Saturday, August 11, 2007

A closer look at the 421-a revision; can you figure it out?

So can you make sense of the revision of the 421-a tax exemption, produced in closed-door negotiations between city officials and state legislators, and which even left reporters confused?

It's hard to read. (Click to enlarge.) One key is that the section in brackets, which I've highlighted in red, was the original, more blatant, "Atlantic Yards carve-out," the one that even ticked off Mayor Mike Bloomberg and ACORN's Bertha Lewis. That would've provided an estimated $300 million in benefits to developer Forest City Ratner. (The underlined segments are new.)

Getting less blatant

The underlining is the new text, and Atlantic Yards would still get special treatment, worth $150-$200 million. The carve-out would have given a 25-year tax exemption for AY buildings that don't include affordable housing, just because they were part of a project that included an average of 20% affordable housing for households at 70% of Area Median Income (AMI), which at that point was higher than the 60% AMI in the state bill.

The AMI levels have changed, which I'll explain below, but the important thing is that Atlantic Yards buildings that meet the new standards--20% affordable housing--would get a 25-year tax exemption. Atlantic Yards buildings that don't meet the new standards would get a 15-year tax exemption, unavailable to other market-rate buildings in the same neighborhood. In other words, unlike other market-rate construction in Prospect Heights, they'd be grandfathered in.

The New York Times on Wednesday reported, the city's party line:
As for Atlantic Yards, city officials said the new agreement represents a fair compromise. To receive the maximum tax break, 20 percent of the units in any building will have to meet the new affordability guidelines, which are more stringent than those that originally applied. And the lower-priced units will have to be built at the same time as the market-rate units, to insure that they are not put off until the end of construction or never completed.

This fails to explain that Forest City Ratner would still be eligible for a special tax break. It sets up a false comparison. Yes, the new law is more stringent than that "originally applied," but it would be more stringent for everyone, so that's not the point. The point is that the affordability guidelines would be different for Atlantic Yards. That's why it's still a "carve-out."

The Times reported June 29:
But the bill would also provide what the city estimates are an additional $300 million in tax breaks for the vast Atlantic Yards complex being developed by Forest City Ratner Companies, the development partner with The New York Times Company in the Times’ new Midtown headquarters, without getting any additional affordable units in return. Mr. Lopez said it was a concession sought during negotiations with Mr. Spinola and the Senate over his bill.

So it all depends on how you spin it. The $150-$200 million would not provide "any additional affordable units" as well. Yes, Forest City Ratner, when it planned the Atlantic Yards project, expected to get it moving in 2004 or 2005, long before the tax break was revised. But any other developers whose projects were delayed would now have to provide affordable housing in exchange for the tax break.

Looking at the tax break

The Sun and the Post and a blogger or two figured out that Atlantic Yards would receive a special tax break unavailable to other projects. Here's the key text, which needs a decoder ring:
With respect to any multiple dwelling in a UDC Large Scale Project that meets the requirements of paragraph (c) of subdivision seven of this section, the period of tax benefits awarded to such multiple dwelling shall be the same as the period of tax benefits awarded under clause (A) of subparagraph (iii) of paragraph (a) of subdivision two of this section. With respect to any multiple dwelling in a UDC Large Scale Project that does not meet the requirements of paragraph (c) of subdivision seven of this section, the period of tax benefits awarded to such multiple dwelling shall be the same as the period of tax benefits awarded under clause (A) of subparagraph (ii) of paragraph (a) of subdivision two of this section.
(Emphases added)

Those sections relate to the state's law CONSTRUCTION OF CERTAIN MULTIPLE DWELLINGS (search on 421-a) The first section offers 25 years of tax breaks; the second, 15 years. Current 421-a law, before revision, offers 10-year and 20-year exemptions in the Manhattan core; the longer period is for projects that contain affordable housing.

The 15-year and 25-year exemptions apply to projects outside the Manhattan core; the 15-year exemption is as-of-right, with no affordable housing required, while the 25-year exemption goes to projects that either include affordable housing or are in areas targeted for revival. (See reports from the Independent Budget Office and the Pratt Center for Community Development.)

In other words, a 15-year tax break means Forest City would get the status quo grandfathered in.

Section iii sets out this schedule of exemptions:
During Construction (max. three years): 100%
Following completion of work, by year
1-21: 100%
22: 80%
23: 60%
24: 40%
25: 20%

Section ii sets out this schedule of exemptions:
During Construction (max. three years): 100%
Following completion of work, by year
1-11: 100%
12: 80%
13: 60%
14: 40%
15: 20%

Changing AMI

The AMI figures have changed, and now that I've seen the text of the bill, I can update and correct Wednesday's post. The definition of affordable housing is not being raised across the board from 60% AMI to 90% AMI, as I'd suggested, from my reading of press coverage.

Rather, projects built by private developers without "substantial government assistance" would be required to include 20% affordable housing at 60% AMI. Projects built "with substantial assistance of grants, loans or subsidies from any federal, state or local agency or instrumentality," with that assistance aimed to provide affordable housing would have a different standard.

Those projects, which would include Queens West and Atlantic Yards, would be required to either offer 20% for-sale units at up to 125% AMI or 20% rentals at rentals at an average of up 90% of AMI. Projects with fewer than 25 units could include 20% rentals at up to 120% of AMI.

It seems odd that government-assisted projects would have more expensive affordable housing than that required of projects built by private developers on their own. However, the 90% AMI ceiling is apparently aimed to give the city flexibility in major projects like Queens West.

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