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Whatever Replaces 421a Must be Fair for All Workers

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The tax breaks within 421a, which expired in 2022, drove decades of construction funding. Whatever replaces it must be fair to all workers and businesses, and not a handout to bad actors.

New York legislators allowed the tax abatement provision known as 421a to expire in 2022. It had incentivized developers to build more housing in the city, and nothing has taken its place. As a result, much construction funding in the city is halted while powerful groups grapple over how to fill the gap it left.

What Was 421a?

The provision, established five decades ago, gave a large tax break to developers to encourage them to build affordable housing in the city. To get the tax break developers had to add a percentage of affordable units to their project, which meant that rent for those units could not exceed 30 percent of the expected household’s income.

When their projects met the 421a criteria, developers received a tax abatement on the entire property. According to NYC real estate tax lawyer Jeffrey Golkin, the tax break worked like this: “After construction, you get 100% tax exemption on property taxes for two years, then it goes to 80, 80, 60, 60, 40, 40, 20, 20, and so on until the end of the term.” 

It is estimated that thousands of buildings in New York have gone up under the 421a tax abatement provision. That’s a huge savings in New York City tax payments for property owners. So it’s understandable developers would want a replacement program.

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Non-union contractors who illegally schemed to rig the bidding process in their favor are led into a ploice van after their arrest. Trade leaders in New York believe some of the plans in REBNY's 421a replacement proposal will empower some bad actors such as these and perpetuate the negative impact they have on the industry.

A Proposal: An Average that is Below Scale

In December 2023 the Real Estate Board of New York, (REBNY) proposed a 421a replacement that included a wage standardization for construction workers on these projects. REBNY proposed applying an aggregate average wage rate for every person working on the job that would be 30% below the current prevailing wage (prevailing wage is an hourly payment standard established by the state Labor Commissioner who largely bases that figure on union standards found in current Project Labor Agreements). 

REBNY’s aggregate average wage rate would require each project to track, monitor, and enforce a pay standard across multiple trades, employers, unions and more — a requirement that trade leaders and the state Comptroller’s office agree is untenable.

Furthermore, the plan to average out the pay will once again give an advantage to the unprincipled contractors who are known for labor exploitation, wage suppression, and providing inadequate healthcare coverage to their employees. Empowering these unethical managers perpetuates their outsized negative impact on the industry. 

A Minimum Wage

Another element of REBNY’s pay proposal is to set a minimum hourly pay rate for the workforce. A number of city trade leaders have expressed concern that if the pay floor is set too low, a contractor could load up on lower-wage staff to achieve the overall aggregate average wage rate (see the contractor abuses described above).

Trade leaders say that the construction industry and its workers would benefit from a wage floor set around a proposed $72.45/hour aggregate wage. This floor should also make exceptions to accommodate collectively bargained wage rates and apprentice rates. These exceptions allow for adjustments based on specific project needs and negotiated agreements, adding necessary flexibility to a project's cost structure.

For example, one wage floor exception would be on the use of apprentices from licensed training programs. These positions likely have collectively bargained rates that will be lower than a proposed wage floor. The lower apprentice rates would be allowed in this rule exception, and provide union-quality oversight with real cost flexibility.

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Without tighter definition of how jobs and wages are assigned, old biases are likely to affect certain groups based on arbitrary measures.

Built-In Discrimination

There’s another concern the trades have with the aggregate average wage rate. By imposing this standard, there will be workers earning above that average and those who earn below it. As REBNY’s pay stipulations have no word regarding merit, this system is likely to lead to discrimination as owners and developers make subjective decisions about which groups get the above-average wages and which get the lower pay. It’s a system that, no matter how inadvertently, will perpetuate biases and inequalities within the workforce, as certain groups are sure to be unfairly disadvantaged based on arbitrary criteria.

The Overly Limited Construction Zone

The REBNY plan also limits consideration for the 421a replacement projects to those that occur in Manhattan below 96th Street, and that have more than 250 units. This area is noted as “Zone A”.  There are no Zone A considerations in the Bronx or Staten Island. And the only projects in Brooklyn and Queens that would be covered are the Community Board projects 1 & 2 in both boroughs where REBNY’s proposed average aggregate site wage would be even lower than what they’ve proposed for Manhattan.

The trade leaders counter that important civic projects such as the Jamaica Neighborhood Plan (Queens) and the Metro North Stations rezoning (Bronx) hold immense potential to reshape and enhance communities through the introduction of new housing units and infrastructure improvements — which are the precise goals of 421a.

By omitting these areas from consideration in the 421a resolution, we risk exacerbating issues of labor exploitation and the proliferation of construction sweatshops in taxpayer-abated real estate development. 

The plan to average out the pay will once again give an advantage to the unprincipled contractors who are known for labor exploitation.

Any Plan Needs More Enforcement and Transparency

The key to success for any replacement of 421a is proper transparency and enforcement of the rules. The plan needs broad agreement on clear and effective reporting obligations, enforcement mechanisms, and penalties for cheating. For example, if there is a minimum wage and an average aggregate wage, developers must maintain records to show that these standards are being met throughout the life of the project. Payroll records must therefore be openly reported to the Comptroller. 

This is a level of transparency that has been difficult to achieve in the past. Trade leaders want significant penalties for non-compliance and failure to report. It’s a simple premise most of us learned in the elementary school playground. If there are rules to this game, they apply to everyone. 

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