Prentice Rosa PetrinoLegislative ProcessProfessor RosseinMay 14, 2007

Diaspora of Dark Corners: The Legislative Trajectory of an American Dream in the Wake of Crisis

There’s no better way of exercising the imagination than the study of law. No poet ever interpreted nature as freely as a lawyer interprets truth.

JEAN GIRAUDOUX, Tiger at the Gates (1935)

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INTRODUCTION

This paper aims to shed light on the legislative history of the § 421-a Real

Property Tax Law from its inception in the early 1970’s to its sunset slated for the end of

the year. Mayor Bloomberg, the City Council, State Assembly, and HPD have emerged

from their prospective political angles to transform the mortar and paste of one of the

most embarrassing fiscal absurdities of recent history into a comprehensive housing

initiative all New Yorkers can be proud of. (Unless you live in Mitchell Lama1). . .

HISTORICAL OVERVIEW

The 421-a Real Property Tax program was originally created in 1971 to

encourage housing construction during a time when New York City was plagued with

violent crime and arson which resulted in a dramatic population loss. Between 1970 and

1980, the City’s population dropped by 700,000 people and lost tens of thousands of

housing units. From 1970 to 1978, The South Bronx, Hunts Point, and Morissana each

lost 60% of their populations. Central Harlem lost 30%. 43 of the 59 community

districts all suffered dramatic loss during that same time2. Many predicted that New York

would never recover and would instead join the list of great North-eastern cities whose

best days were behind them. As such, the original program sought to spur development

and had no “affordability” requirement built in. It wasn’t until the 1980’s and 1990’s,

1 Forty years ago it was recognized that the private sector could not build housing for the low, moderate and middle income population - without government-provided financial assistance in the form of land acquisition, low-cost mortgages, tax abatements and other incentives. In 1955, Governor Averell Harriman signed into law a bill sponsored by Senator MacNeil Mitchell and Assemblyman Alfred Lama to encourage and promote the building of affordable housing, both rental and cooperative and is currently being deregulated.

2 Many Thanks to Myrium Colon and Arden Sucolo at HPD for data, statistics, and ideas for alternative sources - throughout.

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when crime declined and the City’s economy rebounded that population began to grow

once again; up 700,000 people between 1990 and 2000. Scheduled to sunset at the end of

this year, the program is sorely outdated and hotly contested.

The Real Property Tax law allows the City to only restrict or reduce tax benefits

within the structure of the state law. The state can expand or reduce benefits. During a

legislative hearing on the future of the 421-a, Vito Lopez stated:

“We try as a legislature, to take our responsibility seriously. The reality is that the State legislature is the body that’s responsible for finally implementing the regulations around 421-a, so if we do nothing, as we’ve done in 421-b, that program would expire. So the ball’s in our court and recently we went through a whole issue about who had the responsibility to do what, and that was in the Comptroller’s race. . . . . [We] . . . should have a plan . . . . by May”.

LEGISLATIVE TIMELINE

§ 421- a Real Property Tax Law

Originally designed to simply encourage housing construction, there was no

incentive for affordable housing whatsoever until the market began to improve in

the1980’s and 1990’s. The program has operated in three ways:

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1971

Crime & Arson

Original 421-a

02/26/06 12/20/06 12/28/06 01/01/07 12/28/07

Mayoral Task Force

RES 0652

INTRO 0486

Local 058(A10912/S57884)

AO4408/S2418

421-a Sunset

1) Geographic Exclusion Area – Roughly between 14th and 96th streets in Manhattan,

no 421-a benefits are available whatsoever, unless affordable housing is provided.

Developers may qualify either by making 1/5th of their units affordable as an

“80/20” or they can purchase their tax break through “negotiable certificates”

which in effect subcontract development to distant areas of the City.

2) NPP and Remick Areas – Seriously distressed areas where maximum benefits are

provided for 20 or 25 years.

3) Remaining Areas (not in the exclusion or NPP/Remick Areas – these areas

receive a basic benefit for 10 or 15 years, and a 20 or 25 year extended benefit is

provided for “affordable” housing.

While the program was an attractive option to abandonment during the 1970’s, times

have changed dramatically and in its present form 421-a is nothing short of a massive

misuse of tax dollars. The cost of the program in lost tax revenues has increased 150%,

almost tripling from $130 million in 2002 to $320 million in 2006. Further statistics from

a joint report by the Habitat for Humanity NYC and the Pratt Center for Community

Development are chilling:

More than 100,000 units have been subsidized. However, according to a 2003

report by the Independent Budget Office, only 8% are affordable to low or

moderate income families.

