Every two weeks the New York City Council holds its "Stated Meeting" to introduce and pass legislation. As a regular feature, Gotham Gazette covers these meetings.

The debate over how to reform a tax incentive program for developers, which once seemed likely to sharply divide the City Council, came to a relatively peaceful conclusion on December 20. In its final stated meeting of the year, the council overwhelmingly passed a compromise measure to reform this plan, called 421-a. The changes are intended to shift the plan away from simply encouraging real estate development –- as was its original intention –- and toward the creation of affordable housing.

Under the measure approved by the council, developers in many parts of Manhattan and the Brooklyn would get the property tax exemption only if one fifth of the apartments in a new project are affordable. It would also create a fund to finance affordable housing.

But the debate over 421-a has not ended. In order to remain in existence, the program, with or without changes, must be approved by the state legislature by the end of 2007. Assemblymember Vito Lopez, chair of the assembly housing committee, has indicated that he wants tighter restrictions on 421-a.

421-A: INCENTIVES FOR DEVELOPMENT

During a housing crisis in 1971, city officials worried that developers would not build in New York. To spark residential development, the city started the 421-a program, which offered property tax exemptions to those willing to construct apartment buildings. As the real estate market in certain neighborhoods heated up starting in the mid-1980s, the city began to tweak the program. The focus shifted away from encouraging all development, toward the need for affordable housing.

In 1985 the city decided that in much of Manhattan – the so-called exclusion zone – developers would have to build a certain amount of affordable housing in order to qualify for the tax benefit. More recently, this zone has been slightly expanded, and now includes Manhattan between Houston Street and 96th Street, as well as a small part of Brooklyn. Developers working inside the exclusion zone can meet the affordable housing requirement by either designating 20 percent of the new project as affordable housing, or by building a corresponding amount of affordable housing in other areas in the city.

Buildings elsewhere in the city – including all of Queens, the Bronx, and Staten Island – have remained eligible for the original incentives, affordable housing or no.

The measure approved by council would expand the exclusion zone to upper and lower Manhattan, as well as to such Brooklyn neighborhoods as Park Slope, Carroll Gardens, Williamsburg and Greenpoint.

The City Council bill would also:

• Set up a commission, appointed by the mayor and the City Council, to review the boundaries of the exclusionary zone every two years.
• Require developers to create the affordable housing on the site of the rest of development for which they receive the abatement. Now, they can build the lower priced apartments in another building, or even another borough.
• Target some of the affordable units to lower income families
• Create a $400 million fund to create affordable housing, particularly in the city’s poorest neighborhood. The changes in the 421-a system are expected to save the city money, because fewer developers will be eligible, and this money will go toward the affordable housing fund. The fund replaces another program that encouraged such development but which council believes benefited developers more than the city’s lower income residents.
• Set a cap on the subsidies for building out the exclusion zone to limit the tax breaks for luxury buildings.

And the council will also urge the state government to create a similar plan top encourage development of affordable one, two and three family homes and to create ways to ensure that buildings remain affordable for many years into the future.

A FIRST STEP

City Council Speaker Christine Quinn, who negotiated the council plan, called it “fair and balanced.” “It recognizes you can create housing through an abatement but you have to make that abatement something that developers will want to take,” she told council.

Earlier Annabel Palma and 22 other council members introduced had introduced a competing bill that would have put much more aggressive requirements on affordable housing. It called for requiring all developers throughout the city – not just in certain parts of it -- to build affordable housing in order to qualify for the 421-a benefit. The bill would have required that 30 percent of all units, not 20 percent, be affordable if developers were to qualify for the exemption.

Council members Alan Gerson, Letitia James, and Rosie Mendez proposed a separate bill that would require developers to set aside 35 percent of a development be for affordable housing in order to qualify for 421-a benefits.

But following long negotiations, many of these opponents accepted Quinn’s plans. “We need to look at this piece of legislations and look at the significant improvements,” Palma said. And David Yassky, who had cosponsored the Palma bill, said the measure approved by council “will result in more affordable housing and in eliminating some of the most egregious disparities in the property tax.”

But not all council members agreed.

Councilmember Charles Barron and Hiram Monserrate expressed concern that the affordable units would not be affordable enough for many New Yorkers. “The mayor and the council may be able to live with this bill, but poor and working class New Yorkers are not going to be able to live in New York City,” Barron said.

While saying the bill was indeed an improvement, Rosie Mendez said, “I still believe the bill could be better yet.” In particular, she said, developers should have to make 30 percent of the apartments in any development affordable.

Tony Avella faulted the whole notion of giving developers tax benefits in New York‘s booming real estate market. “I find troubling the fact that we are gong to give huge tax abatements to luxury developers who are making millions of dollars off each project,” he said.

OVERHAULING 421-A

Avella’s comments echo those of other critics of the 421-a system, who argue that developers don’t need expensive incentives to build in New York these days. The program costs the city money, they say, and benefits building owners and developers of luxury apartments far more than it encourages affordable housing.

According to a report released in April by Habitat for Humanity-New York City and the Pratt Center for Community Development:
• The program will cost the city $320 million in 2006, up from $130 million in 2002.
• The program has given tax breaks to more than 100,000 housing units since it began, but as of 2003, only about 8 percent are affordable housing.
• Developers only put a fraction of the money they saved on taxes toward affordable housing sites, which are mostly in the Bronx.

MAKING COMPROMISES

In response to criticisms of the incentive program and as part of a broader campaign to create affordable housing, Bloomberg created a task force in February to evaluate 421-a. It called for expanding the exclusion zone to include more of Lower Manhattan, parts of Harlem up to 110th Street, DUMBO, Brooklyn Heights, and more of the Brooklyn and Queens waterfront.

Many members of the City Council criticized Bloomberg’s plan, asking for more sweeping reform. Quinn developed her own plan, which she introduced, with 28 other council members as co-sponsors. Bloomberg endorsed the compromise.

Supporters of the competing plans spent weeks negotiating over specifics.

During the stated meeting, many council members praised the negotiations as a victory for democracy, applauding the speaker, various administration officials, council members and staff for long hours of consultation that derailed plans for Christmas shopping and watching football games.

They congratulated themselves themselves for disagreeing on an issue and working it out. Saying debate on substantive matters was laudable, Bill de Blasio said, “This is a very positive day…. A lot has been accomplished in these past weeks.”

Quinn herself acknowledged how unusual such debate was. “Some people commented that it was a little odd that there was more than one bill on this topic in City Council,” she said. “That indicated these has not been enough significant debate in the past on important topics.”

But debate or not, the final vote was lopsided, with 44 council members voting for Quinn’s housing measure and 5 (Barron, Avella, Monserrate, Mendez and Darlene Mealy) opposed.