Binding building contract

The 421-a Tax Abatement Program Is Facing Obstacles Towards Revision

The 421-a tax abatement program expired on January 15, 2016, with much fanfare and publicity. The popularity of the project and its provisions caused a run on building permits from developers who wanted to get in on the program before it expired. Why did such a successful and popular program expire? When it came time to renew the 421-a program, developers and the city could not agree on the proper wage rate for workers who work on the project. Just when it looked like everything was worked out and the 421-a program was ready to get back on track, confusion reigned again and now 421-a is back in limbo.

What Is The 421-a Tax Abatement Program?

Binding building contract

The original 421-a program that expired on January 15, 2016, had several provisions that affected developers, workers, and tenants. Started in 1971, the 421-a program helped to boost the construction of affordable housing throughout New York City and was responsible for creating thousands of construction jobs. The main stipulations of the 421-a program were:

  • A 10-year tax exemption for developers who build residential structures with affordable housing on vacant properties
  • A 3-year tax exemption on paying taxes on supplies during construction
  • Each housing unit that is built must have at least 25 to 30 percent affordable units
  • Units built in North Manhattan or the other boroughs could be eligible for tax exemptions that run as long as 25 years
  • Rents must remain stabilized during the exemption period

Not only did the old 421-a help developers to make a lot of money while building and administering their properties, they also helped New York City residents have access to affordable housing for decades. When the 421-a program was stopped, nearly all affordable housing in New York City stopped with it.

Bringing Back The 421-a After It Expired

When the 421-a tax abatement expired on January 15, 2016, Governor Andrew Cuomo challenged the labor unions and the city of New York to get together and negotiate a revised program. At one point, it did not look like negotiations were going to happen at all, but all of that changed in November 2016.

On November 10, 2016, it was announced that the Real Estate Board of New York (REBNY) representing the city and the Building and Construction Trades Council of Greater New York (BCTC) representing developers, had struck an agreement to bring the tax abatement program back to life. When the news was announced, the source of the details of the new agreement was never mentioned. This is important because of the confusion that would arise as the agreement was made public.

The new 421-a program did more than just increase wages; it also had some other perks for developers. The details of the new agreement are:

  • Workers in Manhattan working under the 421-a program will get $60 per hour (which includes benefits), and workers in the other boroughs will get $45 per hour
  • The apartment buildings built under the new program must contain at least 300 units each
  • Any developer who follows the guidelines for affordable housing in 50 percent of more of their residential units does not need to apply for the 421-a program to get the tax break
  • Developers will get a 20-year tax exemption for every apartment complex that has at least 35 percent affordable housing units
  • The duration of the affordable rents in these units must now be 40 years
  • Developers will be forced to hire third-party wage monitors and submit a report within 120 days of getting the certificate of occupancy showing that the wage requirements were met

A quick read of the information supplied to the media on November 10, 2016, would indicate that the new provisions apply only to projects done under new 421-a permits. But it did not take long for the governor to claim that he had heard a different deal than what was mentioned in the press release.

Why The Original Renewal Talks Fell Apart

On November 16, 2016, it was reported that the two sides in the negotiations had understood the new agreement to read that all 421-a properties old and new, would have an increase in tax abatement terms from 25 to 35 years. The office of Governor Cuomo released a statement less than a week after the joint press release from the BCTC and the REBNY stating that the governor understood the new tax abatement period to only apply to properties built under the new agreement.

While both the BCTC and REBNY negotiated the new 421-a deal, the REBNY soon sided with Governor Cuomo and insisted that the new 35-year tax abatement period would only apply to new properties. The REBNY issued a statement saying that only developers and properties that participate in the new wage agreement are able to get the 35-year abatement deal. That leaves only the BCTC arguing that the 35-year period should be applied to all 421-a properties past and present.

Will The Program Be Renewed In 2017?

Governor Cuomo wanted to have a special session of the legislature before the end of the year to discuss the 421-a issue and the disbursement of $2 billion in state funds for more affordable housing programs. It is all part of New York City mayor Bill de Blasio’s plan to have 200,000 new affordable housing units in place in a decade. But the new confusion has now stalled that special session and the possible approval of a new 421-a by 2017.

At this point, there has been nothing drafted for a new 421-a program because the BCTC is still contending the idea that the 35-year abatement period only applies to new permits. Until the two sides can come to some sort of agreement on the subject, the new 421-a program will sit idle as an idea that had been worked on for almost an entire year.

The issue for the governor is that extending the 35-year abatement to every building built under a 421-a program would cost the taxpayers a lot of money. Any program that was still within its abatement period from the previous 421-a program would have its abatement timeframe pushed up to 35 years instead of 25 years, and that would mean a lot of money in lost taxes.

Legal Confusion And Continued Negotiations

Handshake negotiations

When the 421-a program was in effect, it generated $1.4 billion in construction-related revenue such as payroll and supplies purchases. Even with material purchases being tax exempt, the program was still profitable for the city. But potentially extending the abatement period for all 421-a properties could effectively negate that positive effect and put a hole in an otherwise successful program.

For now, the BCTC, governor’s office, and REBNY are back at the negotiating table trying to sort out the confusion and get the new 421-a program back on track. Some officials with both groups are optimistic that something can be done in time to save the program for the start of 2017, but members of the New York State Legislature are not so sure.

What looked to be a great comeback for a popular program has suddenly been mired in confusion and legal wrangling. Many observers point out that if the two sides managed to get this far in the negotiations, then they should be able to finish the deal. But as each day passes without a new agreement, it becomes obvious that the finalization of the 421-a will have to wait until sometime in 2017.

Leave a Reply