To: REBNY Member
From: Steven Spinola
Date: June 29, 2011
Re: Albany Report 2011
The Real Estate Board of New York had a number of important accomplishments in the New York State legislative session that ended on June 24, 2011. These accomplishments and a summary of our activity on other legislative items that would impact our industry are presented below.
For the first time in 15 years, New York State adopted a budget that reduced spending below the year before. The $132.5 billion budget was adopted on time and reduced overall spending by more than 2 percent. More importantly, it eliminated a $10 billion deficit without raising taxes, without new borrowing and without budget gimmicks. In addition, the adopted budget agreement puts us on a path toward fiscal responsibility by cutting next year's projected budget deficit from $15 billion to $2 billion.
We commend Governor Andrew M. Cuomo, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver for making difficult budget decisions that were necessary to improve our state's prospects for renewed growth and economic prosperity for all New Yorkers.
REBNY has worked diligently for a meaningful reduction in state spending this year and a continuation of fiscal prudence in the years ahead. The adopted budget which we strongly supported achieves these important goals. We will continue to advocate for reduced state spending and for lowering the cost of doing business in New York.
As part of the legislative activity prior to the adoption of the budget, we vigorously opposed the extension of the personal income tax increase (the millionaire's tax) that is scheduled to expire at the end of the year. There was intense pressure to continue this tax and continue state spending at unsustainable levels. REBNY was a strong steady voice to let the tax expire and to bring spending under control.
We were successful in stopping two bills that would impact Mitchell Lama buildings. One would have required Mitchell Lama owners upon sale to dedicate all surplus and escrow funds to major capital improvements whether they were required or not. The other bill would have retroactively imposed rent regulations on buildings that have left the program. The first bill was more an attempt to discourage the owner's sale than improve the overall physical condition of the building. The other was an attempt to expand rent regulations on currently market rate buildings. We have strongly maintained that the legislature not unilaterally alter the contractual agreement between the Mitchell Lama and the state which allows owners to leave the program once the owner's contractual obligations have been fulfilled.
We successfully opposed a bill that would have forced sponsors to put unsold units on the market regardless of whether there was a market demand for these units or whether such a sale would result in a loss to the sponsor.
The State also enacted legislation that would also have a beneficial impact on the real estate industry.
The legislature adopted a two percent real property tax cap to control the growth of government spending. This statewide cap however does not apply to New York City.
Two major New York City economic development programs--421a Partial Tax Exemption Program and the Industrial and Commercial Abatement Program (ICAP)--were renewed without a prevailing wage requirement. These programs are crucial to the encouragement of capital investment in new housing and new commercial and industrial development and renovation and to offset the heavy tax burden our real property tax system places on these properties. In the last few years, there has been a persistent attempt to diminish the value of these necessary benefits by mandating that these projects pay prevailing wage for construction. This requirement would have made numerous projects, especially affordable housing and commercial and industrial development outside Manhattan, economically infeasible. The 421a program was extended to June 15, 2015, eighteen months longer than its typical renewal period. ICAP was extended to February 28, 2014 and does not require the approval of the City Council.
The provisions that permit the allocation of tax exempt bond financing for housing construction over a three year period, which has been a catalyst for 80/20 projects, was renewed. State law required that a project awarded tax exempt bonds would receive the total allocation in the first year, even though the project would only require a fraction of the total in the first year, limiting the number of new projects that can start. Permitting the allocation of three years (the multi-year provision) has increased the number of new projects that can begin and take advantage of favorable market conditions as well as increasing the amount of tax revenue and jobs that these tax exempt bonds can generate.
In addition, the 50 percent reduction in the transfer tax for the conveyance of a property to a REIT was extended for another three years. Reduction in the transfer taxes to facilitate the formation of REITs which REBNY advocated has led to the emergence of REITS in New York and a surge in transfer taxes. This bill extends a provision that has facilitated and continues to facilitate transactions. This bill has passed both houses and we expect the Governor will sign this extension into law.
We introduced a bill that passed both houses and we expect the Governor to sign it that would permit HFA and HDC to place tax-exempt bonds for 80/20 housing directly with a financial institutions, instead of having these short-term variable rate bonds sold weekly in the bond market with a requirement to have credit enhancement from Fannie Mae or Freddie Mac. This direct placement will help to lower the cost for the financing of these projects as well as provide an alternative to the credit enhancement from Fannie Mae and Freddie Mac whose activity in this area has been diminishing and whose services are becoming more costly and whose future is uncertain.
We successfully supported power plant siting legislation which would allow for the development of new, more energy efficient power plants to meet the growing energy needs of our growing city. This bill has passed both houses and we will urge the Governor to sign it into law.
