After a week of “secret talks” with leadership from one of the state’s most powerful interest groups, details are emerging regarding Governor Cuomo’s first major steps toward reviving 421-a. The New York Times broke the news yesterday evening about the first sign of a turning point for the controversial billion-dollar, affordable-housing tax abatement that was allowed to expire in January.
The meetings, held by the Governor with leaders from both the Building & Construction Trades Council and the Real Estate Board of New York (REBNY)– the mighty trade association representing the industry, and workers’ interest group, respectively– resulted in a memo that was sent out to developers yesterday. What came out of the back-room meetings wasn’t so much an agreement as an appeal to the real-estate industry to accept a new subsidy proposal in exchange for settling on disputes surrounding 421-a, setting the stage for the tax program’s revival. REBNY has yet to approve the deal and, in the mean time, is refusing to communicate with the media.
Cuomo’s new proposal piggybacks on the notorious 421-a tax subsidy, which was allowed to expire at the start of this year when REBNY and construction labor unions couldn’t come to an agreement on pay standards. Developers who apply for 421-a, which covers new residential construction projects in certain areas along the Brooklyn waterfront, Queens, and Manhattan, can pass down the property tax exemption to building owners who, in some cases, are relieved of having to pay these taxes for 20 years.
Since it was allowed to expire, 421-a has hovered in limbo, meanwhile a tug of war’s been waging between the abatement’s critics and developers. The latter argue that new construction of affordable housing in much of the city would essentially come to an end without it. The program’s detractors, on the other hand, see 421-a as not just a relic from another era, but as an ineffective, wasteful pocket-liner for building owners who have reaped the rewards over the years without holding up their end of the bargain.
And yet, by eliminating 421-a altogether, the prospects for solving the affordable housing crisis, which has been one of the most sweeping and ambitious of the Governor’s initiatives as well as a linchpin of the de Blasio administration, actually do seem pretty dire. On the whole, 421-a has devolved into an outright snafu of opposing interests resting on one very expensive and less-than-effective subsidy, as affordable housing built by the government has turned out to be a less-than-effective and incredibly slow means of addressing the housing crisis.
In an effort to get the ball rolling again, Cuomo has offered to sweeten the deal for developers with a special subsidy that would help cover the cost for construction-worker wages. The state would cover 30 percent of the wages in exchange for 25 to 30 percent affordable housing. The plan, however, only covers construction projects within the 421-a zone with 300 or more units.
Thus far, Cuomo’s new subsidy plan is not much more than what the Times described as a “skeletal, single-page memo” addressed to housing developers and REBNY . However, the terms already seem to be squeezing out unions, as the memo promises that the subsidies wouldn’t come with any requirements to hire union workers or meet prevailing wage standards (i.e. the standard pay-and- benefits package for union workers, usually determined through negotiations between the two parties).
Clearly, Cuomo’s made some concessions, seeing as last year, just before 421-a expired, he said that he wouldn’t support a renewal until developers agreed to abide by prevailing wage standards for construction workers.
There are, however, some wage standards included in the package: for developments going up in Manhattan, workers would earn on average, at least $65 an hour plus benefits; for Brooklyn- and Queens-based projects, that number falls to $50 an hour, also with benefits. According to the Times, this would add “tens of millions” of dollars to an already extremely expensive 421-a program. However, that’s slightly better than another proposal on the table earlier this year that was projected to cost the state $2.8 billion.
The controversy surrounding 421-a stemmed from bad actors who have taken advantage of the lack of oversight that plagued the program for a long time– many building owners reaped the benefits of the tax abatement without supplying the agreed-upon affordable housing. In the months leading up to the 421-a flop in January, affordable housing advocates including the Brooklyn Anti-Gentrification Network organized protests calling on the state to ditch the program altogether as opposed to reforming it. Around the same time, both the Attorney General and Governor Cuomo announced that they were going after around 200 building owners who had taken advantage of the tax abatement and enacted a registration system to track 421-a beneficiaries.
But a damning ProPublica report demonstrated that, actually, the State had downplayed the extent of 421-a’s problems. “In reality, state and New York City officials have tolerated the problem for years — and ignored pleas to investigate,” the report concluded.”Landlords have failed to register thousands of buildings for rent regulation, casting doubt on the legality of leases for about 50,000 apartments across the city.”
Worse yet, 421-a is hardly the only subsidy program with serious problems– J-51, which benefits building owners who have rehabbed an existing site, might be worse. At the Mayor-sponsored #HackHousing event last month, Aaron Carr, founder of the Housing Rights Initiative declared that J-51 led to the most egregious violations of the tax-subsidies-for-affordable-housing arrangement. “It’s easily enforceable,” he explained. “Anyone can do this.”
Together, ProPublica estimates the these programs cost the state $1.4 billion in lost tax revenue.
But as one developer told Commercial Observer that the loss of 421-a was “a deal breaker for a lot of people” hoping to building in Manhattan, Brooklyn, and Queens. REBNY also argues that it’s simply impossible for developers to fund new residential construction projects in the city that include any level affordable housing and come out on top without some sort of tax subsidy. Love it or hate it, this is capitalism, after all. The condo market, with its relatively easy profitability, is doing a-OK.
As is usually the case with policy initiatives like this one, however, we’re not really sure how Cuomo would go about funding the new subsidy which, again, is estimated to add “tens of millions” more to the already billions that the State loses in tax revenue from 421-a annually. And yet, if 421-a and other tax abatements can be properly enforced and provide quality, actually-affordable affordable housing, then it just might be worth it. But first, REBNY has to agree to the terms.