Tax Breaks for Billionaires: How the Campaign Finance System Failed New York Taxpayers and Helped Luxury Developers
Tax Breaks for Billionaires:
How the Campaign Finance System Failed
New York Taxpayers and Helped Luxury Developers
Does the owner of a $90 million penthouse deserve a tax break?
Governor Andrew Cuomo and the state legislature sure seem to think so.
In January, the state Legislature quietly passed a multimillion-dollar tax subsidy for five Manhattan luxury towers, including One57 at 157 West 57th St. Governor Andrew Cuomo signed the big tax break as part of a larger housing bill on Jan. 30.
One57, developed by the Extell Development Company, is a 75-story building across the street from Carnegie Hall. It’s appropriately called the “Billionaires’ Tower.” Among the beneficiaries of the tax break is billionaire hedge-fund manager Bill Ackman, who purchased a duplex penthouse. One57 drew public attention last year when its crane, snapped by Hurricane Sandy, dangled 1,000 feet over Midtown for several days.
The tax breaks for One57 and the four other towers are part of the 421-a program, a city program originally intended to spur development and later revised to encourage affordable housing construction as well. Affordable housing advocates agree that the program has long outlived its usefulness and effectiveness, and now essentially subsidizes luxury housing.
Albany lawmakers approved the giveaway nevertheless, because a handful of developers wanted it, and expected it, after contributing heavily to the campaign chests of state legislators, party committees and the governor himself. Cuomo was the biggest recipient of campaign cash from the developers who benefited most directly. Assembly Democrats and Senate Republicans also raked in substantial contributions: $136,400 for the Assembly campaign committees and $98,000 for the Republican Senate Campaign Committee.
Swindling: Buying millions in tax breaks for luxury developers
Metropolitan Council on Housing published a report this month that reviews what the luxury real-estate developers spent and what they received in return. The report focused particularly on One57 because more data are available for that development.
New construction in midtown Manhattan is ineligible for the 421-a tax subsidy unless the development includes on-site affordable units, which One57 and the four other towers—at 99 Church St., 520 Fifth Ave., 109 Nassau St., and 78-86 Trinity Place—lacked. But the five developers wanted the tax breaks anyway.
Follow the money: Luxury developer contributions to Cuomo and state legislators:
Combined, developers of four of the five luxury buildings gave at least $440,962 to PACs, state candidates, and political parties in 2012 alone. (We were not able to obtain data for the fifth.)
Governor Cuomo received $150,000 from the four developers in 2012. He was the biggest recipient of cash from them last year.
Contributions from Extell and its principals, owners of One57, accounted for $229,262 of the 2012 total. Extell has given a whopping $771,436 to state committees and campaigns since 2005, spent $74,500 lobbying New York City on One57 alone, and spent tens of thousands of dollars more lobbying the city and state to get new permits for its crane.
Contributions to party committees, which benefit the most powerful legislators—the ones who control the movement of legislation—were also sizable: Republican Party committees received $53,000 and Democratic Party committees received $34,000 from the four developers in 2012.
Overall, these four companies gave more than $1.5 million ($1,531,531) to state elected officials, political parties, and real-estate PACs between 2008 and 2012.
The bill that gave the luxury developers tax breaks included other provisions, such as an uncontroversial renewal of tax abatements for co-op and condo owners and expanded protections for loft tenants. But it also included other questionable tax breaks and benefits.
That a handful of real-estate developers were able to win such a huge giveaway reflects their outsized influence and just how broken the current campaign finance system is. Even legislators who have a long history of supporting more affordable housing voted for the bill, since it contained items they favored. But the 421-a tax breaks went beyond the typical horse-trading in the legislature.
State Senator Liz Krueger (D-Manhattan) voted for the bill because it renewed the tax break for co-op and condo owners. But in the debate she skewered lead sponsor Marty Golden (R-Brooklyn) over the giveaway for luxury condos. She called the bill “a perfect example of what goes wrong in the wheeling-dealing of the backrooms of Albany.”
A perverse trade-off: Tax breaks for luxury apartments, fewer resources for other needs
One57’s two penthouses sold for $90 million each. Thanks to the 421-a tax break, their owners will pay a total of $2.4 million less in city taxes over the next ten years. Owners of the other 133 apartments will get panoramic views, a “pet wash room,” and a private sauna and spa. They can also have storage lockers for as much as $200,000 apiece.
Developers will get $2 million in tax breaks from six other units over ten years, according to one estimate. Data on the tax break values for the other 127 apartments are not publicly available, but it will likely amount to millions of dollars over the next decade.
Data on the value of the tax breaks in the other four buildings are not publicly available either, in part because construction is not complete and the New York City Department of Finance hasn’t assessed the value of the properties.
These tax breaks represent millions of dollars that the city has lost. The money could have been used for real housing needs, like rent subsidies for the more than 50,000 people sleeping in homeless shelters or for the repair of dilapidated apartment buildings. The 421-a program cost the city $755 million in 2010 in lost property-tax revenue, according to the Pratt Center for Community Development.
The solution: Comprehensive campaign-finance reform
New York needs an election-funding system that reduces the political influence of real estate and the amount developers can spend. Greater transparency, lower contribution limits, repeal of the LLC loophole (see article on p. 2) and public matching funds will reduce the buying power of Extell and other mega-developers and help achieve the kind of accountability New Yorkers need and deserve.
We have an historic opportunity to restore trust in government. With Albany mired in scandal after scandal, and this legislative session coming to a close in a few days, we can’t afford to delay campaign-finance reform any longer. The time to get it done is now.
To see the complete report: www.metcouncilonhousing.org