The Future of Real Estate Tax Incentives

1. The Future of Real Estate Tax Incentives A Discussion

2. Tax Incentive Programs Original Intent

3. Objectives of Tax Incentives? • Encourage needed upgrades for existing housing • Reduce operating costs for highly subsidized projects • Stimulate needed residential construction and related economic activity • Hold city expenditures to the minimum needed to reach these objectives

4. J-51 • 1950’s • Encourage needed upgrades for existing housing

5. Article XI • 1960’s • Reduce operating costs for highly subsidized projects

6. 421-a • 1970’s • Stimulate needed residential construction and related economic activity

7. 420-c • 1990’s • Reduce operating costs for highly subsidized LIHTC projects

8. Other Cities

9. New Construction • Many places have PILOT programs • DC, Philadelphia, Seattle, Cincinnati have as of right programs • May cap total amount awardable in a year • May require affordability • Usually 8-10 year abatement period • Some programs are highly targeted (e.g. SRO program in DC)

10. Rehab • Usually require a threshold investment • May require affordability component • Seattle – 20% of units “affordable”

11. Tax Incentive Programs The Context

12. NYC Tax Revenue by Type 2011(in millions)

13. Annual RE Tax Incentive Expenditures 2011(in millions) Source: Annual Report on Tax Expenditures Fiscal Year 2011

14. 2011 Tax Expenditures and Units By Program Units with Tax Exemptions Annual Dollar Costs of Exemptions (in millions) Source: Annual Report on Tax Expenditures Fiscal Year 2011 and DOF Data on J-51

16. Monthly Expenses per Stabilized Unit - 2009 Source: RGB 2011 Income and Expense Study

17. The Issues

18. Survey • Talked to 28 industry and government leaders about, • Objectives and effectiveness of programs • Administration of programs • Practical issues

19. Old Tax Incentives • Many old tax incentive programs designed to take advantage of different state and federal programs • Article 2 for Mitchell Lama • Article 5 for federal programs • Article 4 • Article 16/UDAAP • These are not growing and slowly fading out

20. Encouraging Rehab • Is this still a valid objective? • New variations • Energy efficiency • Preserving at risk buildings • Preserving affordability

21. Encouraging Rehab • J-51 • Is it too complicated? • Processing takes too long • Approval amount subject to too much variation • Does the Roberts decision make this program more “efficient” going forward

22. Promoting Rehab • J-51 • Is the term long enough?

23. Encouraging For Profit New Construction • Is this a valid objective of public policy? • Does the incentive generate construction that would not otherwise occur?

24. Encouraging For Profit New Construction • 421-a • Panelists said current tax rates are a significant barrier to new construction. • Could a reformed tax policy for new rental housing achieve the same objective more efficiently?

25. Encouraging New Construction • 421-a • Does the economic value of the incentive go to the seller of the land or to the project? • How can we insure it goes to the project?

26. Encouraging For Profit New Construction • Should the 421-a link to rent stabilization continue? • Does the Roberts decision make these programs more “efficient” going forward?

27. Promoting Affordability • In general, do the tax incentives match the term of affordability restrictions of the projects?

28. Promoting Affordability • Article 11/ 420c • Generally seems to be working • Possible changes • Should one program go the Council and the other be as of right? • Could Article 11 extensions be approved without Council approval?

29. Promoting Affordability • Are there new priorities that should be brought into the tax incentive process? • Over Mortgaged buildings • TPT projects • Preserving former Section 8 and Mitchell Lama projects • Energy efficiency • Preserving affordability