Subsidies and Corruption in New York

The leaders of both chambers of the New York State Legislature have been indicted on criminal charges, accused of using their power and influence to improperly assist major real estate developers. That assistance turns out to revolve around a controversial subsidy program known as 421-a.

Former Assembly speaker Sheldon Silver is accused of masterminding a fraudulent scheme whereby he arranged for a large real estate developer with significant interests in legislation that “created and maintained certain governmental programs, subsidies, and tax incentives” to direct business to a particular real estate law firm. In exchange, Silver allegedly received hundreds of thousands of dollars of kickbacks from the law firm disguised as “referral fees.”

In the indictment against Dean Skelos, prosecutors are charging that the former Senate Majority Leader used his position of influence to arrange for payments by a prominent real estate developer to his son for work he did not do. In exchange, Skelos took positions on key legislative issues that were favorable to the developer who had lobbied extensively for them.

It is widely known that the legislative issues at play in both indictments center on the 421-a subsidy program, which is explicitly mentioned in the Skelos complaint.

421-a, a section of New York State’s real property tax law, was originally developed to encourage residential development in New York City during the 1970s to prevent the loss of residents to the suburbs. For the owners of newly constructed residential real estate,   the program provides an exemption from paying the increase of the property tax that results from the development. Depending on a building’s location and the length of the exemption, a percentage of the new units are supposed to be made affordable to low- or moderate-income families. While the program provides an enormous benefit to residential developers, ultimately very little of the abatement actually goes towards creating affordable housing. According to a report by the Community Service Society, 421-a costs the city over $1 billion a year in tax expenditures, yet produces “well under 14 cents of affordable housing investment for every dollar of tax subsidies.”

Recent articles in the New York Daily News and The New York Times describe the political maneuvering of a 421-a beneficiary called Glenwood Management. Glenwood, the second largest political donor to state-level candidates in 2013, hired an army of lobbyists to gain access to elected officials who influence decisions regarding the future of the 421-a program. Nine of Glenwood’s luxury residential buildings in Manhattan have been awarded over $700 million in property tax exemptions through 421-a.

Government reform advocates in New York have forcefully called out 421-a for its role as the “epicenter of political corruption” and are urging the Governor and Legislature to fix it. Whatever its future, it is clear that without careful oversight and meaningful benchmarks, this subsidy falls far short of benefitting the taxpayers it was intended to serve.