the future of real estate tax incentives
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The Future of Real Estate Tax Incentives. A Discussion. Tax Incentive Programs. Original Intent. Objectives of Tax Incentives?. Encourage needed upgrades for existing housing Reduce operating costs for highly subsidized projects - PowerPoint PPT PresentationTRANSCRIPT
The Future of Real Estate Tax Incentives
A Discussion
Tax Incentive Programs
Original Intent
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
Objectives of Tax Incentives?
1950’s Encourage needed upgrades for existing
housing
J-51
1960’s Reduce operating
costs for highly subsidized projects
Article XI
1970’s Stimulate needed residential construction
and related economic activity
421-a
1990’s Reduce operating
costs for highly subsidized LIHTC projects
420-c
Other Cities
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)
New Construction
Usually require a threshold investment May require affordability component
◦ Seattle – 20% of units “affordable”
Rehab
Tax Incentive Programs
The Context
Real Property$16,860
Personal Income$7,608
General Corporation$2,300
Banking Corporation$1,336
UBT$1,675
Sales$5,528
Commercial Rent$603
Real Property Transfer$788
Mortgage Recording$414
Other; $3,069
Source: Fiscal Year 2012 Adopted Budget
NYC Tax Revenue by Type 2011(in millions)
Annual RE Tax Incentive Expenditures 2011(in millions)
Source: Annual Report on Tax Expenditures Fiscal Year 2011
421-a$911.6J-51
$256.7
Article 11$49.1
420-c$57.0
Other Residential$252.6
Commercial Indus-trial
$755.3 Individual Assistance$674.3 Other
$18.8
All Residential$1,527
2011 Tax Expenditures and Units By Program
Units with Tax Exemptions Annual Dollar Costs of Exemptions (in millions)
J-51
421-a
Article 11
420-c
- 200,000 400,000 600,000 800,000
583,776
124,267
37,164
12,000
J-51
421-a
Article 11
420-c
$257
$912
$49
$57
Source: Annual Report on Tax Expenditures Fiscal Year 2011 and DOF Data on J-51
$0 $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000
‘01
‘02
‘03 ‘04 ‘05 2006 2007 2008 2009 2010 2011
1988-2000
In FY 2011 $911.6 million in Tax Revenue was Foregone in 421-aWhat Year Did Exemption Starts?
Taxes Maint Labor Admin Utilities Misc Fuel Insurance$0
$50
$100
$150
$200
$250
Monthly Expenses per Stabilized Unit - 2009
Source: RGB 2011 Income and Expense Study
The Issues
Talked to 28 industry and government leaders about,◦ Objectives and effectiveness of programs◦ Administration of programs◦ Practical issues
Survey
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
Old Tax Incentives
Is this still a valid objective?◦ New variations
Energy efficiency Preserving at risk buildings Preserving affordability
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
Encouraging Rehab
J-51◦ Is the term long enough?
Promoting Rehab
Is this a valid objective of public policy? Does the incentive generate construction
that would not otherwise occur?
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?
Encouraging For Profit 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?
Encouraging New Construction
Should the 421-a link to rent stabilization continue?◦ Does the Roberts decision make these programs
more “efficient” going forward?
Encouraging For Profit New Construction
In general, do the tax incentives match the term of affordability restrictions of the projects?
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?
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
Promoting Affordability