City Commercial Tax Incentives Face Increased Scrutiny
Recent changes and developments, both legislatively and with respect to New York City policy, could substantially impact certain commercial real estate tax incentive programs. These developments will make obtaining and retaining these tax incentives more difficult for taxpayers and will serve to increase City revenues at commercial taxpayers’ expense.
New York State’s Industrial Commercial Abatement Program (“ICAP”) and its predecessor the Industrial Commercial Incentive Program (“ICIP”) provide reductions of a portion of real estate taxes for up to 25 years for qualifying commercial properties. In order to qualify, industrial or commercial properties need to be physically altered, expanded or improved. In some cases, newly constructed properties qualify as well. There are a variety of additional requirements for a property to qualify for
and retain the benefits, however, properties that do qualify can potentially enjoy substantial real estate tax savings.
The current administration has frequently called for reforming ICAP in various ways to make the benefits less generous, in the hopes of providing the City with additional tax revenue. The entire Program was set to expire in 2022, and while the State’s recently enacted budget extended the program
through 2025, there were some changes made to the Program that may in fact increase City tax revenues.
Specifically, the new Program makes previously eligible self-storage facilities ineligible for ICAP benefits. Any self-storage facilities that qualified for ICAP by July 1, 2020 would be grandfathered into the Program, however, going forward, self-storage would no longer be considered industrial or commercial for ICAP purposes. While eliminating these benefits might increase short term property tax revenues, it may also result in fewer such facilities being developed, creating a potentially long-term
loss of revenue. Fewer transactions of land for development, may also cost the City and State other forms of tax revenue (i.e. transfer tax, income tax, etc.). One self-storage developer has already sued the City, stating that five of its planned projects could not meet the July 1 deadline and are no longer viable without ICAP benefits.
The City has also recently started enforcing long-ignored statutes to rescind benefits that properties currently receive under ICIP. At the end of 2019, the City Department of Finance (“DOF”) began sending notices to owners receiving ICIP benefits stating that if they did not cure all violations on their property by April 15, 2020, their ICIP benefits would be suspended, beginning with the July 1, 2020 tax bill. The notices stated that, for a property to continue receiving ICIP benefits the property must be free of violations enumerated in section 11-266 of the New York City Administrative Code. Those include various provisions of the building, fire and air pollution control codes. Under the Administrative Code, an owner has 180 days from receipt of the notice to cure the violations.
While incentivizing owners to cure building violations is admirable, the City’s planned enforcement has created some potential problems. First, the Code contemplates removal of benefits only given the existence of specific violations. However, notices of revocation have been sent to owners of building with any violations on them, not just those specifically enumerated. Notices were also not limited to owners whose violations had been adjudicated by a Court or the Environmental Control Board, as required by Section 11-266. Furthermore, notices have gone to owners who have no ability or even right to cure any violations. For example, some commercial condominium units receiving ICIP benefits received these revocation notices, even though the violations existing at the building relate to residential units, or other units not controlled by the owner receiving the tax breaks. Those owners would not be able to cure those violations even if they wanted to. It remains to be seen how the City
intends to deal with these nuances.
For now, beneficiaries have received a temporary reprieve from enforcement. Given the recent halt to construction projects in the City due to Covid-19, as well the limitations on the Department of Buildings to inspect properties to make sure violations have been cured, the City has recently agreed to delay its enforcement policy until December, 2020. However, the eventual planned enforcement remains in place, and owners should take this time to review, and plan to cure, existing violations in
order to continue receiving ICIP tax benefits.
Commercial real estate tax incentive programs have been under increased scrutiny, particularly following last year’s development deal involving Amazon that fell though, in part, due to opposition to the tax incentives Amazon would have received. With the City currently in dire need of tax revenues, owners can expect further scrutiny and policy changes like those highlighted above.
