Will Albany Screw Tenants Once Again?

Will Albany Screw Tenants Once Again?

Cuomo’s Rebranded 421-a Is a Giveaway to Real-Estate Developers

Published: 
March 2017

With only a couple of weeks remaining before the state budget is adopted, the chances seem to be growing dimmer of stopping Governor Andrew Cuomo’s revival of the 421-a program—a giveaway to the New York City real-estate developers who fund his election campaigns.

Cuomo included a revival of 421-a, which reduces property taxes for new construction, in his proposed executive budget for fiscal year 2018. He renamed it the “Affordable New York Housing Program.” How many affordable apartments would the city get in exchange for giving developers more than $1 billion a year in tax breaks? The governor estimated it would result in “up to” 2,500 affordable apartments per year.

The rents on many of those units would not be affordable to most New Yorkers, as they could cost as much as $3,000 a month. They would also not be permanently affordable: The landlord could convert them to market-rate rents when the tax breaks expire, after 40 years.

Under the old 421-a program, which expired in January 2016, landlords had to put all apartments under rent stabilization as long as they received the tax breaks. Cuomo’s bill would let them deregulate the ones not restricted as “affordable”—historically, more than 90 percent of those subsidized—the first time they become vacant, without losing the tax benefits. (Mayor Bill de Blasio proposed a bill with the same giveaway in 2015.)

The city and state have both failed to enforce the old program’s rent-stabilization requirement. Last October, ProPublica reported that in almost two-thirds of 6,400 buildings receiving 421-a tax reductions, landlords had failed to register the apartments as rent-stabilized. The state housing agency responded by sending a letter to the landlords to “remind” them to register, which most ignored. The de Blasio administration was hard-pressed to explain why the city granted the tax benefits to landlords who had failed to comply.

Cuomo’s revived 421-a program would also benefit construction workers. Developers of larger projects in Manhattan below 96th Street and on the Queens and Brooklyn waterfront would have to pay workers union-level wages and benefits, and would get vastly increased tax benefits in return. On smaller buildings and in the rest of the city, where construction work is largely nonunion, developers could get the increased tax breaks if they agreed to that wage scale.

 

Budget due April 1

The only hope of stopping this boondoggle is in the hands of one Albany player: Assembly Speaker Carl Heastie (D-Bronx). He would have to tell the governor and the Republicans who control the state Senate unequivocally that the Assembly will not pass the budget unless those tax breaks are removed. That would kick the issue down the road for later negotiations.

Cuomo is hoping to push this through in the budget with little debate. If Heastie were to insist on eliminating 421-a, he would have to refuse to pass the entire Education, Labor, and Family Assistance budget bill, thus delaying other vital state programs, including funds for public education and Cuomo’s proposal for free tuition for full-time students at SUNY and CUNY.

That might result in blowing the deadline for an on-time budget—which would be a first under Cuomo, who prides himself on meeting the April 1 target. Larry Schwartz, until recently the governor’s top staffer, has threatened the legislature, suggesting that if the budget is late Cuomo will not agree to raise their salaries after the November 2018 election.

A possible positive sign: As  Tenant/Inquilino went to press, both houses were preparing  to release their “one-house” budget resolutions, in effect setting out their negotiating positions. The Senate’s was expected to include Cuomo’s 421-a revival intact. But word was that the Assembly version would omit it.

That does not necessarily mean that Heastie will draw a line in the sand. Rather, it might mean that he plans to trade 421-a revival for something else he wants from the Senate. Because all these negotiations are done behind closed doors, by the “three men in a room”—or four, if Jeff Klein of the Independent Democratic Conference is once again included—the result will not be known until the final budget bills are printed at the end of March.

There does not seem to be any meaningful organized push by progressive legislators to pressure Heastie to do the right thing. Some told Tenant/Inquilino they think it’s a “done deal.” One Assemblymember stated: “We can’t stop it. Once again, we are rewarding REBNY, plus the building trades, and as far as the tenants go, too bad.” Others were somewhat more positive, thinking that the final bill might be improved, such as by eliminating the vacancy-decontrol provision. (There would still be the problem of non-enforcement, but at least tenants would have legal rights.)

Assemblymember Linda Rosenthal (D-Manhattan) lamented the hit on the city budget: “While we are staring at budget cuts to public housing and Section 8 coming out of Washington, this is no time for bigger giveaways to real-estate developers,” she said. The federal Department of Housing and Urban Development notified the de Blasio administration last month that housing aid to the city will be cut by $58 million for the rest of 2017.

Crain’s New York Business, a pro-real estate publication, weighed in on March 8 against Cuomo’s bill, stating that the changes “could put millions of dollars in developers’ pockets without providing any additional upside for New Yorkers.” Its analysis is that the bill’s additional subsidies are not necessary to support union-level wages, but would swell developers’ profits, making them able to pay higher prices for land, fueling gentrification.

The Real Estate Board of New York is lobbying heavily in support of the bill, as are individual developers. Even though the city government has not taken an official position, representatives of the Department of Housing Preservation and Development are telling legislators, “We need this.” Make no mistake: Mayor de Blasio is not trying to stop this giveaway.

 

Costs

An analysis by Tom Waters of the Community Service Society estimated that Cuomo’s plan would almost double the amount of tax revenue the city loses under the old 421-a, from the current $1.2 billion a year to $2.4 billion. But on March 6, the city Independent Budget Office issued an analysis saying that the additional annual costs would be only $120 million.

“I think the reason IBO’s numbers are lower than mine is that they base it on the city’s projection of the number of developments that will use 421-a, and those numbers are low,” Waters told Tenant/Inquilino. “The way IBO does the discounting of future years’ expenditures is reasonable and wouldn’t by itself result in numbers much lower than mine. Their estimate of the cost in taxes foregone per rent-restricted apartment seem to be in the right ballpark, but remember that this includes all the $2,500-a-month 130 percent AMI apartments. Since I think that well over half of the total restricted apartments will be in that category, the cost will be higher than under the old 421-a.”

Sen. Liz Krueger (D-Manhattan), the ranking Democrat on the Finance Committee, says the IBO report has hurt her efforts to convince other legislators that Cuomo’s plan is bad. Some are taking the position that an extra $120 million is not so bad, and they can do something for the building-trades unions.

She also believes that some legislators are overlooking the amount of displacement the bill could generate. “Many of my colleagues have complained to me about gentrification in their neighborhoods,” she says. “I have been trying to make them understand that if this becomes law, they will see gentrification on steroids.”