The exemptions are most lucrative for Manhattan developers, where housing

stimulation is least needed. Manhattan projects accounted for only 23% of all

exemptions in 2005 but Manhattan developers received over 78% of the value of

these tax breaks.

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In some cases, developers contribute as little as 12 to 15 cents for affordable

housing (in the Bronx) for every $1 of forgiven taxes on luxury buildings (in

Manhattan)

TASK FORCE

On February 26, 2006, Mayor Bloomberg formed a 26 member diverse task force

composed of for-profit and non-profit housing groups, “affordable” housing developers,

market-rate developers, housing advocates, lenders, City Council representatives and

staff from a number of different City agencies. They met over a period of six months and

convened dozens of meetings between subcommittees and the entire force focusing on

extensive research about the various conditions of markets around the city and

developing a two-prong strategy to improve the program, which by many estimates costs

the city $300 million a year in lost tax revenues. The strategy aimed to increase the

affordability of housing across the board in two ways:

1) Increase the supply of housing created by the private market through

rezoning, with particular attention to making the City a more attractive

place to live, work, and build. This strategy has already resulted in the

highest building-permit level since the 1970’s, more than twice as high as

even pre- 9/11. This surge in building permits is due largely to

construction in the outer boroughs – though Manhattan permits are up

substantially, more than twice the level from the late 1990’s. In the other

four boroughs, building permits are higher than any time in the last 40

years:

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2) Increase the supply of housing specifically “affordable”. The most

reliable measure of housing affordability is the Housing and Vacancy

Survey, which recently found that almost 29% of renter households in the

City pay more than 50% of their income for gross rent. This is an increase

of over 3% since the HVS survey in 2002. Even where the housing

market is booming and the housing conditions are better than ever, the

median gross-rent-to-income ratio (a composite measure of the proportion

of household income tenants spend for gross rent) increased from 28.6%

(2002) to 31.2% (2005).

In October of 2006, the task force issued a report and the Mayor proposed a ten-

year new housing marketplace plan, to create and preserve 165,000 units by 2013. The

plan is the largest municipal housing plan in the county’s history. (On track, the Mayor

recently announced that 1/3 of the goals have already been met). The challenge,

according to administration officials, is to figure out how to direct the tax benefit toward

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encouraging lower-priced housing without inadvertently slowing down the development

of housing in general. HPD Commissioner and Task Member Shaun Donovan

commented, “we are trying to harness the market, but we’re not trying to shackle the

market. We need to strike that balance very carefully”.

Under the wilting program, developers of new units in most neighborhoods are

eligible for a 10 to 15 year exemption from the increase in real estate taxes. Only in a

few parts of the city – central Manhattan and Greenpoint/Williamsburg in Brooklyn – are

required in return to include lower-priced units, either on site or “nearby”. Under this

proposed plan, those areas would be expanded to include Lower Manhattan, parts of

Harlem, the DUMBO section of Brooklyn, Brooklyn Heights, and other parts of the

Brooklyn and Queens waterfront. The tax break would be limited to market-rate units,

and the maximum benefit – a 25 year tax break – would go only to projects citywide that

include low-priced units. Donovan of HPD hoped that this proposed program would

steer more developers toward creating affordable housing because of the incentives built

into the program and aimed for more taxed to be paid into the city of New York so they

could be added to an affordable housing fund.

CONTROVERSY

Despite the administration’s plan to increase the incentive to build lower-cost

housing, many felt the changes did not go far enough. While under the new mayoral plan

a limit is placed on the total tax benefit any market-rate apartment could receive, a $2

million condominium can still receive twice the tax break given to a $1 million

condominium (next door). To avoid “over-subsidizing” luxury properties, there would be

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no increase in benefit after the first $100,000 of assessed valuation, which is roughly

equivalent to that of a $1 million condominium. Additionally, the task force aimed to

extend the 25 year tax break, currently awarded to any development in neighborhoods

once thought in need of improvement, be given only to projects providing “some” low-

cost housing. The part of the plan causing most debate, however, was one aimed at

eliminating the system under which developers of lower-cost housing can raise equity by

selling their tax benefits to market rate developers in existing “exclusion” zones. Critics

like Assemblyman Vito-(Makes-Me-Wanna-Move-to-Brooklyn) Lopez said the changes

proposed by Mayor (I’ll-Huff-&-Puff-&-Blow-Your-House-Down) Bloomberg “simply

tweak the existing program” and that if more serious reform was not implemented, the

city would continue to give away millions of dollars to subsidize the development of

luxury housing and the gentrification of many neighborhoods. Council member Bill de

Blasio, whose district includes Park Slope in Brooklyn, contends, “It’s unbelievable to

me that we would take any public money and subsidize developers who are going to

develop housing anyway, when that money could go to other efforts to develop

affordable housing.

