Lander and allies: forget revamping 421-a, achieve property tax reform. (How easy would that be?)

In contrast (mostly) with the Citizens Budget Commission, as I wrote yesterday, on 3/16/22 NYC Comptroller Brad Lander, Council Members Tiffany Cabán and Pierina Sanchez Called to Nix 421-a Developer Tax Break, urging the state legislature and the Governor to allow the program to expire, given annual foregone property taxes of $1.77 billion in FY 2022.

Lander also released A Better Way Than 421-a: The High-Rising Costs of New York City’s Most Unaffordable Tax Exemption, an analysis of the cost of the program and its proposed changes, the impact on housing production, and the nexus between 421-a and structural property tax reform.

(Here's the report and the livestreamed press conference, held outside The Willoughby in Fort Greene/Downtown Brooklyn, which has the most expensive "affordable housing" I've noticed under 421-a.)

“The 421-a program is a towering boondoggle – costing our city $1.77 billion this year in foregone taxes and delivering only a small handful of actually affordable units in return,” Lander said. “Rearranging the number and letters is tantamount to slapping a gold-plated bandaid on to hold together a deeply inequitable and opaque property tax system, and then pretending we’ve fixed our affordable housing crisis."

The question, though, is how to replace it.

The explanation

From the press release:

Over the years, New York’s property tax system has become a patchwork of exemptions and abatements responding to changes in the housing market, the largest of which is 421-a. Established in 1971, the 421-a tax exemption was designed to spur housing development at a time of disinvestment. The Department of Finance estimates that the 421-a program will cost New York City $1.77 billion in foregone tax revenue for roughly 64,000 exemptions this year. Both the Comptroller’s report and Council Resolution call on state legislators to allow the current program to expire as scheduled on June 15, 2022.

In “A Better Way Than 421-a,” the Comptroller’s office estimates that more than 60% of the income-restricted units created by the 2017 version of the program were built for families earning well over $100,000 a year, making those units unaffordable to nearly 75% of New Yorkers. For example, a family of three would have to earn up to $139,620 and pay about $3,400 a month for a two-bedroom apartment. The rally on Wednesday was held at The Willoughby in downtown Brooklyn, which will receive this tax break and has an open affordable housing lottery. The least expensive unit is $2,500 per month for a studio apartment, advertised to an individual or couple making between $86,500 and $124,150.

(Emphasis added)

Note that the last two buildings--and almost surely the next two--built in Atlantic Yards/Pacific Park are aimed at households earning six figures, at 130% of Area Median Income. That's Option C in the chart below.

The report notes also that the 2017 revised program, known as Affordable New York, "primarily subsidizes relatively small developments in Northern Manhattan and the other boroughs where the rent of income-restricted units can be nearly undistinguishable from that of market-rate units." 

That's not quite true for Atlantic Yards/Pacific Park--the rent is considerably lower than market-rate units in the same buildings, but not necessarily much lower than market-rate units, however older and without amenities, accessible ot the renters.

What might come

And though Gov. Kathy Hochul's reforms would mean low-income units at a blended average of 56% of Area Median Income (AMI), known as Option A, at large developments, Lander's office predicts that most rental buildings would be small and rely on moderate-income option B (90% of AMI), with one-bedrooms (as of now) at $1,942 and two-bedrooms at $2,323.

An alternative

So Lander suggests that the program expire, with a deadline to achieve structural changes to the property tax system by the end of the year:

The New York City Advisory Commission on Property Tax Reform found that the median effective tax rate on rental buildings is roughly double than a condo building, a strong disincentive to developing rental housing. The Comptroller’s report finds that the lower, uniformly, and broadly applied tax rates proposed by the New York City Advisory Commission on Property Tax Reform could largely eliminate the need for 421-a as a development incentive.

If it did expire, there would be a spike in applications to the Department of Buildings before June 15.

What to do? Lander urges property tax reform including:

• Introduce a uniform sales-based valuation methodology and a single revenue-neutral tax rate for 1-3 family homes, co-ops and condominiums, and small rental buildings. Tax relief programs should favor primary and low-income residents and replace the current assessed value growth caps.
• Make tax treatment equal between new residential constructions to provide a broad, strong, fair incentive for new construction going forward. This would largely eliminate the need for a 421a-style development incentive program.
• Establish a new, targeted affordable housing tax incentive that would match the level needed to achieve genuine affordability, rather than provide a tax exemption that underwrites both market-rate and income restricted units. This new incentive should also come along with strong labor standards to provide good jobs for New Yorkers.

But how realistic is this? Consider that former Mayor Bill de Blasio punted the issue to a commission, which made its report as his mayoralty was ending.

The challenge, as Lander hinted at the press conference, is politics, since that would significantly raise taxes on his well-heeled neighbors in Park Slope.

A note on journalism

It's worth noting that, at the end of the livestreamed press conference, there was barely a question from the (few? any?) press present, and the photo used by PoliticsNY was credited to John McCarten of the NYC Council Media Unit. 

Indeed, the number of in-house p.r./media specialists working for government and private entities dwarfs the number of journalists that should serve as watchdogs.