Redrawing the 421-A Formula For Tax Breaks and Housing

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After weeks of negotiations and a dose of drama as bills multiplied while the state legislature’s term waned to a close on Friday, lawmakers last week finally agreed on a compromise reform version of the 421-a housing program.

Administered by the city’s Department of Housing, Preservation and Development (HPD), 421-a is a tax incentive program begun in the 1970s to spur housing development at a time when developers needed encouragement to build in New York City. Over the past two years the city began a move to reform the program, acknowledging today’s radically changed housing market in which it’s affordable housing development in particular that can use the incentive.

The bills passed in Albany on Thursday, sponsored by Assemblyman Vito Lopez, a Brooklyn Democrat, and Senator Martin Golden, a Brooklyn Republican, include a number of new mechanisms to promote housing affordability while retaining tax benefits for developers. The measures have the support of the Real Estate Board of New York (REBNY) and building services workers’ union SEIU Local 32BJ, but garnered mixed reviews at best from NYC officials and affordable housing advocates.

One major change in the new legislation is the expansion of the so-called “exclusionary zones,” or areas in which developers must include affordable housing in their plans to qualify for the tax breaks. Originally, there had been just one exclusionary zone, covering a large swath of central Manhattan, but now there will be 12 more geographic areas, in addition to eight added by the city in December. Almost all of Manhattan is now covered, plus exclusionary zones in each borough.

The new areas covered include considerable sections roughly of Crown Heights/Prospect Heights and East New York in Brooklyn; Elmhurst/Jackson Heights and the Astoria/Long Island City waterfronts in Queens; a portion of the north shore of Staten Island (the only area in the entire borough); and East Tremont/West Farms and Grand Concourse/Crotona Park West in the Bronx.

Some healthy real estate markets around the city are notably absent: Riverdale in the Bronx, and downtown Flushing and Forest Hills in Queens. Affordable housing activists say that’s significant because those are precisely the areas that need the mandatory affordable housing requirements so that existing lower-income residents don’t get pushed out.

One attention-getting feature of the legislation gives the already controversial Atlantic Yards project in Brooklyn additional tax breaks. It also allows potential tenants who earn up to 70 percent of the Area Median Income (AMI) of $70,900 to apply for “affordable” units there (up from a proposed 60 percent); setting that rate also raises the rent amount that qualifies as “affordable.” But Lopez said Monday that the Senate has yet to vote on this aspect.

Other aspects of the legislation include:
• A reduction in the AMI income threshold to 60 percent from the city’s 80 percent to qualify for affordable units (for every place other than Atlantic Yards);
• Reserving 50 percent of affordable units for “community preference,” meaning for existing residents within the community board district;
• Building all affordable housing on the actual site where a building is being developed, thus eliminating the “certificates” granted to developers allowing them to build their required affordable component offsite;
• An extension of the certificate program for six months before ending;
• Rent stabilization of such units for 40 years; and
• Bolstering the city and state’s monitoring and enforcement practices.

There was much confusion in both chambers leading up to the votes. Lopez in February sponsored a broader bill than the one passed by the City Council, then introduced a modified version last month. He introduced an amendment just before the deal was reached last week, leaving many legislators to wonder exactly what it was they would end up voting upon until the last minute. Lopez introduced still another amendment following the unanimous Assembly vote Thursday afternoon.

There were also four different versions carried in the state Senate since the beginning of the year, and because of the seemingly constant changes in the Assembly, it was unclear which bill would come up to vote and which one Lopez would champion.

The Senate vote – with 59 in favor, two against, and one absence – was taken late Thursday night, before the legislative session ended for recess (apart from special sessions) until next January. The bill that passed was the same as the Assembly’s: a modified version of Lopez’s first bill.

Ultimately, according to several sources, Lopez and REBNY were the two key players in negotiations. REBNY Senior Vice President Mike Slattery said his organization was “pleased” because of the inclusion of a provision to protect “projects already in the pipeline,” REBNY’s primary concern. It was REBNY’s persistent lobbying that had officials extending the certificate program to allow offsite affordable development for another six months.

That extension almost guarantees there will be a development and construction surge as developers rush to take advantage of the six-month extension before the certificate program ends.