Following several weeks of dialogue regarding the 421-a Tax Exemption

program, The Council of the City of New York Office of Communications announced on

December 6, 2006, that Speaker Quinn and Housing and Building Committee Chair Erik

Martin Dilan would introduce a diverse and responsible new plan to spur housing

development. 27 members of the Council signed on in support. Proposals included in

the plan would:

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Expand the exclusion area where “affordable housing is required for tax

exemption;

Regularly reassess the area to protect emerging neighborhoods;

Require on-site affordable housing;

Cap the subsidy for luxury buildings outside the exclusion area;

Create a $400 million affordable housing trust targeted to lowest income communities;

Keep 4 and 5 unit buildings in the program;

Require that development within the areas covered by NPP and REMIC loans only receive the extended tax 25 year benefit if affordable housing is included.

At that time, Speaker Quinn stated, “the program was created at a time when the

City faced a fiscal crisis and new housing development was at a standstill. But today’s

market has changed, and the program must also change. . . [we will ] Craft a bill that best

meets the needs of our diverse neighborhoods. This bill will create more affordable

housing while also protecting our public dollars”. Housing and Buildings Chairman Erik

Martin Dilan said, “This bill balances the needs of New Yorkers. Not only does it cap

tax benefits for luxury development, it also ensures that the City’s housing reflects the

diversity at the heart of New York City. I am looking forward to reforming this

program”.

RESOLUTION 652

In mid December 2006, with no jurisdiction over the State-run program, the City

Council passed Resolution 652, calling upon the New York State Legislature to pass, and

the Governor to approve, an extension of the 421-a tax incentive program that requires

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longer term affordability of units for low and middle-income New Yorkers by extending

the benefit period3.

Whereas:

There is currently a severe shortage of affordable housing in NYC;

Rental vacancy rates at only 3.09% indicates an affordable housing crisis (2005

NYC Housing & Vacancy Survey);

Affordable housing losses due to Federal/State withdrawals from the Mitchell-

Lama, Section 8, and rent-stabilized/control housing;

Funding has not kept pace with the City of New York’s needs;

Affordable housing keeps neighborhoods economically diverse/vibrant where

citizens remain life long residents;

421-a is one method of creating affordable housing;

Geographic exclusion areas must make at least 20% of total units “affordable”;

Affordable rental units (under 421-a) are subject to rent regulation for 20 years;

§6-08 (HPD) an owner may deregulate after 20 years, resulting in additional loss;

Such loss will result in displacement of low/middle income residents;

Such “hemorrhage” requires NY state to ensure the housing crisis is not

exacerbated deregulation;

Extending the benefit period makes units affordable for a longer period of time;

the State will make it easier for the City to recover from existing crisis and avert

future crisis.

3 Many Thanks to Assembly Committee Assistant Steve McCutcheon who was tireless, knowledgeable, and prompt in answering all of my questions regarding both procedural and substantive matters.

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The Resolution was sponsored by City Council Speaker Quinn, and Council Members

Dilan, Brewer, Baez, Clarke, Dickens, Felder, Fidler, Jackson, Liu, Palma, Seabrook,

Vann, and Weprin.

COMMITTEE REPORTS for RES 0652-2006

ACTION DATE ACTING BODY ACTION TAKEN RESULT

12/19/2006

Committee on:

Housing & Buildings

P-C Item approved

PASS

12/19/2006

Committee on:

Housing & Buildings

Hearing on:

P-C item

12/20/2006City Council

Introduced by:

Council

12/20/2006 City Council

Referred to Committee byCouncil: Sent to Committee on Housing & Buildings

12/20/2006 City Council Approved by CouncilPASS

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ASSEMBLY RESPONSE

In response to Resolution 652, the New York State Assembly posed A10912

(Lopez) /S57884 (Maltese, Golden)4. This requires that all 421-a recipients build

affordable housing because:

1. 30% of units must be affordable for individuals making less than

60% of the Area Median Income (AMI), OR

2. 20% of units must be affordable for individuals making less than

60% AMI and 20% affordable for individuals making less than

100% AMI; thus mandating that a total of 40% of the units be

affordable.

