Tenants Rip Plans to Resurrect 421-a Tax Breaks

Tenants Rip Plans
to Resurrect 421-a Tax Breaks

Published: 
December 2016

Pushing to resurrect the 421-a tax subsidy for new housing construction, Governor Andrew Cuomo urged the Legislature to convene a special lame-duck session this month to revive it. Neither house had agreed to return to Albany as of Dec. 12.

The 421-a tax exemption, often criticized for subsidizing mostly luxury housing, expired last January after the Real Estate Board of New York and the city’s construction unions were unable to agree on wage standards for buildings receiving it—the condition Cuomo had set for continuing it. On Nov. 10, REBNY and the Building and Construction Trades Council of Greater New York announced a deal: In buildings with 300 or more units in Manhattan below 96th Street or within a mile of the waterfront from Brooklyn Heights to Astoria, workers would get paid an average of $45 to $60 an hour, including benefits, unless the building contains at least half “affordable units.”

The deal, approved by Cuomo, would also increase the length of the tax break, which had been 10 to 25 years. The buildings paying union-scale wages would get a 100 percent exemption from property taxes for 35 years, according to Gov. Cuomo’s office. Other buildings would get a full exemption for 25 years, with taxes for the next 10 years reduced by the percentage of “affordable” apartments they contain.

Housing activists responded with a rally at City Hall Dec. 1, saying that these changes would more than double the program’s cost to New York City, to $2.4 billion a year in lost tax revenue—and produce a minimal amount of affordable housing in return. Delsenia Glover of the Alliance for Tenant Power called it a “wasteful luxury developer giveaway.” 

“Are we getting our money’s worth?” asked Assemblymember Jeffrey Dinowitz (D-Bronx).

Less than 10 percent of the apartments built under the old program qualified as “affordable,” said Community Service Society housing policy analyst Thomas J. Waters, and that proportion would not increase under the governor’s proposal to revive it.

“Nothing gets to waste $2 billion a year unless it’s a giveaway to rich people,” he added.

A spokesperson for the governor’s office replied that the increased costs would not affect the city until “25 years from now.”

Cuomo’s proposal would slightly lower the maximum income allowed for people renting “affordable” apartments in one option developers have under the program, according to the governor’s office. That would reduce the rent charged for a studio apartment from about $2,060 a month to about $1,900. All affordable apartments would go up to market rate after 40 years.

Developers receiving 421-a subsidies are required to include affordable housing in a “geographic exclusion area” that covers all of Manhattan, the Brooklyn-Queens waterfront from Sunset Park to Astoria, and a corridor running inland through Williamsburg and Bushwick to East New York. They have three options for doing so. In Option A, they would have to include 25 percent affordable units: 10 percent for households at 40 percent of “area median income” (AMI), about $25,000 for a single person and $36,000 for a family of four; 10 percent for households at 60 percent of AMI; and 5 percent at 120 percent of AMI—down from 130 percent under the expired law. The other two options, both unchanged, would include 30 percent affordable housing, but slate all or most of it for households with incomes of up to 130 percent of AMI—about $82,500 for a single person and $118,000 for a family of four. The governor’s office expects most developers getting the 421-a exemption to pick Option A, because it is the only one where they can receive other public subsidies.

“This has proven to be the most effective program for producing affordable housing in New York City,” the Cuomo spokesperson told Tenant/Inquilino. “We’re addressing the crisis now instead of later.”

“This enormous new tax expenditure would be wasteful in any context, but it is especially ill advised at a time when vital federal subsidy streams to the city are in jeopardy in a Trump presidency,” Waters wrote Nov. 29. “For comparison, the New York City Housing Authority currently receives $910 million a year in federal operating subsidies for public housing and $930 million a year for Section 8 vouchers.”

The One57 luxury condominium on West 57th Street received $65.6 million in 421-a tax breaks, Met Council executive director Ava Farkas noted at the Dec. 1 rally. In exchange, the developer paid for 66 units of affordable housing in the Bronx. If the city had used that money to build housing directly, she added, it could have created 367 apartments. 

Donald Trump has received more than $45 million in 421-a subsidies, Farkas added: $25 million for the Trump Tower, after he sued the city for trying to deny him the exemption, and $20.8 million for the Trump Plaza co-ops on the Upper East Side.

The about 80 people there chanted “No Trump Tax Break!”

City Council Housing Committee chair Jumaane Williams (D-Brooklyn) rejected developers’ contention that they can’t afford to build in New York without the subsidy, saying that the city has issued construction permits at the same rate since it expired. 

Williams has introduced legislation that would require the city Department of Housing Preservation and Development to audit buildings receiving benefits under 421-a to ensure that they are complying with affordability requirements. On In November, HPD warned the owners of 178 buildings that their benefits might be revoked retroactively for violating rent-regulation requirements. In September, it revoked $4.5 million in 421-a benefits for 35 buildings on similar grounds. 

The ProPublica investigative-news service reported in October that more than 4,000 rental properties paying reduced property taxes under the program had never received a certificate from HPD that they had registered apartments for rent stabilization. HPD had a years-long backlog of applications, it said, and the city Department of Finance lets owners claim 421-a tax breaks without the certificate. The vast majority, ProPublica said, were small buildings in gentrifying outer-borough neighborhoods.

Mayor Bill de Blasio’s administration, however, backs reviving 421-a. Public Advocate Letitia James praised the program and its prospects for restoration at a Nov. 29 gathering of labor leaders.

Cuomo was also pushing the Legislature to consider other issues in a special session, including approving $2 billion in housing funds and enacting term limits for themselves—with the bait being that legislators haven’t had a salary increase since 1999, and would have to wait until 2019 if they don’t vote one by Dec. 31. 

 “I don’t understand the rush,” Assemblymember Victor Pichardo (D-Bronx) said Dec. 1. It would be more urgent, he suggested, to hold a special session to pass laws protecting immigrants before Trump becomes President.

State Sen. Liz Krueger (D-Manhattan) said Cuomo’s claim that 421-a has to be passed to authorize the $2 billion in housing funds is “not true.” If the program was renewed in a special session, she added, “I’m concerned that they could do it as a ‘one big ugly’”—an omnibus bill containing several unrelated proposals.