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Does the Mayor's 421a Plan Meet Local Needs?

May 7, 2015

Mayor de Blasio today released his administration’s proposal to reform the controversial 421a Developer’s Tax Break. We all know the problems with 421a – it gives away billions of dollars for very little public benefit.

Mayor de Blasio today released his administration’s proposal to reform the controversial 421a Developer’s Tax Break. We all know the problems with 421a – it gives away billions of dollars for very little public benefit. An ANHD analysis shows that, in 2013 alone, $1.1 billion in tax revenue was given up by the City in order to incentivize luxury developments like One 57th Street and the Bushwick Colony, subsidizing over 153,000 units of market-rate housing in return for only 12,600 affordable units. It’s a boondoggle, and ANHD strongly believes that the best approach to this problem is to simply eliminate 421a and require market-rate developers to pay their fair share of taxes – same as the rest of us.

Unfortunately, Albany has a big role in what happens to the 421a Developers Tax Break. Given this fact, Mayor de Blasio has made clear that he believes his administration should put forward a 421a reform proposal.

While the Administration’s proposal addresses some of the key critiques of the current program, the REBNY-supported City plan gets the most important question – affordability – wrong. And affordability is one of the most important issues for communities and for reducing inequality in NYC.

The general framework of the proposal that the City released today (link to the mayor’s press release) does address some of the big problems with the 421a program as it currently exists, the most significant of which are:

1) For the first time, an affordable component would be required everywhere in the City, not just in a limited “geographic exclusion area,” making some affordability a citywide requirement.

2) The odious “Poor Door” developments would be eliminated to ensure the fair and equal treatment of all tenants.

3) A Mansion Tax on high-end condos would be instituted to pay for other affordable housing, which is an important first step in addressing the City’s regressive property tax code that subsidizes luxury mansion condos at the expense of rental housing.

But the Mayor’s 421a reform proposal doesn’t resolve the core problem with the current 421a program – that it gives away a lot of money to developers in exchange for very little affordability, at levels unaffordable to most New Yorkers. The affordable housing that developers are required to provide in return for the tax break comes nowhere near offsetting either the monetary giveaway, or the negative effects that these developments have in terms of driving up prices in the surrounding neighborhood. Without addressing this disparity in a real and significant manner, even a reformed 421a will continue to have a detrimental impact on communities throughout the City.

Specifically, the Mayor’s 421a reform proposal would give developers the option of a tax break for units that primarily serve residents earning 130% of Area Median Income (AMI). This means under this proposal NYC would be giving tax breaks to create “affordable housing” to households earning approximately $110,000 a year, or paying approximately $2,700 a month in rent for a 2-bedroom apartment.

Let’s be clear: that isn’t affordable housing. Only the top 20 percent of city households can even afford 130% AMI rents. And less than 15% of households at these 6-figure levels are rent-burdened, in comparison to over 54% of households citywide. The Mayor’s 421a reform proposal moves away from serving those from who need it most. That’s going in the wrong direction.

There are also other problems with the 421a program that the Administration’s proposal leaves untouched.

First, 421a should be a way to produce affordable housing “off budget,” with only a tax abatement – saving subsidy for other needed affordable housing developments. But only one of the three developer options proposed by the Administration provides for completely off-budget development. Two of the scenarios still allow for a double-dip into city subsidy. No developer should be able to double-dip on public subsidies while offering no additional public benefit in return.

Second, this proposal puts the developer in the driver’s seat when it comes to choosing affordability options, not the community or even the City. While the tiered market approach proposed by the City provides developers with financially feasible options, this ‘menu of options’ has no mechanism to ensure that community needs are served.Developers are allowed to pick and choose which option for providing affordable housing is most profitable for them, regardless of the needs of the neighborhoods in which they are building, or of the city as a whole. Developers can choose options that require the city to subsidize high-rent units in low-income neighborhoods, exacerbating an overall trend, and resulting in even more displacement pressure.

And third, this proposal does not ensure long term affordable housing, creating yet another expiration challenge in the near future. The City has proposed to extend the tax abatement – but not the affordability. Right now, the affordable units stay in the program for 35 years, with the abatement sunsetting after 25. The City has proposed extending a portion of the abatement to 35 years, to run in conjunction with the affordability. However, the administration didn’t pair that with an extension of the length of affordability. If a small tax abatement can serve to offset the affordable units financially after 25 years, then why does it last for only 10 additional years? There’s no reason that the small abatement, as well as the affordability, couldn’t be extended for a much longer time period, or even permanently.

We can’t afford to keep subsidizing luxury real estate that is unaffordable to average New Yorkers – unfortunately, that’s what the City’s proposal would do.

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