheduled session day—news of the bill trickled out. A couple of Assembly Democrats alerted tenant advocates. No one had seen the bill, of course, so everyone had to rely on word of mouth. This type of end-of-session omnibus bill is described in Albany as a “One Big Ugly,” piling together numerous unrelated issues and guaranteed to make just about everyone unhappy about some of its provisions.

The bill could not go through without a message from Gov. Cuomo, and he had promised no messages. For hours conflicting information came out of the second floor. Silver’s Assembly staff, up to then friendly and accessible, stopped taking phone calls from tenant advocates.

When the bill finally was introduced and printed out late in the afternoon, a quick read showed that it included some minor changes in the way J-51 benefits were directed, along with two pro-tenant changes to the 2010 Loft Law. The changes to the loft law, while good, would have benefited only a few hundred tenants. There was nothing in the bill to preserve the more than one million endangered rent-regulated apartments or shield these tenants from unwarranted eviction or harmful rent increases.

J-51 renewal was a steep price for Shelly Silver to pay for these loft amendments and for renewing the co-op tax abatement. Once again, real estate was getting what it wanted, market-rate co-op shareholders and condo owners were keeping their windfall, and tenants were getting screwed.

At 4 o’clock, Cuomo, Silver, and Senate Republican Majority Leader Dean Skelos (R-Nassau) held an end-of-session news conference, which consisted mostly of the governor breaking both his arms patting himself on the back. Cuomo toyed with the idea of issuing a couple of messages of necessity in response to a request from New York Mayor Michael Bloomberg. A reporter asked the governor why J-51 was an emergency, when the issue had been around for months? (That reporter deserves a Pulitzer Prize.)

Silver was prepared to bring the “One Big Ugly” omnibus bill to the Assembly floor that evening. Tenants learned that he was not even planning to convene a meeting of the Assembly Democratic Conference, where members could ask questions and make statements for or against the bill. 

Assembly Housing Committee chair Vito Lopez (D-Brooklyn) introduced the bill, and many Assemblymembers added their names as cosponsors. The Speaker’s staff approached members on the floor, giving a cursory description of the bill (emphasizing renewal of the coop/condo tax abatement), and members had to make a quick decision whether to sponsor it. In the Senate, the lead sponsor was Martin Golden (R-Brooklyn).

About 6 o’clock, word finally came from the second floor: The governor would not issue any messages. The bill thus could not come up for a vote.

It is unlikely that Cuomo’s decision was based on opposition to the bill. It seems that he realized his good-government credentials would be tarnished if he went along with the legislative leaders, especially as he had promised no messages.


And now what?

Since the legislative session ended, tenants have been lobbying Assemblymembers, asking the omnibus bill’s cosponsors to remove their names, and asking all members to pressure Silver to deliver for tenants or refuse to renew J-51.

Assembly Ways & Means Committee chair Denny Farrell (D-Manhattan) wrote Silver on July 2, asking him to make sure that real pro-tenant amendments are included in any renewal of J-51. “As much as I would like to support and protect co-op owners,” he wrote, “I may be forced to withdraw my support of A10798 and remove my name from the bill if we are not able to fulfill our promise to better protect tenants.”

Rumors abound that Cuomo might call the legislature back in July to deal with the coop/condo tax break. But it seems more likely that the legislators will not return to Albany until after the November 6 election.

This is good. Delay gives us time to kill this bill in the Assembly, and force Silver back to the negotiating table with Skelos. Speed would help leadership ram the bill through.

The co-op tax’s expiration is not an emergency. The city Department of Finance, assuming that Albany would renew the program, sent out July bills at the old, lower rate. Bloomberg has told legislative leaders that the department will not send out corrected bills at the higher rates. As the next billing cycle is not until January, a November session would give the legislature time to sort this all out. Many Assemblymembers are telling Silver that the Assembly should pass the separate co-op/condo tax bill rather than let it be linked to J-51.

What will it take to inspire Shelly Silver to deliver for tenants? In 1997, he led the fight to renew the expiring rent laws in the face of a pledge by then-Senate Majority Leader Joe Bruno that he would not allow a renewal vote in his house. But on the last weekend of the session, Silver negotiated a deal with then-Governor George Pataki, severely weakening the rent laws in return for a six-year renewal.

In 2003, Silver and Bruno had a handshake agreement to renew the laws with no weakening amendments, and Silver made no effort during the session to win improvements. But a late-night maneuver by the anti-tenant Pataki and Bruno forced the Assembly to swallow more weakening amendments (including the preferential-rent loophole) to prevent the laws from expiring.

When the rent laws came up for renewal again last year, Silver seemed to want more significant pro-tenant changes, but he was undercut by new Governor Cuomo, who essentially gave away his leverage. He had to settle for modest improvements, which left all the deregulation loopholes intact and did not touch the various mechanisms landlords use to jack up regulated rents to unaffordable levels.

Shelly Silver has two different groups of constituents: the voters who live in his lower Manhattan district, and the other Democratic members of the State Assembly who elect him as Speaker every two years. Tenants should pressure their Assembly representative to deliver an unequivocal message to their leader: That it is unacceptable for to renew J-51 without winning real rent reform.