Dec. 6 (Bloomberg) -- In the twilight of Mayor Michael Bloomberg’s tenure, a New York agency will vote next week to give developers $120 million in tax breaks for two of his signature projects: a new district of offices, apartments and shops on the far west side of Manhattan, and a hotel and mall in a Queens neighborhood filled with auto shops and junkyards.
His successor, who takes office Jan. 1, doesn’t plan to be as generous.
Bill de Blasio, a 52-year-old Democrat who built his candidacy on a plan to tax the wealthy to pay for pre-kindergarten, wants to curb almost $3 billion in annual business-tax breaks granted by the city.
By changing or eliminating programs for “wealthy corporations,” the city may recoup $250 million, de Blasio said in his campaign policy book. That money could be better spent helping the City University of New York and boosting the skills of the city’s workforce, he said.
“Bill de Blasio cares about a couple of things very strongly: One, how to create housing for people of all incomes, especially lower income, and how do you create decent jobs around the city of New York,” said Steven Spinola, president of the Real Estate Board of New York, a trade group. “The question for the de Blasio administration starting on Jan. 1 will be what warrants the kind of incentives for projects that will do exactly that.”
What’s at stake for the largest U.S. city is whether de Blasio can make good on his pledge to reduce the gap between the rich and poor and create middle-class jobs in all five boroughs. New York’s poverty rate rose to 21.2 percent in 2012 from 20.9 percent the year before, Census data show. Median household income declined to $50,895 from $53,837 in 2008.
Business-tax breaks have almost tripled from $1 billion in fiscal 2001, which ended six months before Bloomberg took office, according to an analysis by James Parrott, deputy director of the Fiscal Policy Institute, a labor-backed research group. The breaks have grown more than twice as fast as tax collections and are about equal to what the city receives from the general corporation tax, according to Parrott.
“He’s certainly going to economize in the property-tax area,” Parrott said of de Blasio. “New York City is certainly attractive enough from a lot of perspectives so that developers want to build” without added incentives.
The value of tax breaks has increased, in part because property values have risen, said Patrick Muncie, a spokesman for Bloomberg. Half of the increase in the value of real property tax breaks is the result of commercial building market values. Bloomberg also reduced the city’s biggest commercial tax break program, Muncie said.
De Blasio, the city’s public advocate, has supported developments aided by tax breaks in the past. He backed Forest City Ratner Cos.’s Atlantic Yards development in downtown Brooklyn, which includes an arena for the Brooklyn Nets basketball team and 6,430 residential units.
Forest City saved almost $730 million through government benefits, according to a 2009 report by the Independent Budget Office, a nonpartisan agency that acts as fiscal monitor for the city.
Among the benefits was that the 18,000-seat Barclays Center, which anchors the project, is tax-exempt, according to the IBO report. Atlantic Yards will cost the city $169 million over 30 years, the IBO said.
During the campaign, de Blasio’s opponent, Republican Joseph Lhota, attacked him for failing to prod Forest City Chairman Bruce Ratner to build 2,250 affordable housing units that were promised in an agreement with community organizers. As mayor, de Blasio will make sure that Ratner delivers the affordable housing that was originally planned, said Lis Smith, a spokeswoman for de Blasio.
Robert Sanna, a Forest City executive vice president, raised $13,600 for de Blasio, campaign-finance records show.
“Bruce and others supported Bill’s candidacy because they believe in his vision for New York City, especially as it relates to creating greater opportunity for more New Yorkers and more affordable housing for working families,” Joe DePlasco, a Forest City spokesman, said.
The first residential building will open in the fourth quarter of next year, and half of the 360 units will be affordable, DePlasco said.
Forest City Ratner sold a 70 percent stake in Atlantic Yards to Shanghai-based Greenland Holding Group Co. in October.
De Blasio has said most business subsidies go to large companies and that many projects would have gone ahead without the aid. He criticized the Bloomberg administration for approving subsidies of $127 million to assist grocer Fresh Direct Holdings Inc. in a move from Queens to the Bronx. Fresh Direct had said it was considering relocating to New Jersey.
“Mayor-elect de Blasio’s administration will review all development project with an eye toward ensuring the best value of New York City’s taxpayers,” Smith said. De Blasio will require that developers set aside affordable housing if they want to build in the city, she said.
Fresh Direct’s move to the Bronx will create 1,000 jobs in the poorest U.S. congressional district, said Peter Ajemian, a company spokesman.
One of Bloomberg’s most disputed tax-policy decisions was to grant breaks for Hudson Yards, a 45-block project that will expand Manhattan’s midtown business district west toward the Hudson River. In 2006, the city began issuing $3 billion in tax-exempt bonds to extend the No. 7 subway line from Times Square to 11th Avenue and south to a new station at 34th Street.
The debt is backed by payments in lieu of taxes and other revenue generated by new development projects on the complex, which will be built on a platform over a rail yard. Work has proceeded more slowly than anticipated, costing the city more than $100 million in expected tax revenue, according to the IBO.
Next week, New York City’s Industrial Development Agency, a unit of the city Economic Development Corp., will vote on a $76.5 million property-tax exemption for One Hudson Yards, a redesign of a 49-story tower that Hudson Yards developer Related Cos. purchased from Extell Development Co.
Under terms of the exemption, New York-based Related and a partner will receive a 25 percent to 35 percent break on its real estate taxes for 15 years, said Joanna Rose, a Related spokeswoman. The remainder will go to cover bond payments.
Related will invest $1.2 billion and create 3,400 construction jobs. The company and its partner, Oxford Properties Group, the Toronto-based real estate arm of the Ontario Municipal Employees Retirement System, plan to invest $20 billion at the 26-acre (11-hectare) site.
In October, Related and Oxford received approval for a $328 million tax exemption for construction of an 80-story skyscraper and a shopping mall.
The October decision broke with Bloomberg administration policy to reduce public subsidies for retail development, according to the IBO. The current mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.
The decision means the city will have to pump more money than expected into the project to pay the development’s debt, the IBO said.
“It’s supposed to be one of the last remaining vestiges of development in Manhattan,” said Bettina Damiani, project director for Good Jobs New York, a group that collects data and analyzes economic development subsidies. “You’d think we wouldn’t need to lure retailers or commercial developers or tenants there.”
The industrial development agency will also vote next week on granting $42.6 million of property-tax abatements and mortgage-recording-tax exemptions for the Willets Point project in Queens, which the city says will transform a neglected neighborhood in the shadow of the New York Mets baseball park.
Related and its partner, Sterling Equities Inc., controlled by Mets co-owner Fred Wilpon, plan to build a 200-room hotel and 30,000 square feet (2,787 square meters) of retail space in an area of auto shops and industrial businesses.
Neither the Hudson Yards nor Willets Point projects would be possible without subsidies, said Ben Branham, chief of staff at the Economic Development Corp.
“Large, ambitious and transformative projects are often complex, with significant inherent risk, and the relatively modest public investment being offered will help to mitigate some of that risk,” Branham said in an e-mail.
The subsidies are consistent with plans for Hudson Yards approved in 2006, Branham said.
Real estate companies pitching the new administration would be wise to highlight the affordable-housing component of their plans, said Spinola of the Real Estate Board.
“The private sector will have to make a pitch and emphasize what the new administration cares about,” Spinola said. “They’ll have to reach an agreement. Otherwise, there won’t be help for people who want to build and there won’t be any projects to be built.”
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