Among the cascade of bills likely to pass through the State Legislature as its session ends next week is a substantial reform to the city’s largest subsidy program for commercial property, a change worth hundreds of millions of taxpayer dollars that the Bloomberg administration is pushing relatively quietly.
But the planned reforms to the tax break, the Industrial and Commercial Incentive Program, represent a far more modest overhaul than the city itself recommended in a draft internal study last year, when it called for changes that would save hundreds of millions of dollars more than the alterations now being proposed.
City officials call their approach to the legislation, which would save an estimated $200 million over 10 years, “incremental.”
The program, known as ICIP, is widely considered to be an inefficient form of city investment as currently structured. Some of the city’s most valuable buildings in desirable locations—such as the MetLife Building at 200 Park Avenue—have received the tax break, as has retail development citywide that likely would have happened regardless.
The internal study last year found that over a 25-year term of the existing subsidies, the city will suffer a loss of $1.1 billion, a number that compares the cost of the program with new taxes generated by it.
Indeed, the study found that the vast majority of the tax breaks has gone to projects that the city determined would have occurred regardless of whether they received the break, termed “not induced.” Of the $3.4 billion or so in benefits awarded through ICIP, $2.8 billion were found by the study to be “not induced.” That finding runs counter to the spirit of development subsidies, which are meant to provide the needed spark to developers who would ordinarily leave their properties untouched.
With the amount of money going toward ICIP exploding amid the soaring real estate market of recent years—the city dedicated $409.5 million to the program last year compared with $111.9 million a decade earlier—calls have grown for changes.
“[T]ax subsidies provided under ICIP have become badly disconnected from this core policy rationale, and New York City’s taxpayers are paying the price,” said a report released last month by Manhattan Borough President Scott Stringer.
The Bloomberg administration seems to have been relatively quiet in its approach to engaging in reforms of the program, perhaps due to the political intricacies of getting the legislation passed. Despite a general penchant for excoriating governmental waste, the city never released the report publicly, as the president of the city’s Economic Development Corporation, Seth Pinsky, said it is still considered a draft.
LAST YEAR, LATE in the session, a bill was introduced in the Legislature to reform ICIP, though it failed to advance, meeting resistance from the real estate industry, which tends to wield great sway among legislators.
In the past year, the city has engaged the industry’s main advocacy group, the Real Estate Board of New York, as well as other business groups involved, to create a compromise bill.
Contrary to the recommendations in the city’s report, the changes to the existing law do not represent a sweeping overhaul of ICIP. The changes leave in place most of its existing functions while scaling back the level and extent of many of the tax breaks.