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Incentives to end: then what?

Incentives to end: Then what?

While the administration attempts to draft new legislation, owners are facing the demise of New York City's principle incentive program for commercial real estate when the current statute expires on Dec. 31.

Some people believe, with time so short, the Industrial and Commercial Incentive Program (ICIP) should be extended as it is now, however, a reformulated program could be passed next year and become effective retroactively to Jan. 1.

The mayor and the council have been working together to come forward with a bill that will be acceptable to all parties, said one Council source. "This is not simply an extender; there will be changes," he said. "Part of it is also dependent on when Albany is back in session. If they're not there, there is no reason to rush."

Property owners and attorneys are now faced with the dilemma of trying to complete pending applications or wait and see what benefits a new program will bring.

"From a practitioner's standpoint", said attorney Michael Caretnay Bailkin, a partner in Stadtmauer Bailkin Levine & Masyr, "what do you do with your current applications?" The lack of definite guidelines raises a number of serious issues, Baiken said. "If you wait to file, do you lose your vesting? You have to file before you give building plans. What if you file under the old law and the law changes and has new incentives?"

The Council source said "Nobody is going to file for this type of work if they know they are going to get a better benefit or any benefit at all."

A spokesperson for the state Assembly said the retroactively would be a way of keeping the program alive "in some kind of suspended animation. "Hold it there, freeze the money, and once we pass the law we can make it retroactive to when the former program expired," said the spokesperson.

Bailkin believes it will be very important that the new law contains a "grandfather" clause so that applicants have a choice. He also suggested a "most favored nation" clause, at least for those applications made since August when the continuance of the ICIP program became an uncertainty. Therefore, if the new law is more favorable, the filing this year would not prevent a refiling under the new guidelines, Bailkin explained that people who filed prior to August intended to build and were not thrown off by the uncertainty as were more recent filers.

A source within city government said Finance is going through a rule making process now to deal with the problem of the ICIP sunset. The people involved in the process, expect Finance to promulgate a rule that will vest ICIP benefits for any applicant who has his or her application in by Dec. 31, as well as their building permit filed. If the two are in then the rule will protect those applicants by "grandfathering". The building permit is the basis for evaluating whether the befit applicant complies with the ICIP regulations.

The Council source would only say "everything has been considered." The ICIP began in 1984 and has provided over 10,000 jobs though the 1,100 projects that were approved and are realizing benefits. These benefits include up to 22 years of deferred real estate taxes in certain areas of the city targeted for economic development. Currently, over 1,500 applications are pending and sources indicated they are just "sitting on them."

"It's going to cause a great deal of hardship on the applicants," said one Finance official who asked not to be named. "There are buildings which have not made plans," the person noted. "What is the status of the applications that have already been finally approved and did not intend to build so fast?"

Bailkin has a number of clients with applications pending and said each one will require careful consideration. "There are a number of different options," he said, "and they vary case-by-case. Do you hold off filing in anticipation that a new bill will come in? File with caveats in the application? There is a real uncertainty because nobody knows what form of bill will be passed."

Some people, including Bailkin, have been urging the administration to extend the ICIP as it now exists for a period of one year, both to give them time a study options and create a level of certainty.

It does not look as though that will be the case. Although there still remain some issues to be hammered out in the coming weeks, the Council source said he did not see the negotiations as being protracted. "It has been given high priority status and we're moving toward a resolution," he said.

All Incentives Being Studied

Arthur Levitt, Jr., who was appointed to chair the Mayor's Management Advisory Task Force Committee on Incentives and Tax Policy, is gearing up to study, as he emphasized, "all incentives, not just the ICIP.

"My hope is that (the ICIP) won't expire," Levitt said, "and that there will be a mechanism for extending it." Levitt said he thought the mayor and Sally Hernandez-Pinero, the deputy mayor for Economic Development, would be working on something.

That |something' is what is frightening owners who are unsure as to what will become of their plans. Pinero's office spokesperson refused to make any comment on the issue, which she deemed too controversial.

