Some say the region is in desperate need of more multifamily housing, but that developers who can create those units should be denied access to industrial development agency tax incentives to build them.
There is an intractable Long Island Gordian knot confronting the construction of multifamily housing that will never be resolved unless we address a tax system that is unsustainable and local zoning that suffocates. Until these two issues are resolved the use of the maligned and misunderstood incentives provided by the region’s industrial development agencies will continue to be the only reliable means of bringing significant multifamily housing to market.
There are a myriad number of reasons for the paucity of housing stock, but they mostly lie at the feet of restrictive zoning codes, high taxes, NIMBYism, and the significant time and costs of getting municipal approvals. With time to ribbon cutting usually measured in years, few developers (and investors) are prepared to risk that amount of capital for an indeterminate amount of time. It’s easier to build elsewhere, and they do.
The role of the IDA continues to be demonized by those who are ideologically opposed, but the main objections come from those who misunderstand how the deals work. For example, to suggest that the premise of broadening a community’s tax base breaks down if a project receives IDA tax relief is incorrect. IDAs do not invest in real estate projects. IDA benefits allow new and increased tax revenue to phase in over time. Those new projects invariably pay significantly more real estate taxes than the previous use of the property from Day One. Secondly, there are the jobs created by the project. Some of them, particularly construction-related jobs, may last two to three years, while other jobs are permanent. These jobs also create a number of new indirect jobs. These individuals then purchase goods and services that generate local sales taxes.
In the example of a hotel project, which will not impact schools as it will not be producing additional children into the system, it also generates hotel-motel tax revenue, which fuels our billion dollar tourism industry, and generates millions in sales tax revenue as its guests spend money in the region.
An IDA’s strategic role is to encourage developers to come to the marketplace and incentivize them to risk millions of dollars. If the margins are too thin, the capital market goes hunting for other projects in welcoming parts of the country. To dismiss IDA programs with "[tax] breaks are free money" is inaccurate and misinformed but far worse, it hurts the development community. The truth is Long Island’s real estate taxes, compounded by local zoning density restrictions, very often make or break the financing structure. IDA PILOT programs come close to leveling the financial playing field.
The claim that IDAs shifts the tax burden to residents and businesses equally needs attention. While new developments require additional municipal services, multifamily and hotel projects undergo an economic impact analysis report. In the case of the recent Long Beach "Superblock," the report, commissioned by the city, showed a net positive impact of $476,323 in year one after deducting city expenses, and more than $33 million over the life of the PILOT, after deducting city expenses. New projects are consistently reviewed to ensure they generate increased tax revenue above the cost of additional municipal services and expenses.
The debate over the role of IDAs will continue because everyone is entitled to his or her opinion. However, they are not entitled to their own facts. The facts show that IDAs have enormous economic power, offering the means to strengthen a regional economy now more vulnerable than ever to those across the country seeking to poach Long Island investment, jobs, and tax revenue.
Kyle Strober is executive director of the Association For a Better Long Island. Mitch Pally is chief executive of the Long Island Builders Institute.