Despite de Blasio's vow, "notorious" construction tax break proceeds as usual

As a candidate, New York City Mayor Bill de Blasio said he would eliminate a tax break with “notoriously weak payoffs” called the Industrial and Commercial Abatement Program.

Despite reforms unveiled in 2008 that curtailed ICAP’s use in Manhattan and limited retail projects’ eligibility, de Blasio said in 2013 that the initiative was still struggling to successfully target industrial firms in the boroughs. He said ICAP remained too Manhattan-centric and benefited hotels, retail and other projects that did not need assistance to flourish. And he claimed it was on track to authorize $250 million in forgone tax revenue annually.

Now two years into his term, de Blasio’s office says it is studying the abatement and will put forth suggested improvements next year. City Council Speaker Melissa Mark-Viverito has convened a task force to examine ways to evaluate economic development programs, including ICAP. And while these evaluations are underway, projects that do not hinge on obtaining the abatement are progressing through the program’s application process as usual.

After all, ICAP – which promotes building and revamping commercial and industrial sites by agreeing not to tax some of the increase in property value generated by such work – is an as-of-right benefit. Such benefits are available to all applicants that meet specific criteria, unlike business incentives, which are administered at the discretion of a board. The initiative grew out of the Industrial and Commercial Incentive Program, which was created in the 1980s to spur construction when the city was less attractive to developers.

The study for the mayor’s office, being conducted by the city Economic Development Corporation, is focusing on whether ICAP and other incentives are encouraging the behaviors they are meant to promote, are accessible to the proper parties, and are aligned with the administration’s policy goals. The administration hopes to have recommendations to act upon next year, according to de Blasio spokesman Wiley Norvell. The state government, however, has ultimate authority over ICAP. And without renewal in Albany, new applicants will no longer be accepted to ICAP in 2019, according to the city Economic Development Corporation.

But as the study continues, de Blasio’s administration is not shying away from using ICAP. The Economic Development Corporation issued a request for proposals last month encouraging those seeking to transform a site near Union Square into a tech hub to consider ICAP. And at a groundbreaking ceremony for the Brooklyn Health Center in March, de Blasio saluted the New York Hotel and Motel Trades Council’s plan to take advantage of ICAP to build the $100 million facility that will include the medical center, retail and commercial space. John Turchiano, a spokesman for the union, said the health center’s construction was not contingent on receiving ICAP benefits, for which it has received a three-year conditional approval; the union hired Skanska USA, a construction giant, to manage the all-union construction project before even filing preliminary ICAP paperwork. (Skanska has since been soliciting three bids from minority- and women-owned businesses for each component of the project subcontracted out, as is required of large ICAP recipients. Compliance reports show Skanska requested bids from 56 MWBE firms and awarded subcontracts to four, the city said.)

Meanwhile, the abatement has become a focal point of the City Council’s task force on economic incentives. The group is developing an evaluation system to review various business incentives and conducting a trial run of the evaluation on ICAP. “It is important to keep these programs working their best,” City Council Finance Committee Chairwoman and task force member Julissa Ferreras-Copeland said in a statement. “The task force is developing a process for continuous review of the effectiveness of ICAP and other similar tax breaks, which will help us to make these programs more efficient going forward.” It is unclear if the task force is on schedule to release a report by 2016, as was its initial goal. A spokeswoman said Mark-Viverito views industrial and commercial development as “critical” to the economy and described the task force as “a first step in strengthening the council’s ability to conduct its charter-mandated role of effective and meaningful oversight of these tax breaks.”

Keeping the benefit from going to banks, retail and other businesses that do not rely on ICAP may make sense, according to Jonathan Bowles, executive director of the think tank Center for an Urban Future and a member of the task force.

“They make their decision not on incentives, but on where the market is, and so a lot of times those kind of businesses that are getting ICAP were just getting extra benefits,” Bowles said. “ICAP and its predecessor, ICIP, have been as-of-right for so long that I think that some people do just expect it. In some parts of the city and in some industries, incentives continue to make sense to stimulate development and investment by business. But as the city changes and as the market expands well beyond Manhattan, it’s totally worth raising the question of whether the same incentives that existed 15 years ago need to exist today.

For all the concerns voiced by de Blasio as a mayoral contender, ICAP does not yet appear to be as costly or controversial as anticipated. The benefit came under scrutiny when the city Economic Development Corporation found in 2007 that more than 75 percent of ICIP recipients, which collectively received $2.8 billion in tax breaks, would have been viable without the subsidy. Soon there were reports of fast food restaurants, gas stations, established Manhattan department stores and even strip clubs receiving the abatement. In 2011, the watchdog group Good Jobs New York called it “the most expensive economic development subsidy” in the city.

Last fiscal year, however, ICAP projects collectively amounted to $14.3 million in forgone tax revenue – far less than the $250 million figure de Blasio forecasted as a candidate. In comparison, the Chrysler Building received $21.9 million in tax benefits that year, and 1,285 property owners in a solar electric generating system abatement program collectively saved $3 million. ICAP’s value, however, is expected to grow as it adds applicants. And last fiscal year, 9 percent of the 302 ICAP abatements were for Manhattan properties, compared with 10 percent of ICIP recipients. 

Data published by the city does not clearly delineate what sorts of projects are getting ICAP benefits or list addresses. But it is no longer as economically viable to use the incentive for renovation work, according to real estate lawyer Robert Altman, who previously worked for the City Council. Altman said he advises about one-third of clients against seeking the benefit through renovation work, unlike under ICIP, when it consistently paid to do so. Altman said he would like to see benefits for manufacturers enhanced. And he disputed the idea that it was not worth shoring up retail in an area traditionally viewed as “under-retailed,” or bolstering the hospitality industry, especially now that the euro’s decline could impact tourist traffic. 

“New York City, unlike a lot of other cities, has been constantly able to reinvent itself,” Altman said. “Why do you think that is? We encourage enough development to be able to be flexible, to reinvent ourselves, and we do that through these as-of-right economic development programs. … I’m not adverse to tweaking … but you eliminate it at your peril.” 

Seth Pinsky, who helped craft the ICAP while leading the city Economic Development Corporation and now sits on the council’s task force, also described the abatement as an important tool for promoting industrial jobs and wages for an administration concerned with alleviating rent burdens. As much as the administration belabors the ICAP formula, Pinsky said, it will never be possible to craft as-of-right benefits that account for every future market trend.

“You only have the advantage of understanding the situation in which you live, in the time you’re looking at it,” Pinsky said. “And the one inevitability is that those conditions are going to change, and so your perfectly calibrated program will probably be un-calibrated within a short period of time.”