De Blasio heads to Albany with less to complain about, except for 421a

Office of the Mayor
Mayor Bill de Blasio testifying in Albany.

De Blasio heads to Albany with less to complain about, except for 421a

De Blasio heads to Albany with less to complain about, except for 421a
January 29, 2017

When New York City Mayor Bill de Blasio testifies about Gov. Andrew Cuomo’s budget proposal Monday, he will likely have much less to complain about than last year, when the city faced nearly $1 billion in new costs under the initial proposal.

But de Blasio may still have a few items to decry.

Cuomo’s budget plan shifts a few relatively minor costs onto the city, including roughly $238 million in education funding and charging $3 million for processing the city’s traffic violations.

But the budget’s most significant impact could come from its inclusion of Cuomo’s proposal for reviving the 421a property tax abatement. Some experts say the plan would curtail the city’s authority over the property tax abatement while positioning the city up to miss out on as much as $1.2 billion more in tax revenue.

Nonetheless, Cuomo’s team has described the state budget as a victory for New York City. State budget officials said the fiscal plan includes a $400 million increase for the city, thanks to the state taking on more of the Medicaid growth costs, a modernization of the sales tax code to reflect the internet era, an education aid increase and other actions.

De Blasio’s press office did not respond to requests to weigh in on several aspects of City & State’s analysis of the state budget, but did call for changes to the 421a proposal to provide more benefits to taxpayers.

The proposed state budget includes a number of education-related changes, perhaps most notably on charter schools, a point of disagreement  between Cuomo and de Blasio. Under the plan, the city would need to reimburse charter schools for a larger portion of students’ tuition, at a cost $197 million in the coming fiscal year, according to the Assembly’s budget analysis. Under a three-year state program that increased charter school tuition, local school districts, including those in New York City, were not responsible for the increases, but that initiative is now expiring. The $197 million cost could grow in future years because the budget calls for lifting a cap on how many charter schools may operate in the boroughs. 

The governor’s plan also shifts $22 million in tuition costs for foster children back to the city and transfers a $19 million allocation onto the city for the Committee for Special Education, which operates at the district level and helps decide what services special education students are entitled to, according to David Friedfel, director of state studies at the Citizens Budget Commission. Additionally, Cuomo’s budget assumes that the city will be able to bill the federal government $100 million more for supportive special education services’ under Medicaid, and that both city and state government will benefit. But if the city falls short, the state is prepared to reduce its Medicaid payments to New York City by $50 million, Friedfel said. 

Additionally, the governor’s proposal intends to curb reimbursements for the city Department of Health and Mental Hygiene by $11 million, with the decline projected to grow in future years, according to Friedfel. And the fiscal plan includes a $3 million charge for processing the city’s traffic violations. A state budget official said the Department of Motor Vehicles has adjudicated city traffic tickets so they don’t clog up the city courts, but this costs the DMV in information technology expenses. So the state is now looking to recoup some, but not all, of the IT costs that it has not been reimbursed for over the past three years.

State Sen. Ruben Diaz Sr. and de Blasio have both suggested the proposed state budget would cuts into senior center funding. A state budget official said the plan did not reduce services, but simply switched a funding stream that has been used for multiple purposes to child care.

The Cuomo administration argued that move – and other inexpensive shifts – should be easy for the city to adjust to because it’s receiving $400 million in additional revenue. The governor’s plan also included a handful of investments in New York City, including $700 million for redeveloping the Moynihan Station, a $108 million loan to transform a Bronx armory into an ice rink complex, and $650 million over multiple years to bolster the life sciences industry, which is expected to largely benefit New York City.

But the New York City Department of Housing Preservation and Development anticipates the governor’s 421a proposal costing close to $1 billion more over 10 years, while also failing to create more affordable apartments than it has historically.

Experts say Cuomo's plan will likely cost more than de Blasio’s because it would allow some developments to receive a full abatement for 35 years, whereas de Blasio’s planned for some projects to get a full abatement for 25 years and then phase out the benefit over the next decade. Cuomo's plan requires projects in prime real estate areas to pay certain wages, unlike the mayor's plan.

In a New York Times article, however, New York State Homes and Community Renewal Commissioner James Rubin called the anticipated increased costs “very, very modest.”

Tom Waters, a housing policy analyst with Community Service Society of New York, calculated that the governor’s proposal could drive up the cost of 421a more than the city expects, costing $2.4 billion, or $1.2 billion more than the benefit waived in tax revenue in 2016. He said the legislation’s language also eliminated the city’s right to shift the geographic lines of where developers are required to include affordable apartments if they want to receive the benefit, a power it used in 2006. Waters said the proposed measure also would no longer authorize the city to opt out of the 421a program.

“If this succeeds, there will never be a lessening of this tax exemption because it will be the state deciding how to spend the city’s money, and they can get to be friends with real estate without it costing them anything,” Waters said. “There won’t be any effective political control over this enormous tax subsidy – ever.”

De Blasio’s office did not comment on Water’s analysis, but said the administration believed increased costs must come with more affordable housing benefits.

“Albany needs to make good on the reforms we secured to the broken old 421a program: No tax breaks for luxury condos, reduced costs to taxpayers, and no tax breaks without significant affordable housing in return,” de Blasio spokeswoman Melissa Grace said in a statement referencing a de Blasio’s own 421a proposal that did not advance in Albany. “Adhering to these principles is paramount, and we will engage our state partners as the proposal is considered during the budget process.”

Sarina Trangle
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