May 05, 2017
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De Blasio Says ‘Enough is Enough’: Landlords Getting Big Tax Break Must Cap Rent Hikes

The mayor’s statement, publicizing a crackdown on owners of more than 3,000 rental buildings, is his sharpest critique yet of enforcement lapses benefiting scofflaw property owners.

By Cezary Podkul,

In his sharpest critique yet of scofflaw landlords, Mayor Bill de Blasio said on Tuesday it’s “outrageous” that thousands of New York City property owners accepted tax benefits from the city in exchange for limiting rent increases but did not live up to their obligations.

“Enough is enough. Building owners who fail to comply will lose the benefit,” de Blasio said in a press release formally announcing a large-scale enforcement program targeting more than 3,000 rental buildings. City officials first disclosed the initiative at a City Council hearing on Nov. 22.

The statement marks a change in tone for de Blasio, who had previously touted his efforts to reform the tax break, known as 421-a, as being enough to help the city’s renters, while rarely calling for closer scrutiny of landlords. It also comes as 421-a enforcement lapses face increasing criticism from local elected officials.

“If we give people free money, they will take it,” Jumaane Williams, chair of the City Council’s housing committee, said at a rally against 421-a on the steps of City Hall last week. Williams and Council Member Stephen Levin of Brooklyn have introduced legislation requiring annual audits of rental buildings receiving 421-a tax breaks. The bills have not yet been voted on.

Jumaane Williams, chair of the City Council’s housing committee, criticized 421-a enforcement lapses at a rally on Dec. 1, 2016. (Cezary Podkul/ProPublica)

Jumaane Williams, chair of the City Council’s housing committee, criticized 421-a enforcement lapses at a rally on Dec. 1, 2016. (Cezary Podkul/ProPublica)

The city’s August 2015 announcement of a smaller 421-a enforcement effort didn’t include a statement from de Blasio. But in a March press conference, the mayor did praise the resulting return of 1,800 units into rent regulation as a “striking figure.”

Since then, it’s become clear that the scope of the problem is much larger. As ProPublica reported in October, the city for years has allowed landlords to collect tax benefits under the 421-a tax program — the city’s single biggest housing subsidy — without following all of its rules.

Chief among them is a requirement to restrict rent increases. When owners fail to follow this or other requirements, they aren’t approved for the tax reductions. But, under a flawed process for awarding 421-a benefits, the city’s finance arm credited their tax bills anyway.

Our investigation found that nearly two-thirds of the almost 6,400 rental properties paying lower property taxes under 421-a did not have an approved application on file with the city’s Finance Department. Collectively, we calculated that these landlords saved about $300 million a year in property taxes without showing they qualified for the benefit. Most of the noncompliant properties had failed to register their apartments for rent limits, putting tenants at risk for overcharges.

As part of the enforcement effort announced on Tuesday, officials said they have identified 3,103 multi-family rental buildings totaling 37,141 apartments that did not even file applications for the benefit but got it anyway. The city said it is forgiving these landlords about $304 million a year in property taxes.

The owners will have 13 months to get into compliance or have their benefits revoked by the city’s housing agency “where appropriate,” the city said.

The previously announced August 2015 crackdown targeted owners who wrongly treated 421-a rental properties as condos for tax-break purposes, thus exempting them from rent limits that only apply to rental units. That effort has now led to 35 revocations of 421-a tax savings, the city said.

Erica F. Buckley, who worked on that program when she headed the real estate finance bureau at the New York State Attorney General’s Office, said Tuesday’s announcement is evidence that the city must do more to ensure landlords follow the rules.

“The city surely has the authority to question landlords who have not demonstrated compliance,” she said, “and should afford each one an opportunity to do so.”

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