3. All affordable units must be built on-site.

At the beginning of 2007 this legislation was reintroduced as Assembly Bill 44085.

LOCAL LAW 58

On December 28, 2006, Mayor Bloomberg signed Local Law 58 reforming the

421-a Property Tax exemption program (founded on Introduction 0486-2006). This

legislation established an affordable housing fund and amended the New York City

charter, and the administrative code. At a public hearing that day, the Mayor remarked:

“The bill before me today is . . . sponsored [and introduced] by Speaker Quinn, and Council Members Dilan, Rivera, Comrie, Dickens, Oddo, Addabbo, Arroyo, Baez, Felder, Gallagher, Garodnick, Gennaro, Gialo, Jackson, Katz, Koppel, Lappin, Liu, Martinez, McMahon, Recchia, Sears,

4 Thanks to classmate Sally Robinson – who gave me Lopez -Staff member Stephen Levin’s CELL number! I didn’t use it!)5 Many thanks to Robyn and Saul Gomez at O’Donnell’s Office for explaining why I couldn’t find the 2006 bill online and answering procedural questions . . . .

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Seabrook, Vacca, Vallone, Weprin, White, Steward, and the Public Advocate Betsy Gotbaum. This Legislation, introduced by Speaker Quinn, adopted the Task Force’s changes with a number of important modifications made by the City Council”.

The chief elements of this legislation:

1. Expands the Exclusionary Zone to Encompass: West Harlem – south of 136th Street

Central Harlem – south of 126th Street

East Harlem – south of 117th Street

All of downtown Brooklyn

Carroll Gardens

Cobble Hill

Boerum Hill

Park Slope

Most of Fort Greene

Prospect Heights

Williamsburg/Greenpoint

Sunset Park/Bushwick

Waterfront from Red Hook to Astoria

NO benefits are provided without construction of affordable housing in these areas.

These exclusionary zones (hotly debated) were not further expanded because the Task

Force’s report demonstrated that the market isn’t strong enough to cross-subsidize the

mandatory 20% affordable units with market rate construction.

2. Eliminates NPP/Remick Areas

These areas compose a larger geographic area than the exclusionary zones and

previously provided absolutely no incentive for affordable housing. This is because 30

years ago the areas required a maximum incentive for any construction at all and therefore

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became disproportionately developed and subsidized. Some recent examples of the give-

away in TriBeCa include:

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3. Imposes a Luxury Cap

Luxury condominiums will simply no longer qualify for maximum benefits. In the past,

a $2 million unit gets four times as much subsidy as a $500,000 unit. This strikes a

balance for those districts not included in the exclusionary zones and which require more

middle income housing. The cap is set at $65,000 in assessed value (roughly a $700,000

unit). Anything beyond that will no longer receive any more benefits.

4. Increases the Minimum Number of Units in a Building to Qualify

Three-family homes no longer qualify for benefits. The fundamental reason is because

three-unit properties are taxed in a dramatically different way than 4-unit or larger

buildings.

5. Eliminates the Certificate Program

The Negotiable certificate has allowed market-rate developers doing 100% luxury

development to pay an affordable-housing developer, usually in the outer boroughs, to do

their affordable housing for them, while retaining all of the tax benefits. 84 cents out of

every dollar was going to benefit either the developer of the luxury housing or the

purchaser of the luxury unit. In addition to the patent inequity and inefficiency of the

system, affordable housing was not being constructed in the highest value areas of the

city. Assemblyman Lopez fought this all the way – insisting that communities are

developed from the start as integrated and diverse, with an “on-site” mandate.

6. Establishes a $400 million citywide Affordable Housing Fund

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No longer will Luxury developers be laughing all the way to the bank. The tax revenues

recovered by eliminating the certificate will result in a $400 contribution to communities

not in the exclusion area and beyond to the 15 highest poverty areas in the City.

In conclusion, this legislation aims to strike a balance: expanding the exclusion

area dramatically eliminates unnecessary subsidies, encourages on-site affordable

housing development, maintains needed incentives for moderately priced, middle class

housing, and simultaneously limits the benefit to luxury developers and funnels the

recovered revenues into a $400 million fund for sustainable housing.