Slattery also said REBNY proposed a “modest” offsite provision, akin to the one in place for Greenpoint, Brooklyn, but that it didn’t pass. “We understand [the concern] of using tax money wisely,” he explained. He cautioned that “time will tell if it was the right decision” to create more exclusionary areas.

On the other hand, 32BJ’s fundamental interest focused on wages. Spokesperson Matt Nerzig said the union considers the state bill better than City Council’s version because required payment of the “prevailing wage” to 32BJ’s constituency of janitors, supers, guards and housekeepers begins with buildings of 50 units or more rather than 150 (or 75 in Manhattan), “thereby extending the prevailing wage provision to more workers, and putting this new condition into effect six months earlier than initially anticipated.”

Although most parties – outside of REBNY – consider the elimination of the certificates that allow for offsite affordable housing an improvement, the compromise bill still has important detractors, including HPD and City Council Speaker Christine Quinn. HPD spokesperson Neill Coleman said, “We’re not happy with it. We have concerns with the way it was written and … we’re not necessarily sure it will create affordable housing.”

Sandra Mullin, communications director for Council Speaker Christine Quinn, wrote in an e-mail that “In its [new] form, the 421-A program is a massive misuse of the tax dollars of New York City residents. It continues to subsidize luxury homes in expensive neighborhoods, with nearly 80 percent of the benefits going in Manhattan. It subsidizes buildings that would have been built anyway, at an annual cost to the City of $300 million and rising fast. And it creates very little affordable housing.”

HPD’s Coleman said expanding the number of exclusionary zones would mean that fewer needy communities – among the poorest identified by the city – would be eligible for some of the $400 million dollars set aside for a Housing Trust Fund that was created during last year’s reform activity, specifically targeting the poorest. Once a neighborhood falls into an exclusionary zone, it cannot also receive the other funding.

State Senator Liz Krueger, the Upper East Side Democrat and ranking member of the Senate housing committee who had sponsored her own legislation, criticized several aspects, including: that only 20 percent of created units were required to be affordable instead of the 30 percent included in the original legislation; that they’ll remain affordable for 40 years rather than in perpetuity; the special terms for Atlantic Yards; and that the certificate extension “allows the real estate industry to continue to operate under old, flawed rules during that time.”

And Phil dePaolo, president of the New York Community Council, expressed concern about who exactly would be covered by the community preference provision. A long-time resident of Williamsburg, dePaolo worried that people who have already been displaced by gentrification and been forced to move away would not be considered for the affordable units.

“This bill is better than what we had, but is it reform?” asked dePaolo, who thinks the whole program should have simply sunset at year’s end, which would have happened if the state legislature didn’t act by Dec. 31.

Julie Miles, executive director of the affordable housing group Housing Here and Now, said 421-a wasn’t going to be allowed to sunset anytime soon because developers got very accustomed to having the tax breaks available to them and the real estate lobby wasn’t about to let them disappear. “It’s like a drug,” Miles said.

The 421-A program is considered controversial because of its use of property tax exemptions to subsidize market rate or luxury housing development, often without the creation of any affordable units at all, and especially now when the real estate market is so strong. It was created as a temporary way to foster economic development at a time when there was little. The affordability requirement was included in the 1980’s, and only applied to a limited area in Manhattan. Recently, the Greenpoint and Williamsburg waterfronts were added.

Last year, the Pratt Center for Community Development issued a report, in part based on data from the city’s Independent Budget Office, revealing that though the city had granted hundreds of millions in tax breaks over the program’s life, little public benefit had resulted. According to the report, through 421-a the city lost $130 million in tax revenue in 2002 and $320 million in 2006, while generating relatively little affordable housing for those who need it the most.

Mayor Bloomberg formed a task force to examine 421-a and the abuses opponents pointed to. The task force offered modest changes, prompting councilmembers to beef up the mayor’s bill. Although Bloomberg and the Council agreed to a version of reform late last year, because 421-A is a state program, the city didn’t technically have legal jurisdiction. However, it is widely believed that no reform at all would have taken place on the state level had the city’s debate and subsequent legislative action not occurred. Gov. Eliot Spitzer’s office has been noncommittal about whether the governor will sign the bill.

– Jillian Jonas

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