Albany Problems: NYC’s Perpetual Corporate Tax Break Machine
New Yorkers lose billions in tax revenue every year to massive corporations and real estate developers. It doesn't have to be this way.
12:47 PM EDT on May 16, 2022
The tax break for developers that has cost billions of dollars and helped spawn some of the most offensive skyscrapers in town is set to expire in several weeks. But Governor Kathy Hochul told the Post over the weekend that 421-a is not dead yet, and that she hoped Mayor Eric Adams would lobby the state legislature to renew the controversial initiative in some form before they break for the summer.
The 421-a program has undergone revisions since its inception in the 1970s and developers benefitting from the break now must also create some affordable housing.
"Some" and "affordable" are two key words. City Comptroller Brad Lander is among those who contend that 421-a, which will cost the city nearly $1.8 billion in forgone tax revenue this year, hardly generates enough truly affordable apartments to be worth the cost.
The luxury high-rise One57, where a penthouse sold for $100 million, received a tax break worth $66 million a year for 10 years under the program, based on an estimate by the Independent Budget Office (full disclosure: I worked at IBO until last summer and helped edit the report).
Adams, our avowedly pro-business mayor, has signaled his support for renewing 421-a. But while he's talking to Albany about the fate of this tax break, he might want to bring up some of the others.
Altogether, these sorts of tax expenditures, or tax dollars the City forgoes, make up a sizable hunk of the City's budget—about $7 billion this year. Some tax expenditures seem intuitive, like forgoing property tax from the city's public housing authority or another that helps exempt many seniors with limited incomes from rent hikes. Others, like ones given to corporations owned by millionaires and billionaires, are far more questionable. All of them are ultimately controlled by the state.
Take Barclays Center. The arena hasn't paid property taxes since it opened in 2012. It's a tax expenditure that will cost the city $85 million this year alone, according to the City's Department of Finance Annual Tax Expenditure Report.
Barclays' property tax break is part of a financing scheme that helped the arena's developers get around a 1986 federal law aiming to limit the use of tax-exempt bonds to finance stadium construction. By transferring the ownership of the land the arena sits on to the state, the bill for property tax to the city was canceled. Instead of paying the city, the arena's owner, Joe Tsai, a cofounder of the e-commerce giant Alibaba, makes a payment in lieu of taxes, known as a PILOT. This payment, which approximates the amount of the forgone tax bill, goes to pay the annual debt service on the bonds used to finance the arena's construction. This is on top of tens of millions of dollars in other direct subsidies the city provided for the arena’s construction.
Of course, Barclays isn't the only arena in town. Madison Square Garden, the home of the Knicks and the Rangers, which are each estimated to be the most valuable teams in their respective leagues, benefits from politicians' largesse too. MSG's tax break is worth about $42 million this year, according to the Finance Department report.
This break has nothing to do with any financing schemes. In 1982, MSG's then-owners threatened to move the Knicks and Rangers out of the city, so Mayor Ed Koch begged the state legislature to give them a tax break; it was never meant to be permanent.
The city's baseball teams have also hit their property tax bills out of the ballpark, scoring tax breaks when they built new stadiums with the same kind of financing schemes used for Barclays (the ballparks sit on city parkland, negating the need to pay property tax to the city). It's an arrangement that the Times columnist Michael Powell likened to a new homeowner persuading the city to let them use their property taxes to instead pay their mortgage.
The city will forgo about $111 million for Yankee Stadium this year and $106 million for the Mets' Citi Field, according to the tax expenditure report.
The justification for these tax breaks is that they'll more than pay for themselves in jobs and other revenue. But most economists who have studied stadium economics find these promises illusory. As a January 2022 academic report concluded, "recent analyses continue to confirm the decades-old consensus of very limited economic impacts of professional sports teams and stadiums."
Not surprisingly, the beneficiaries of the city's tax expenditures are keen to hold onto them. Last year, MSG honcho James Dolan launched a new political action committee the day after then-mayoral candidate Andrew Yang suggested the MSG break should cease. Dolan had already maxed out with $12,200 campaign contributions to three of Yang's competitors, including the eventual winner, Mayor Adams.
