A Discussion

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

 1950’s  Encourage needed upgrades for existing housing

 1960’s  Reduce operating costs for highly subsidized projects

 1970’s  Stimulate needed residential construction and related economic activity

 1990’s  Reduce operating costs for highly subsidized LIHTC projects

 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)

 Usually require a threshold investment  May require affordability component ◦ Seattle – 20% of units “affordable”

The Context

Source: Annual Report on Tax Expenditures Fiscal Year 2011

Units with Tax Exemptions Annual Dollar Costs of Exemptions (in millions) Source: Annual Report on Tax Expenditures Fiscal Year 2011 and DOF Data on J-51

Source: RGB 2011 Income and Expense Study

 Talked to 28 industry and government leaders about, ◦ Objectives and effectiveness of programs ◦ Administration of programs ◦ Practical issues

 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

 Is this still a valid objective? ◦ New variations  Energy efficiency  Preserving at risk buildings  Preserving affordability

 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

 J-51 ◦ Is the term long enough?

 Is this a valid objective of public policy?  Does the incentive generate construction that would not otherwise occur?

 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?

 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?

 Should the 421-a link to rent stabilization continue? ◦ Does the Roberts decision make these programs more “efficient” going forward?

 In general, do the tax incentives match the term of affordability restrictions of the projects?

 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?

 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