The renewal of Rent Stabilization preserved an owner's ability to deregulate apartments above a fixed threshold and avoided the proposals of the tenant advocates whose cumulative effect of their changes would have resulted in a virtual elimination of the deregulation of rent stabilized apartments. Rent Stabilization was extended to June 15, 2015. The rent threshold for vacancy decontrol was increased to $2,500 from $2,000; the income threshold for deregulating a unit above the rent threshold was increased to $200,000 from $175,000; the allowable monthly rent increase for an individual apartment improvement was changed to 1/60th from 1/40th of the cost of the improvement for buildings with more than 35 units; and owners are allowed only one vacancy increase a calendar year. However, noteworthy are the tenant advocate provisions that we were able to keep out of the extension. There is no indexing of the rent or income threshold; there is no change to the vacancy allowance percentage; there was no limit imposed on the number of apartments an owner may reclaim for his personal or family use; there is no change to the MCI provisions,; and there are no restrictions on the readjustment of the preferential rent at vacancy or lease renewal to the legal rent.
OTHER LEGISLATIVE ACTIVITY
As part of our legislative activity we have expressed our opposition to bills that in our view would have increased costs or added more unnecessary administrative burdens on our industry. Through our efforts we have prevented the passage of legislation that would have allowed ECB violations that are unpaid for any reason to be converted into a tax lien and another bill that would have mandated owners to create a separate and sizable escrow fund for repairs for neighboring buildings that could potentially get damaged from the construction work. Also, we successfully opposed a bill hat would have required owners to show prospective tenants the gas and electric charges incurred by the previous occupant of the apartment. We successfully opposed a bill that would have required owners or contractors to create separate escrow accounts for retainage that entitled the subcontractor to draw down these funds after 60 days, even if there is a dispute about the completion of the work.
Nevertheless we were disappointed that we could not convince our leaders in Albany to adopt J-51 legislation to address the Court of Appeals decision in the Robert's case, which we strongly supported, that would return these units to rent stabilization, that would establish a mechanism for determining rent and overcharges and that would bring order and clarity to the owners and occupants of the 40,000 units affected by the Court of Appeals decision. This court decision two years ago maintained that apartments receiving J-51 benefits could not be deregulated. It also overruled the directive from the State Housing agency (DHCR) that, consistently for more than a decade, advised building owners that these units could be deregulated. The Court decision has created chaos in the operation of these properties by effectively mandating reduced rents and imposing regulation status to tenants who freely signed market leases and who had no expectation of this protection.
Without passage of this J-51 legislation, thousands of tenants and numerous building owners remain unsure how to set rents for these units, how to calculate a refund for current and prior tenants, and how to proceed now that the courts have said that these units should not have been deregulated. Though we avoided the most onerous proposals supported by the tenant advocates in the extension of rent stabilization, the proposed increases in the rent ($2,500) and income ($200,000) thresholds are still too high and weakened the fundamental principle of the rent reforms in the mid-1990s, namely to provide a slow and orderly transition to a purely market rate rental housing sector. The legislative changes in rent stabilization have effectively expanded regulatory protections to high income household lucky enough to live in a rent regulated apartment and does nothing to address the shortage of affordable housing our city faces.
As part of our legislative effort to preserve affordable housing and to lower the unsustainable real property tax burden on residential rental buildings, we recommended a provision of the 421a renewal that establish a cap on property taxes for 80/20 owners that agreed to keep the low-income units in their building affordable for an additional 30 years. This proposal could have preserved as many as 5,000 affordable units and provided assurance to low-income families that they could stay in their apartments for decades to come. Unfortunately, they city objected to this proposal as too costly and the legislature would not override the city's objections. In addition, despite support from the city, both houses and the Governor, the 421a provisions in the Omnibus bill enacted at the end of the session did not contain the language we recommended that would have restored tax exemption benefits for high density districts (FAR 15 zoning districts).
At the request of the city, the legislature again lowered the cap on class share adjustments from 5 percent to 2.5 percent. Each of the four tax classes pays a share of the tax levy burden based on the value of the property in class. Class shares are adjusted annually and capped at 5 percent to reflect the changing value of property in each class. The sole purpose for this reduction to 2.5 percent is to lower the tax burden on New York City single family homeowners who, compared to the other three classes, are already paying a disproportionately lower share of the tax levy relative to their value. Our persistent objection to lowering the cap has ended the practice in which the cap was lowered to zero thus providing these homeowners complete protection from class share increases at a time when their homes were rising in value at a rate greater than the other three classes of properties.
There have been reports that the legislature may come back later this year to enact requirements needed to comply with federal health care legislation. If so, we will urge them to review our 421a cap proposal on 80/20 projects as a prudent method to preserve affordable housing, to address the J-51/Roberts issue, to extend the J-51 program which provides residential building owners an incentive to make capital improvements and to restore tax exemption benefits in FAR 15 areas in the 421a program.