Harvey Robins, the City's former director of operations under Mayor David Dinkins, draws a direct connection between tax giveaways like the Barclays deal and underfunded public spaces.
"For too long these corporate entertainment spaces have benefitted from hundreds of millions in public benefits while our parks and playgrounds have languished," he said.
Robins has a solution, albeit one that is still sensitive to the "needs" of these corporations: he argues that Barclays, MSG, the Yankees and Mets should each pony up about $50 million a year, roughly approximating a share of the total savings for the arenas and stadiums. "This would send a strong signal that the City is prepared to refocus public investments on projects with broad public purpose rather than on amenities for the well-off," he said.
Robins's recommendation reflects the underlying reality that undoing some of these deals, like those for Barclays and the two ballparks, may be nearly impossible because the tax breaks are connected to the bond financing. But for many others, including MSG, the obstacles are largely political.
A 2018 report by IBO found that two other corporate tax incentives, the Commercial Revitalization and Commercial Expansion Programs were largely ineffective in meeting their goals of spurring job growth by encouraging the leasing of space in older commercial buildings (another full disclosure, I helped edit this report too). Corey Johnson, then the Speaker of the City Council, called for Albany to phase out the two programs.
But all of these schemes, as well as other corporate giveaways, persist at a cost in lost tax revenue that's been mounting for years. The revitalization program has been around since 1995, the expansion program since 2000. Together, they'll cost about $22 million in lost revenue this year. To end programs like these and others that may have limited returns compared with their costs in forgone tax dollars will take the full weight of City Hall.
So where's Mayor Adams on reviewing the dozens of tax expenditures made by the city? The executive budget he released last month reiterates the need for "staying focused on the efficient use of government resources." We know he supports the renewal of 421-a with the tweaks proposed by Governor Hochul, as well as the expansion of the Earned Income Tax Credit that helps lower income working New Yorkers.
But what about the break for MSG or the commercial revitalization and expansion programs? Or others like the sales tax exemption for interior design services or the income tax break for insurance companies?
How about the property tax breaks for private institutions like Columbia and NYU, institutions whose educational mission seems increasingly eclipsed by their real estate ambitions?
The mayor's press office did not respond to a request for comments on the administration's plans for evaluating the array of city tax breaks.
Perhaps it's a question of priorities. While Mayor Adams suggested on the campaign trail that he would allocate $1 billion to the Parks Department to fix the 2,000 crumbling and understaffed green spaces it oversees, that is not likely to happen.
Just a handful of subway stops from Barclays and a world away from Albany's powerbrokers, sits St. Andrew's Playground.
St. Andrew's used to be one of New York City's premier places for street basketball. NBA legends like Connie Hawkins, Lenny Wilkens and Larry Brown dazzled on the asphalt court just off Atlantic Avenue, bounded by the elevated rail tracks cutting through Bed-Stuy.
Today, the basketball courts and adjoining ballfields hardly look like a place where legends once roamed—the park hasn't had any major fix-ups in more than 20 years.
"Any day, the park is full," says Wilma Maynard, a lifelong neighborhood resident, who helped found Friends of St. Andrew's Playground in 2017. "We need the park renovated."
Fixing the park has been a top capital budget request by Brooklyn’s Community Board 3 for several years. When CB3 asked the mayor's office for money, the answer was firm: Seek funding from local elected officials. It's the same response they got in 2019, when one of those local elected officials who could make capital budget allocations was Eric Adams, then the borough president.
Neither the budget office nor the Department of Parks and Recreation contests the notion that St. Andrew's needs substantial repairs—"unacceptable" was how the department described the park during the two most recent inspections this past January and August. "We recognize the need for improvements at St. Andrew's Playground," said Meghan Lalor, the Parks Department's director of media relations, "and will continue to seek funding."
The estimated cost to fix St. Andrew's? $20 million. Or, roughly what New Yorkers lose to the Commercial Revitalization and Commercial Expansion Programs in a single year.
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