The City Council, Public Advocate and administration officials agree that new measures should be taken to ensure 421-a compliance, proposed legislation is a good start. On November 22, 2016, the City Council’s Committee on Housing and Buildings and Committee on Finance held a joint hearing on the City’s enforcement of 421-a requirements. The meeting also served as a public hearing for three proposed bills to strengthen enforcement efforts.
The 421-a tax benefit program was enacted in 1971 by the New York State Legislature. It was originally designed to spur residential development of underused land to combat a weak real estate market by granting a property tax reduction to developers for a period of ten to twenty-five years. In 1984, as the real estate market recovered, the program was amended to establish geographic exclusionary areas in the strongest Manhattan markets, requiring builders in those areas applying for a 421-a exemption to build affordable units either onsite or offsite.
The 421-a program is the City’s largest tax expenditure. In fiscal year 2015 the program cost the City $1.2 billion in foregone property tax revenue. Under State law the Department of Housing Preservation and Development is charged with certifying that applicants are eligible for the 421-a tax exemption program and are complying with program requirements. The Department of Finance is charged with calculating and administrating the tax exemption for properties certified by HPD. The program has recently come under scrutiny for improperly certifying buildings that do not qualify and for improperly giving the tax credit to buildings that have fallen out of compliance with rent regulations.
Of the proposed legislation, Introduction 1009-2015, sponsored by the Public Advocate Letitia James, would require HPD to expand its existing online property owner database to include information on each registered dwelling’s owner, outstanding notices of violation, list of tenant complaints and pending tax liens. Introduction 1359-2016, sponsored by Council Member Stephen Levin, would require HPD to audit buildings receiving benefits under the 421-a tax exemption program to ensure compliance with the affordability requirements. Finally, Introduction 1366-2016, sponsored by Council Member Jumaane Williams, would require HPD to audit a certain number of buildings receiving benefits under section 421-a annually to ensure compliance with rent registration requirements.
At the November 28th hearing, Department of Finance representatives testified that there were approximately 3,000 rental buildings receiving post construction benefits from the 421-a program that do not have a final certificate of eligibility issued by HPD. In response, Finance and HPD are in the process of finalizing a Memorandum of Understanding to set standards for reviewing certificates of eligibility before they are sent to Finance. Additionally, Finance planned to send out notifications to property owners receiving benefits without the appropriate certificate of eligibility, giving them until January 2018 to obtain the certificate from HPD before the tax benefits are terminated.
HPD’s Associate Commissioner Louise Carroll testified that the City was actively pursuing recoupment efforts to regain any money lost for improperly granted tax benefits under the 421-a program. “We are not going to lose a single dollar of tax payer money to owners who are not compliant with the 421-a program,” said Commissioner Carroll.
Council Member Jumaane Williams, Chair of the Committed on Housing and Buildings, queried if there would be an effort by the de Blasio administration to assist tenants in recouping excess rent paid under the program. Commissioner Carroll responded that HPD would register rent both prospectively and retroactively which would allow tenants to receive reimbursement of overpaid rent, and in some cases treble damages, under City rules.
The three bills were laid over by the committees for a vote at the next scheduled meeting in early December.
Also on November 22, 2016, New York State Attorney General Eric Schneiderman, Mayor Bill de Blasio and Governor Andrew Cuomo announced that HPD had issued letters to the owners of 178 residential buildings that their 421-a tax benefits would be revoked retroactively if they did not comply with the program’s requirements, including registering apartments as rent-regulated. Even if revoked, tenants in rental buildings identified as non-compliant will still be entitled to rent-stabilization.
CC: Committee on Housing and Buildings Oversight Hearing on 421-a Enforcement (Intros. 1009-2015; 1359-2016; 1366-2016) (Nov. 22, 2016).
By: Jonathon Sizemore (Jonathon is the CityLaw Fellow and a New York Law School Graduate, Class of 2016).