Urban Housing Development Strategies Through the Decades

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

1950s Encourage needed upgrades for existing housing

1960s Reduce operating costs for highly subsidized projects

1970s Stimulate needed residential construction and related economic activity

1990s 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

Mortgage Recording $414 Real Property Transfer $788 Other, $3,069 Commercial Rent $603 Sales $5,528 Real Property $16,860 UBT $1,675 Banking Corporation $1,336 General Corporation $2,300 Personal Income $7,608 Source: Fiscal Year 2012 Adopted Budget

Commercial Industrial $755.3 Individual Assistance $674.3 Other $18.8 Other Residential $252.6 All Residential $1,527 All Residential $1,527 421-a $911.6 420-c $57.0 J-51 $256.7 Article 11 $49.1 Source: Annual Report on Tax Expenditures Fiscal Year 2011

420-c 420-c 12,000 $57 Article 11 Article 11 37,164 $49 421-a 421-a 124,267 $912 J-51 J-51 583,776 $257 - 200,000 400,000 600,000 800,000 $0 $200 $400 $600 $800 $1,000 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

In FY 2011 $911.6 million in Tax Revenue was Foregone in 421- -a a What Year Did Exemption Starts? In FY 2011 $911.6 million in Tax Revenue was Foregone in 421 What Year Did Exemption Starts? 1988- -2000 1988 2000 02 02 03 03 04 04 05 05 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2006 01 01 $0 $200 $400 a Tax Expenditure, in Millions $600 $800 $1,000 421 421- -a Tax Expenditure, in Millions

$250 $200 $150 $100 $50 $0 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 Is it too complicated?

J-51 Is the term long enough? 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