Real impact of 421-a changes.

On December 28, 2006, Mayor Michael Bloomberg signed Intro 486-A (the "Act"), which was passed by the New York City Council on December 20.

The Act proposes to amend Article 11 of the Administrative Code of the City of New York. The proposed changes will not be effective until January 1, 2008, at the earliest. Furthermore, the Act cannot become effective unless and until the New York State Legislature passes analogous changes to Section 421-a of the Real Property Tax Law. If the state enacts these changes, the 421-a tax abatement program will be changed significantly. Here is a summary of some of the major changes to the 421-a program.

1. The Act significantly expands the "exclusion area" inside of which projects seeking 421-a tax abatement must make a minimum of 20 percent of the total number of residential units affordable to families earning a maximum of 80 percent of the Area Median Income ("AMI"). The exclusion area would include Manhattan south of 136th Street and west of 5th Avenue, as well as south of 117th Street in far East Harlem and an area between 124th and 126th streets in Central/East Harlem.

It would also cover Downtown Brooklyn, Carroll Gardens, Cobble Hill, Boerum Hill and Park Slope; most of Fort Greene, Prospect Heights, Williamsburg and Greenpoint and parts of Sunset Park and Bushwick, as well as parts of Queens. The boundaries of the exclusion area would be reconsidered every two years in light of housing market trends by a "boundary review commission" made up of the commissioners of various city agencies and other members selected by the speaker of the City Council.

2. The affordable units required for benefited projects in the exclusion area would, for the first time in the history of the 421-a program, have to be included in each building and could not be built elsewhere in the city. The changes also limit the to 5% the number (of total units) of the affordable units that can be rented to households making 60% to 80% of AMI; the remainder of the affordable units would have to be affordable to families with incomes below 60% of AMI.

3. The new requirement that affordable units be built onsite necessarily eliminates the 421-a negotiable certificate program. However, the Act allows the New York City Department of Housing, Preservation and Development (HPD) to continue to enter into agreements for negotiable certificates until December 31, 2007.

4. There would be a cap on the size of tax benefits given for buildings outside the exclusion area that do not include the affordable units. The Act limits the total tax break for market-rate apartments, so buildings with average apartment prices of more than $650,000 will receive abatements for no more than the first $650,000.

5. The Act would also create a trust fund to be allocated to developments providing low-priced and moderately priced housing. It has been estimated that the fund will amount to $400 million. The fund will be available only to neighborhoods outside the exclusion area and the city's fifteen poorest neighborhoods will receive priority for allocations.

6. HPD is authorized to promulgate regulations to further carry out the purposes of the statute, which Inay include rules concerning union or other employment requirements for benefited projects.

By Arlo Chase, Nixon Peabody LLP, associate,

& John Kelly, Nixon PEABODY LLP, partner