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421-a Deal Reached, Putting Rental Construction Back on Track, Experts Say

By Amy Zimmer | November 10, 2016 6:16pm | Updated on November 11, 2016 8:00am
 Construction is underway at 550 Vanderbilt Ave., one of several towers being built as part of the Atlantic Yards/Pacific Park complex in Prospect Heights, which received 421-a tax breaks.
Construction is underway at 550 Vanderbilt Ave., one of several towers being built as part of the Atlantic Yards/Pacific Park complex in Prospect Heights, which received 421-a tax breaks.
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DNAinfo/Rachel Holliday Smith

MANHATTAN — The state's controversial 421-a program — a tax break for certain newly built residential developments that expired in January — is getting a new life and could soon unlock $2 billion in state affordable housing funds.

The Building and Construction Trades Council of Greater New York (BCTC) and the Real Estate Board of New York (REBNY) reached an agreement to extend the lapsed program, the organizations jointly announced Thursday.

Gov. Andrew Cuomo had charged real estate developers and construction labor unions to negotiate a new deal that included some form of a prevailing wage requirement for construction workers.

Now, nearly a year later, they hashed out an agreement. It calls for eligible buildings in Manhattan — those with 300 rental units or more south of 96th Street — to pay, on average, an hourly wage of $60, including benefits. Eligible buildings in Brooklyn and Queens — those in Community Boards 1 and 2 within a mile of the nearest waterfront bulkhead — will pay construction workers on average, an hourly wage of $45.

Buildings with 50 percent or more affordable units are excluded from the wage and benefits obligation, under the agreement. Projects started prior to the agreement that meet the eligibility criteria may opt in to the program.

“We are pleased to have reached an agreement that will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers,” REBNY Chair Rob Speyer said in a statement.

Developers warned that without the tax break it would be difficult to build any new rental housing in the city, hurting the de Blasio administration’s affordable housing goals.

While building permits surged just before the tax break expired, permits took a nosedive right after, data showed.

“The agreement,” Gary LaBarbera, president of the Building Trades, said in a statement, “will preserve traditional worker standards and benefits and create opportunities for new categories of workers which will ensure our long-term competitiveness in the industry.”

The 421-a program launched during the fiscal crisis of the 1970s to encourage new residential construction by offering developers tax breaks.

It went through several subsequent iterations, the most recent of which included certain "geographic exclusion areas," where developers could only get the benefits if they included a certain portion of affordable units in their projects.

Other components of the new agreement will give buildings a 100 percent tax exemption benefit for 35 years in exchange for keeping income limits for renters in place for 40 years.

Developers will be required to hire independent monitors to audit certified payrolls to ensure compliance and enforcement of the wage and benefits agreement. The independent monitor would certify to the city’s Department of Housing Preservation and Development within 120 days of receiving the final Certificate of Occupancy that the required average wages and benefits were paid.

Developers can also opt for a “project labor agreement” and opt out of the 421-a wage agreement requirement and still be eligible to participate in other provisions of the tax break program, the announcement said.

Such agreements give more flexibility to developers and the unions, for instance, allowing large developers to work out a plan for multiple sites.

“While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers,” Cuomo said in a statement. “The agreement extends affordability for projects created with 421-a for an additional five years — bringing affordability for these units to 40 years. It also allows lower-income individuals to qualify as it lowers the percentage of area median income needed to apply.”

He pointed out that until the agreement was finalized the State Legislature refused to release $2 billion in state affordable housing funds.

“I urge the Legislature to come back to Albany to pass desperately needed affordable housing,” Cuomo said. “We simply cannot allow the lack of resolution to stall affordable housing production for years to come. There is no excuse not to act.”

Many in the affordable housing development community welcomed the news.

Rafael E. Cestero, president and CEO of the Community Preservation Corporation, praised this latest 421-a iteration for expanding the affordability requirement and increasing production.

“In a city where more than half of our renter households are rent burdened, it is imperative that we put 421-a back to work to get affordable housing production moving,” he said in a statement. “While far from perfect, the 45-year-old program has been critical to making rental development financially feasible, creating mixed-income communities, and spurring low- to moderate-income housing production in the outer boroughs.”

The de Blasio administration was more circumspect.

“We look forward to reviewing all the details of a new proposal," mayoral spokeswoman Melisssa Grace said. "Our priority is ensuring that the ultimate legislation passed demands real affordable housing for our people and protects taxpayers from giveaways."