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421a Tax Abatement Program Agreement Reached, Legislative Approval Pending
Practical Law Legal Update w-004-6282 (Approx. 4 pages)
421a Tax Abatement Program Agreement Reached, Legislative Approval Pending
by Practical Law Real Estate
| Published on 28 Nov 2016 • New York |
New York Governor Andrew Cuomo recently announced an agreement to extend New York City's 421a tax abatement program, subject to legislative approval.
On November 10, 2016, New York Governor Andrew Cuomo announced that an agreement was reached to extend New York City's 421a tax abatement program. The agreement between the Building and Construction Trades Council of Greater New York (BCTC) and the Real Estate Board of New York (REBNY) must be approved by the state legislature before going into effect.
Background
In June 2015, the New York State legislature approved a deal to extend the 421a tax abatement program for four years with significant changes. However, that extension was contingent on REBNY and BCTC agreeing on wages for workers employed at projects receiving 421a benefits.
In January 2016, the existing 421a tax abatement program expired after REBNY and BCTC failed to reach an agreement (see Legal Updates, New York City 421a Property Tax Program Hinges on Private Sector Agreement and 421a Expiration Raises Development and Affordable Housing Concerns).
Despite the program's expiration, the stakeholders continued to negotiate and reached an agreement on November 10, 2016. The agreement reached by REBNY and BCTC was endorsed by Governor Cuomo, but must be approved by the state legislature before it goes into effect.
Key Highlights of the Agreement
The following are the key highlights of the 421a extension deal:
- Wage Requirements. The new agreement applies to projects with more than 300 rental units (except for those projects that include 50% or more affordable units which are exempt). The new wage requirements include:
- in Manhattan, south of 96th street, an average of $60 an hour including wages and benefits; and
- within one mile of a waterfront bulkhead in Brooklyn and Queens (Community Boards 1 and 2), an average of $45 an hour including wages and benefits.
- Labor. The agreement does not specifically call for the use of union labor, but union labor may be a more likely option under the deal's wage and benefits requirements.
- Area Median Income. The deal allows lower-income individuals to qualify for affordable housing because it lowers the threshold of area median income.
- Opt In. Projects that began before the effective date of the agreement that qualify for benefits will have the capability to opt in to the program.
- Project Labor Agreements. Developers may enter into a Project Labor Agreement to opt out of the wage and benefit requirements and still be able to receive other 421a benefits.
- Abatement Period. The agreement requires that new buildings maintain affordability limits on rental units for 40 years in return for a 100% tax exemption benefit for 35 years. Under the previous plan, rental units only had to maintain affordability requirements for 35 years, while the maximum tax exemption period was 25 years.
- Compliance and Enforcement. The wage requirements will be overseen by monitors hired by the project developer who will audit certified payrolls. The monitors must certify to the New York City Department of Housing Preservation and Development that the wage and benefit requirements have been paid within 120 days of the receipt of the certificate of occupancy.
Practical Implications
The 421a agreement still requires legislative approval from Albany before going into effect. Governor Cuomo is calling for an emergency session to ensure that the program is approved. Passage of the deal may encourage New York to release roughly $2 billion in affordable housing funds that is currently being withheld until the deal is finalized.
Developers, lenders, and owners of commercial real estate should continue to monitor the progress of the legislative approval. Many developers put projects on hold following the expiration of the 421a program in January 2016 because, without the tax abatement, the projects became financially infeasible. If the agreement receives legislative approval, an increase in development spending and project applications should be expected.