ALBANY -- A relatively obscure tax break that subsidizes real-estate developers to the tune of $1 billion annually has been at the hub of three investigations that have shaken up New York politics during the past two years.
The 421-a tax abatement program, as its known, has helped build some prominent New York City buildings, generate campaign contributions and provide fodder for landlords and tenant groups. It was the source of controversy at the end of the 2012 legislative session. It has also figured in high-profile probes launched by federal and state investigators.
In the latest instance, federal officials who arrested Senate Majority Leader Dean Skelos (R-Rockville Centre) on Monday said he supported the continuation of incentives such as 421-a that would benefit a major real-estate developer that was indirectly paying his son, Adam, because of Skelos' political power. The developer is Glenwood Management, a New Hyde Park firm that has been a prolific campaign donor, especially to Gov. Andrew M. Cuomo and Senate Republicans. Glenwood has not been accused of wrongdoing.
Coincidentally, 421-a is set to expire next month unless lawmakers act to renew it.
The day after Skelos was arrested, a labor coalition called for an aggressive effort to "fix" the tax incentive program.
"It is not acceptable for developers to get a billion-dollar-a-year tax break while paying workers low wages and creating little to no affordable housing," said Paul Fernandes, director of the New York City and Vicinity Carpenters Labor Management Corp., part of the group advocating changes. "These are public dollars and we need to demand much better accountability."
Skelos, in response to media questions, sought to downplay the notion he would be compromised in pending negotiations over 421-a and other critical real-estate issues.
"Look, all those issues are something that are going to be negotiated," Skelos told reporters at the State Capitol Tuesday. "Rent control, mayoral control. Everything is going to be negotiated. That's the way it goes."
Real-estate incentives such as 421-a also were referenced in the earlier indictment of former Assembly Speaker Sheldon Silver (D-Manhattan). Prosecutors alleged that Silver "induced" developers -- who wanted the tax incentives passed -- to use a real estate law firm with ties to the speaker to challenge property-tax assessments. Silver then received nearly $700,000 in referral fees, the indictment said.
The tax incentive was launched in 1971 to spur development in New York City during an economic downturn. It significantly reduces property taxes for residential development; it was later modified, in part to encourage affordable housing.
Now, the city forgoes more than $1 billion in property taxes because of the abatement while 14 percent of the apartments eligible for the program go to low- and moderate-income families, according to a recent report by the Manhattan borough president's office.
The real estate industry is pushing to renew the incentives. Some liberal groups want it abolished. Mayor Bill de Blasio is pushing for changes, as is a labor coalition, to ensure it triggers more affordable housing and better paying jobs.
In 2012, lawmakers sought to make changes to 421-a, along with co-op and condominium tax laws, through an under-the-radar bill introduced in the final stages of the legislative session. After the media raised questions about it, Cuomo blocked the bill, saying he wouldn't approve rushing it through.
Lawmakers tweaked it in January 2013, allowing a handful of Manhattan sites to qualify for the program -- around the same time some high-profile developers gave generous campaign contributions. Later in 2013, the Moreland Commission, an anti-corruption panel created by Cuomo, subpoenaed a handful of New York City landlords who received tax breaks through 421-a. Subsequently, a Cuomo aide reportedly quashed the subpoenas.
Ron Deutsch, of the labor-backed Fiscal Policy Institute, called 421-a "one of those tax provisions that is open to corruption." He said the state should eliminate it because high-end developers don't need further incentives.
But Steven Spinola, president of the Real Estate Board of New York, said elimination of the incentive would "make the housing crisis worse."
"The city would see a sharp drop off in the production of new housing units," Spinola said on the REBNY website, "a further skewing of the residential market toward condominium rather than rental production; and an accelerated tightening of housing costs for renters and buyers alike."