As legislature faces April 1 budget deadline, approval of a successor to 421-a tax break could nudge the future of Atlantic Yards/Pacific Park

For various reasons, it's not surprising that the foreclosure auction of six Atlantic Yards/Pacific Park development sites has been postponed twice, most recently to April 30.

The most obvious reason is the complexity of a future deal, since the development rights are attached to obligations to build a costly platform as well as obligations to build affordable housing, which come with liquidated damages for units not built by May 2025.

That means the parties include not just the debt holders, funds formed with money from EB-5 investor visa borrowers, and future bidders, but also Empire State Development (ESD), the state authority that oversees/shepherds the project and could clarify/renegotiate/subsidize the obligations. 

Of course, the gubernatorially-controlled ESD shouldn't do that without input from elected officials and the public.

The 421-a quandary

But there's another issue. By April 1, the state budget is due, and should include new policies to support housing construction, including a successor to the now-lapsed 421-a tax break, which representatives of Greenland USA, the master developer that has stalled Atlantic Yards/Pacific Park, have said would be key kind of replacement.

So expect public debate. Yesterday, a press release, New York State Senate Passes One-House Budget Resolution, detailed varying housing-related items, of which I've selected several:

The Senate puts forward a new program entitled the New York Housing Opportunity Corporation, using the $250 million allocated as a part of the NY RUSH program, to expedite and build more long-term affordable housing on available state-owned land throughout NY, as a successor to the Mitchell-Lama program.
Protecting Tenants and HomeownersTenant protections that align with the core principles of Good Cause Eviction.
Protecting New Yorkers against Deed Theft.
Providing the City of New York the authority to override the FAR [Floor Area Ratio] cap.
Commercial conversions with more emphasis on affordability.
Openness for further discussion on extending the 421-a construction completion deadline for vested projects, as well as the creation of a tax exemption for the construction of multi-family rental housing to replace the expired 421-a program.

Note that the reference to 421-a remains vague. State Sen. Brian Kavanagh, the Senate’s chair of the Committee on Housing, Construction and Community Development, told Capital Tonight:

“In the case of the 421a program, the governor put forth a new proposal but acknowledged it was something of a placeholder,” Kavanagh said. “We are more or less saying the same thing about the details, but the goal is to get a comprehensive deal in the context of a budget.”

The contour of the 421-a successor is crucial, as well. Would it allow the obligation to deliver "affordable" units be satisfied by building below-market apartments for the middle-class, with higher rents, or would it require more deeply affordable ones, at lower rents and thus in smaller quantities? 

The trade-off

As the New York Times noted, landlords and developers surely appreciate the proposals to replace 421-a and allow larger buildings by lifting the 12 FAR cap, but there's a bargain implied:

But the package comes with one major condition: Senate Democrats say they will not make any deal that does not include protections similar to those in the Good Cause Eviction legislation — a controversial bill that would limit landlords’ ability to evict tenants or raise their rent above 3 percent in times of low inflation.

The Assembly’s proposal also includes incentives for office conversions and for building new housing on state-owned land. And while it makes reference to protecting tenants from “capricious rent increases and unreasonable evictions,” it makes no mention of the tenant protection legislation...

City Limits reported, in Second Time’s the Charm? NY Legislature Angles For Broad Housing Deal:

With the state’s annual spending plan due in less than three weeks, the Senate and Assembly called this week for a housing deal that both incentivizes development and protects tenants. But Hochul, who has substantial leverage in budget negotiations, has insisted that these topics should be addressed separately.

State-owned sites?

From City Limits:

The Senate and Assembly also put forward ideas for building housing on state-owned land. The former proposed $250 million for a New York Housing Opportunity Corporation, billed as Mitchell-Lama 2.0, while the Assembly pitched $500 million for Foundations for Futures, a limited-equity co-op plan it tried for last year. 

Hochul’s plan includes $500 million for housing development on state-owned land, which she estimates could produce 15,000 housing units. 

Technically, Atlantic Yards/Pacific Park is a state-owned site, but... the cost of construction, including the platform over the railyard, ensures that any state funding for new construction would go to more shovel-ready sites.

Drilling down on 421-a

In The Sad Saga of New York Housing Policy: Governor Hochul Is Still Searching for a Pro-Growth Consensus, former city planner Eric Kober of the right-leaning Manhattan Institute observed:

Taken purely as a technical exercise, of identifying the appropriate locations for the right amount of housing, the downstate housing supply crisis is solvable. NYC’s “City of Yes for Housing Opportunity” proposal would, if enacted and supported with the needed state legislation, give the city a meaningful increase in housing production.[1] An analysis for the New York Times found locations for Mayor Eric Adams’s full “moonshot” goal of 500,000 new housing units over 10 years “without radically changing the character of the city’s neighborhoods or altering its historic districts.”[2] In the suburbs, finding low-impact building sites is even easier. For example, in a 2021 report, I focused on the housing potential of commercial areas near commuter rail stations and along arterial roads.[3] A 2017 Regional Plan Association study found the potential for as many as 250,000 new housing units on commuter rail parking lots in the NYC region.[4] 

The problem, of course, is politics.

Regarding 421-a, he noted:

In a recent report, I suggested that Hochul should propose legislation simply authorizing the city to create a property tax exemption program for new mixed-income rental housing, by local law. My argument was that state control of 421a had led repeatedly to costly and ineffective program designs and that the mayor and the city council were better positioned to determine how much city tax revenue should be given away, to whom, and under what conditions. The mayor and the city council would then be accountable to voters for the consequences, in a way that the state legislature is not.

Hochul’s actual proposal is an unwieldy contraption that combines state mandates, outsourcing of public policy to private interests, and local flexibility in a manner that seems unlikely to produce a good outcome. First, the legislation specifies that eligible rental projects shall receive a 35-year tax benefit and eligible homeownership projects, a 40-year tax benefit. It also specifies the amount of property tax exempted for each year of the term. However, the legislation doesn’t specify what an eligible project is. Thus it creates, in effect, a piñata stuffed with NYC property tax revenues for interested parties to fight over.

Indeed, Kober's report noted:

Moreover, reauthorizations of the program are done through secretive negotiations, which often come at the city’s fiscal expense. In the last go-round in 2016, for example, the negotiations created the widely used Option C,[30] which provides a 35-year, 100% post-construction tax exemption, applicable in most of the city, in exchange for “affordability” conditions requiring units to be rented at, or close to, market rates in many neighborhoods.[31] It is an ineffective system and a colossal backdoor cash drain on the city.

That means units at 130% of Area Median Income (AMI), which, as noted, in many neighborhoods is close to market-rate. 

Unlike applicants for low-income units, who face long odds, those pursuing such middle-income units often get selected for several lotteries.

With Atlantic Yards/Pacific Park, 130% AMI units are well below market-rate in the same buildings, but nevertheless aimed at middle-class households, most earning at least six figures, hardly those who marched for "affordable" housing.