BY DOMENICK RAFTER
Editor in Chief
On June 15, the 421a tax exemption – a program in which builders receive a 25-year tax abatement for creating new rental apartments – will expire.
Its future, which has been in peril several times in its 44-year history, is in limbo as state and city legislators mull over whether to change the program, how to change it, or eliminate it completely.
421a: A History
The program, named for the second of New York State Real Property Tax Law where it can be found, was established in 1971 to spur development in New York City, which at the time was losing population and was economically stagnant. It was focused on developers building on vacant and underutilized land. It was in the 1980s, during the Koch administration, that the program was reformed to create an exclusion zone in Midtown Manhattan to require any development qualifying for the rebate to provide affordable housing.
Then the boom happened. What started as a housing boom in Midtown spread elsewhere – to the Upper East Side and Upper West Side, Chelsea, East Village and Harlem. Then across the river to Brooklyn, Long Island City and beyond.
It was 30 years before the 421a exemption was reformed again. In 2006, a task force put together by former Mayor Bloomberg suggests expanding the exclusion zone outside of Midtown and adding more affordable housing requirements. Bloomberg supported their findings, but the City Council calls for more reforms.
At the end of 2006, a compromise is reached enacting much of the task force’s plan, plus adding prevailing wage requirements and allowing the exclusion zone to be revisited and redrawn every two years.
Currently the exclusion zone includes all of Manhattan and parts of all five boroughs. In Queens, most of Long Island City and Astoria, along the East River – including Hallets Cove, where the Astoria Cove development is planned – is part of that zone, as are parts of Woodside, Elmhurst, Jackson Heights and Downtown Flushing.
421a continued to be controversial even after reforms in the mid 2000s, and actually lapsed for several months in 2011.
The Current Debate
It is the State Legislature that must act on renewal this year.
Amid findings that the city lost $1.1 billion in tax revenue in 2014 from the program, many are seeking further reforms, or complete elimination of 421a.
For many, the construction of new high-rise apartment towers in what’s being termed “Billionaire’s Row” on 57th Street in Midtown, including the new 432 Park Avenue, which is the city’s second-tallest building, and the proposed Nordstorm Tower, which may eclipse One World Trade Center, has left a sour taste for many in a city where affordable rents are hard to come by.
“This can’t be a city of just penthouses and luxury condos,” Mayor de Blasio said earlier this month while unveiling his proposed reforms to 421a. “We are turning the page, and making sure the same pressures that have pushed New Yorkers out of their neighborhoods are harnessed to build the next generation of affordable housing. By putting tough new requirements in place for 421a and raising new revenue from luxury real estate transactions to build affordable apartments, we can ensure that this remains a city for everyone,”
The mayor’s reform proposal includes doubling the number of affordable apartments build through the program, slashing the average subsidy needed to build affordable apartments and allow the affordable apartments to be open to tenants with even lower incomes.
De Blasio would also like to eliminate the exclusion zones and include the entire city in the affordable housing requirements; changing the requirements from the current 20 percent affordable to between 25 and 30 percent affordable; expanding the income requirements to qualify for affordable housing; end the “poor door,” in which affordable residents enter a building through a separate entrance and eliminate tax breaks for condominiums, making 421a only applicable for rental properties.
The mayor did propose expanding the 421a time frame from a 25-year sunset to 35 years and has received the support of the Real Estate Board of New York, a body that represents developers.
De Blaso’s plan put the progressive mayor at odds with several big labor unions, who rallied in Albany in favor of tougher reforms on Tuesday. The mayor was a target of the protestors, who alleged that his administration’s contention that paying prevailing wages would prevent more affordable housing was untrue.
“Keep going the way you’re going and we’re going to have two cities—one for those with a home and those without,” James Cahill, president of the New York State Building &
Construction Trades Council, announced to the protesting crowd to chants of “fix it now.”
That rift left open an opportunity for Gov. Cuomo, not nearly as popular with unions and progressive as the mayor.
Gov. Cuomo has been coy about where he stands, though fairly clear that he doesn’t back the mayor. Cuomo has taken a rare position to the left of de Blasio, who has never had an issue being on that side of the governor politically.
“The city has a package that is criticized as being too rich to the developers and a giveaway to the developers and you’re not paying the workers a fair wage,” Cuomo has been quoted as saying. “That is a very bona fide discussion, and that has to be figured out, or not. And it’s very technical and it’s very controversial.”
The governor has not revealed his own proposal, but had no issue with 421a as it is – he signed off on it when it was renewed in 2013. The Democratic-controlled Assembly is supporting reforms closer to de Blasio’s.
Senate Republicans meanwhile unveiled their plan, which is closer to Cuomo’s in that it requires a developer pay a prevailing wage for any project with more than 50 units and where less than 50 percent of the units are priced as affordable. The incentive, several sources say, is for developers to offer affordable housing as a compromise for not paying prevailing wages.
Whether or not a deal can be struck by the June 15 deadline, or even by the end of session later this month, is in question.
Preet Is Watching
According to several sources, state legislators are wary of making deals on big pieces of legislation like 421a renewals because of recent indictments of several legislators, including the leaders of the Senate and the Assembly, and the ongoing investigation to other legislators from U.S. Attorney for the Southern District of New York, Preet Bharara.
“Everyone knows Preet Is watching,” said one Assembly staffer. “Everyone is worried any dealmaking will lead to suspicion.”
Bharara made no secret that he is specifically looking at tax breaks for real estate properties. In January, it was revealed that his office was eyeing tax abatements awarded to the developers of One57 in Midtown under the 421a program in his indictment of former Assembly Speaker Sheldon Silver.