State Enacts “One Big Ugly” Tax-Break Law

Disgraced Assemblymember Vito Lopez lost his position as Housing Committee chair after a sexual-harassment scandal last year—but despite opposition from tenant groups, the omnibus property-tax-break bill he tried to push through at the end of the 2012 session became law at the end of January.

The bill had so many different provisions it was nicknamed “One Big Ugly.” It was sold to legislators and the public as renewing tax abatements for owners of coops and condos, which expired last June. But tenant groups and pro-tenant legislators opposed it because it extended the 421-a program, which often provides tax breaks to luxury developments, and it renewed the J-51 tax-abatement program without reforms they wanted. 

The Assembly also did not use the expiration of those two programs as a way to strengthen rent regulations to try to stop the hemorrhage of rent-stabilized apartments or put the brakes on mechanisms that landlords use to raise stabilized rents to unaffordable levels.

Assemblymember Linda Rosenthal (D-Manhattan), who circulated a “Dear Colleague” letter after the Senate passed the “One Big Ugly” measure 55-7, championed a late charge against it. But the unusually swift-moving bill would not be stopped. The new Housing Committee chair, Keith Wright (D-Manhattan), countered with a glowing description of the measure in his own letter to his colleagues. The Assembly approved it by 139-7, and Governor Cuomo signed it into law on January 31. 

The 421-a program was created in the 1970s to encourage construction of new housing. It exempts owners from paying the full real-property tax rate for a decade or more after the buildings are occupied, instead phasing in the increases. Since the 1980s, it has been modified to prevent automatic tax breaks for developments in central Manhattan and a few gentrified neighborhoods elsewhere, but owners there can still get the abatements by either making 20 percent of the units “affordable” or by buying certificates to finance small amounts of low-income housing elsewhere in the city. 

One such building is One57, the “billionaires’ tower” near Carnegie Hall owned by Extell that became famous during Superstorm Sandy as its crane dangled high above the street. The billionaire who paid $90 million for the penthouse on the 75th and 76th floors will have his annual property-tax bill reduced from $230,000 to $20,000.

The 421-a program has enabled five other Extell luxury developments in Manhattan to reduce their property taxes by 95 percent, the real-estate appraiser Miller Samuel, Inc. said last year. Without the subsidy, the city would have collected $22.4 million from the Avery, the Orion, the Aldyn, the Rushmore, and Ariel East in their first year of occupancy. Instead, it collected a mere $567,000—an annual loss of more than $21.8 million from these five buildings alone. Citywide, the 421-a program resulted in $755 million in lost revenue in 2010, according to the Pratt Center for Community Development.

The bill also renewed the J-51 program of property-tax abatements and tax exemptions, which had expired at the end of 2011. This program is intended to encourage owners of rent-regulated buildings to improve them, but according to a June 2012 analysis by the Citizens Housing and Planning Council, more than half the J-51 benefits in the last ten years went to market-rate housing, not affordable housing. The program costs the city of New York $257 million annually in lost tax revenue.

The “One Big Ugly’s” main positive features are two amendments to the 2010 Loft Law that extended rent and eviction protections to illegal loft dwellings that were not covered under the original 1982 Loft Law. One protects tenants in  smaller lofts that were excluded from the 2010 bill because of opposition from the Bloomberg administration. But this will cover  only a few hundred units, most of them in north Brooklyn (Lopez’s district). 

While some minor improvements were made to target J-51 benefits to affordable housing, these fall far short of real reform. The bill did not contain more fundamental reforms proposed by both the city administration and tenant advocates. These included:

 Deny benefits for cosmetic improvements such as granite countertops.

● Restrict J-51 eligibility to structural, building-wide systems (such as new wiring, a new roof, or a new heating system) that would be eligible for Major Capital Improvement rent increases under the rent laws.

● Require landlords to apply for J-51 benefits and have their application granted or denied before they could apply for MCI rent increases. This would ensure that the J-51 benefit would offset MCI increases tenants have to pay. 

● Increase the MCI rent-increase offset from 50 to 100 percent of the J-51 benefit, so landlords would not get both a tax break and a rent increase for the same investment.

Few tenants ever receive the J-51 offset. The vast majority don’t know it exists, the law is not enforced, and there is no coordination between the city Department of Housing Preservation and Development, which acts on J-51 applications, and the state Housing and Community Renewal agency, which acts on MCI applications. But instead of requiring HPD to notify tenants in writing that their building is in the J-51 program and they’re entitled to a rent offset, the bill directs the department to post that information on a Web site. Wright said this would let tenants “independently check” on the status of their units. 

HPD will also convene a task force to improve enforcement. In lieu of a legislative solution, we have another task force.