ASSEMBLY BILL 4408

As mentioned earlier, this legislation was passed at the Council, but it cannot take

effect unless an extension of §421-a is passed at the state level. A04408 / S2418 is

sponsored by Assemblyman Vito Lopez, Chairman of the Committee on Housing. Co-

sponsors include Lentol, Gottfried, Greene, Peralta, Espaillat, Bing, Rosenthal, Young,

Jacobs, Wright, and Jeffries. On February 2nd, 2007 the bill was referred to the

Committee on Real Property Taxation. Lopez and staff were unavailable for comment,

but Robyn from O’Donnell’s Office speculated that because it is a fiscal matter (not

implicating the State but certainly to the City) it will next be referred to the Ways and

Means Committee6.

Lopez’s version of the bill addresses one other important issue: The “General

Purpose of the Bill” section has expanded to include a clause mandating that landlords be

required to pay their building workers a prevailing wage. According to the most recent

6 I understand from our reading and class decisions, particularly in view of the 1964 Civil Rights Act that the decision about which committee to send a bill to is extremely important. Here, there is an obvious relationship between the subject matter and committee’s jurisdiction.

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report from the Pratt Center for Community Development, that although roughly 80% of

building service workers in New York City are paid the prevailing union rate, as many as

50% of large buildings that receive the 421-a tax abatement do not pay building service

employees prevailing wages and benefits. A 10912 (Lopez)/ S 57884 (Maltese, Golden)

requires that recipients of the abatement that build large building defined as those with 50

or more units with a majority of market-rate units pay building service employees

prevailing wages and benefits.

ARE WE THERE YET?

“The law is what it is – a majestic edifice, sheltering all of us, each stone of which rests on another”.

JOHN CALSOWRTHY, Justice (1910)

In the March 2007 Public Hearing, following a discussion of the particular

burdens upon local governments caused by the Federal government’s withdrawal from

public housing, particularly Mitchell Lama in New York City, Vito Lopez responded to

the issue of “affordability” – in what I’ve come to regard as his trademark flash-of-

brilliance: “Maybe everyone should get a voucher”!

Admittedly, I reached the end of the internet during Admin law, and while there

may not exist a tenable constitutional argument for unconditional shelter under Roth,

other specters of property law loom in mind. First, adverse possession actions taken by

squatters in buildings which fell in-rem during the 1970’s . . . And more importantly, the

landmark decision regarding facially neutral exclusionary zoning laws in Southern

Burlington County NAACP v. Township of Mount Laurel (1975).

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This case attacked the system of land use regulation by the Township on the

ground that low and moderate income families were unlawfully excluded from the

municipality where a zoning ordinance permitted only single-family detached dwellings.

Faced with the issue of whether a developing municipality must, by its land use

regulations, make realistically possible the opportunity for an appropriate variety and

choice of housing for all categories of people who may desire to live there, including

those of low and moderate income – the court held that the zoning ordinance was

presumptively contrary to the general welfare and outside the intended scope of zoning

power. Considering the basic importance of the opportunity for appropriate housing for

all classes, no municipality may exclude or limit categories of housing solely for fiscal

reasons. When land use regulation has a substantial external impact, the welfare of the

state’s citizens beyond the borders of the particular municipality cannot be disregarded.

When it is shown that a developing municipality has not made realistically possible a

variety and choice of housing, a facial showing of violation of substantive due process or

equal protection has been made out and the burden shifts to the municipality to establish

a valid basis for its action. A developing municipality’s obligation to afford the

opportunity for decent and adequate low and moderate income housing extends at least to

that municipality’s fair share of the present and prospective regional need therefore.

Since you already think I’m funny, I’ll spare you an exhaustive 11th hour analysis.

But where it has been evident (at least) since the mid 1990’s that the exclusionary zones

under 421-a operated as just that – to exclude low and middle income residents from high

value areas, particularly Manhattan, to the tune of $400 million a year and the tenor of

high power luxury developers, I wonder if it’s too late to wax poetic on The Founder’s

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Fifth and Fourteenth. . . . Perhaps tonight, and for the purposes of this paper - but not for

Mitchell Lama7.

7 The Mitchell-Lama housing program is the largest and most successful program in the United States, with more than 400,000 New York State residents. The residents are teachers, postal workers, construction workers, police officers, municipal workers, secretaries, students and homemakers from many ethnic and cultural backgrounds. Thanks again to neighbor, comrade, and former Land Use official, Lee Chong, for all her hard work with sustaining this program . . .

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