Five Big Questions About the 421-a Tax Break Deal

It’s not unusual for the state legislature, where much power rests in the hands of politicians representing suburban and rural areas, to have huge sway over the housing policies that govern life in New York City. Every few years tenant advocates try to figure out how to convince legislators with no rent-regulated units in their districts to preserve rent regulations affecting 2 million city residents. The 421-a tax break is a similar case: State lawmakers—playing not with “house money,” but rather with city money—decide how much tax revenue the city should forego in order to encourage housing development in the five boroughs.

This year the power dynamics are even weirder. For one thing, the proposed future of 421-a has been charted not by elected officials at all, but by organizations representing developers and building tradespeople. For another, legislators might decide whether to accept that proposal not on its own but in concert with decisions on their own pay, ethics reform and a memorandum of understanding to govern $2 billion in affordable housing spending. (The MOU is, like the decision 18 months ago to outsource the design of 421-a to private parties, an example of unorthodox policymaking by Governor Cuomo.)

And even though 421-a figures prominently in his affordable housing plan—not to mention his future budgets—the mayor of New York City has said next to nothing about the proposal by the Building and Construction Trades Council and the Real Estate Board of New York to provide a more lucrative tax break in exchange for the payment of prevailing wages in large projects built in the city’s core. The mayor might be wise to keep his counsel: He has no formal power to affect the deal, a history of stepping on landmines in Albany and an awkward position to defend, since his 2015 reforms were also dubbed by some critics as a giveaway to developers.

How de Blasio feels about this deal in the silence of his own heart is just one the things most of us regular folk don’t know about the 421-a proposal but should. Here are the other big question marks:

How much will it cost? The Alliance for Tenant Power has said the new proposal could cost the city $2.4 billion a year in foregone revenue. That’s based in part on the city’s annual report on tax expenditures, which most recently pegged the annual cost of 421-a at $1.2 billion, and that is also the figure cited by City Hall for the past program’s cost. The Alliance estimates that the reforms passed in 2015, largely along the lines of the mayor’s proposal earlier that year, would boost the annual cost to $2 billion and that the REBNY-trades deal would take on another $400 million. The Independent Budget Office, using a smaller base number for the annual cost of 421-a, reported that de Blasio’s reforms would cost the city an extra $270 million a year. REBNY has slammed the Alliance report, arguing among other things that the tax expenditure “cost” of 421-a is not a real expense (meaning the city wouldn’t necessarily get that revenue if the tax break ended because some of the projects that get the break would never be built). But neither REBNY nor the Trades Council nor the de Blasio administration had a cost estimate for the new proposal, in part because so few of the details are yet known.

Will smaller projects be able to opt in? The REBNY-trades deal would require developers in the core business districts to pay a prevailing wage on projects that build 300 units or more, and would offer those developers a full exemption on new property taxes for 35 years. What’s unclear is whether smaller projects in those areas might voluntarily pay the higher wage in order to qualify for the tax break. If they could, it would change the cost and impact of the deal considerably.

Will it really create better paying jobs? The deal requires developers of 300-unit or larger projects in Manhattan south of 96th Street and in Brooklyn and Queens Community Boards 1 and 2 within one mile of the water to pay, depending on location, an average $45-an-hour or $60-an-hour wage. Larger projects in New York are already mostly union, however, so it’s not clear how many jobs that would have paid below the prevailing wage will actually shift to the higher scale if the new rules are passed.

Do we really need 421-a? Developers have insisted 421-a is essential to the creation of affordable housing—or any housing—in New York City. The de Blasio administration has sent mixed signals on this front, assuring the public that other tax breaks could serve many of the affordable-housing projects that might otherwise receive 421-a, but stressing that it would be much harder to do so. The Furman Center estimated earlier this year that the loss of 421-a would affect larger projects in some areas of the city, and there were indications as recently as last summer that the lapsing of the tax benefit had suppressed construction activity. But then came word that the number of building permits had roared back to life in the third quarter of 2016, jumping 49 percent over the second quarter and 150 percent over 2015. That could reflect a surge in permits from projects that had been grandfathered in, but it could also suggest that the real-estate market held back in early 2016 hoping 421-a would be restored but have now adjusted to life without it.

What happens if 421-a doesn’t pass now? Word is assemblymembers have been told to keep their calendars clear for a special session next week, but it’s not certain they will actually be called back. Should 421-a not come up for a vote now, it would likely be dealt with in the regular legislative session next year. No matter when Albany addresses 421-a, decisions about the tax program will be linked to other issues on the table at the State Capitol; that’s just how the building, like many legislatures, works. The question is what will be on the other end of the chain. For tenant advocates and other critics of the 421-a deal, it’s scary to see it paired with a salary hike for legislators or the MOU, because it complicates the decision-making for potential allies in the legislature. The salary boost goes off the table if the special session doesn’t happen, and the MOU could get separated as well. If you hate 421-a, in other words, the longer the limbo, the better.

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City Limits coverage of housing policy is supported by the New York Community Trust and the Charles H. Revson Foundation.