At the time of Levitt's appointment, said one City Council insider who also asked not to be quoted, "the Mayor did not want the ICIP to live. They were dragging their feet on it." Should the ICIP expire, the insider said, the deputy mayor's office would become a place of great power where developers would have to cut individual deals.

Other administration officials said the deputy mayor wants the ICIP program and is caught in the middle. She and other aides are working hard on the legislation and are being pressured from all sides. They submitted the latest draft to the City Council last Thursday.

The City Council would need to review any mayoral proposal in its Economic Development Committee headed by the Councilman Jerome X. O'Donovan, a Staten Island democrat, who was re-elected handily.

O'Donovan said the Council supports the ICIP. "We want a bill and we want it to look something like the bill we have now," he said. He believes that even in a time of recession or a time of economic boom, tax breaks should be given to send a message that people should stay in New York and come to New York because the city is willing to promote business.

"There are people, like the mayor's administration and other politicians, who believe that the people who can afford to pay taxes, in other words, the businesses should pay because we need the money," explained O'Donovan. "That is not right. We need to support the businesses."

O'Donovan said he feels confident about the ICIP legislation. "I am moving on it, Peter Vallone wants it and so does the mayor's people." The legislature, he said, is ready for it.

The bill would go through the state committee process and be signed off on by both houses of the state legislature before the governor signs it. The legislature is not even in session and if called into special session is expected to be focusing on the state budget. Sources report the city has been told nothing will happen on any ICIP legislation in Albany until February, which is why they are considering retroactivity.

"Our people have not received a proposal and we have one to act on it," said the Assembly spokesperson. "It's in their court."

The City Council has made clear they were ready to work on the ICIP last September and, while it received oral testimony from mayoral representatives and other parties in October, the administration said then they needed more time to look at it.

At that time, many speakers encouraged the extension of the current program as well as calling for its expansion into new geographic areas, including Downtown Manhattan.

A Council official, who asked not to be named, said he has seen the latest draft and, while there are still issues to be worked out, he believes it is moving forward.

"Real estate interests in the boroughs don't want the ICIP extended below 96th Street in any form," explained the Council source. "The Real Estate Board and others do. No matter what goes on, everybody will not be happy. If you change it, somebody will be unhappy. That was the part of the initial hesitation on the mayor's part."

Meanwhile, Levitt is to be meeting with incentive experts later this month. Surveys will also be going out to the recipients of all different types of benefit programs to help the committee with its research and to determine what works.

"We will have our recommendation ready shortly after the first of the year," Levitt said. A time that will be too late for some ICIP applicants, and not soon enough for others. It is not expected that legislation on incentives will come from Levitt's proposals until later in the year, if at all.

"If you come in with a totally new program [without knowing what it will be in advance] it will be confusing," Bailkin explained. "We will be forced to make some hard choices in the next week or two."

"We've pushed the administration to get the legislation through and put them in a corner," said Tom Butler, a spokesperson from the City Council. "We want this bill to be for four years."

"The bill will be different, he said, in that it will contain the old measures, which have to be readopted. "But there will be a few changes that are being negotiated," he said. "It will not cost more, but it brings in new business." Butler said the city needs to increase business and it" cannot have no economic development plan in these tough recessional times."

"There continues to be a dispute over drawing the boundaries in the future years," explained Steven Spinola, president of the Real Estate Board of New York. "This is a jurisdictional dispute between the Mayor and the Council, which is a dealbreaker."

Spinola said the line for benefits has gone up to 42nd Street, from the initial proposal of 33rd Street, "but does not provide the bold economic incentive that is needed to get the economy moving to supplement the tax freeze which the Major has proposed." The draft bill also provides benefits for south of 42nd Street, Spinola said, but the area for incentives between 33rd Street and 42nd Street will cover only the West Side. North of 42nd Street to 96th Street there will be no benefits. The measure will also eliminate all new construction benefits south of 96th Street.
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Title Annotation:for commercial real estate
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 20, 1991
Words:1798
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