Rochester Looks to Renew 485-a Tax Break Before Critics Take Office

Last week, progressives suffered a major blow in Buffalo, where incumbent mayor Byron Brown defeated socialist organizer India Walton in the mayoral race. But in nearby Rochester, election results marked a distinctive turn to the left, with racial and economic justice organizers Stanley Martin and Kim Smith elected to the nine-member city council and Working Families Party-endorsed councilmember Malik Evans elected mayor.

Local housing organizers have pinned their hopes on the new city government to pass a raft of housing reforms, including good cause eviction, rent stabilization, and the elimination of a little-known tax incentive program for developers known as 485-a. The state law, first passed in 2002, lets cities opt in to a program that allows developers to write off taxes for projects that convert commercial buildings to “mixed use.” About a dozen upstate cities currently participate in 485-a, also known as the Residential-Commercial Urban Exemption Program (CUE).

Supporters of the program—a lesser-known cousin of the 421-a tax break, which applies only in New York City, and which will likely be the subject of fierce debate when it expires next June—say that it provides incentives for developers to convert underused commercial space into needed housing, while critics claim it functions as little more than a handout to luxury developers.

The way the 485-a tax break works is that developers who convert commercial buildings are allowed to pay taxes based on the assessed value of the property before the conversion, rather than the value after the conversion, which is generally much higher. For instance, The Linc—a former bank building converted into apartments, with amenities including a gym and dog washing station—is due to pay just $67,000 in taxes this year, according to city property tax records, when its full tax bill based on the building’s current value would be nearly half a million dollars.

Rochester began participating in the program in 2003 and has renewed its participation every three years, most recently at the end of 2018. The city’s version is due to expire next month, and tenant groups were eager to see it lapse.

But outgoing Rochester Mayor Lovely Warren has other plans. Warren, who is set to step down on December 1 as part of a plea deal over a range of charges including campaign finance violations, submitted a bill to the city council in late October that would renew the 485-a tax break for three more years, until the end of 2024. That bill moved out of committee last Thursday, and is scheduled for a full council vote tomorrow.

Opponents of the 485-a program are crying foul.

“I wasn’t expecting it,” Rochester city councilmember Mary Lupien, who plans to vote against the renewal, told New York Focus. “The tenant union has been asking the city council for two and a half years to stop authorizing this tax break. … I would have thought that given the advocacy around this issue, we would have had a little bit more conversation on it before we were voting.”

Ritti Singh, spokesperson for the City-Wide Tenants Union of Rochester, said that the last two 485-a renewals, in 2015 and 2018, were passed in December, just as the program was expiring, so the earlier vote caught many by surprise.

“It really seems like this is…a last hurrah before Mayor Warren resigns,” Singh said.

Once a development project is approved for 485-a, the tax breaks last twelve years—meaning that if the program is renewed now, it could shape Rochester’s housing market for the next decade.

“If someone applies and they get this tax break in 2024, that’s tax breaks that are going to last until 2036,” Singh said.

Had the issue been left until after Warren’s resignation, Singh said, tenant organizers felt confident that the council would have waited for the incoming city government before voting on 485-a’s renewal—and that the new government, with its newly elected progressives, would have let the program expire.

Mayor Warren’s office did not respond to requests for comment. 

In an October 21 letter to the city council, she credited the 485-a program subsidies with attracting investment and creating new housing in downtown Rochester.

“The 29 projects that are currently or formerly enrolled have resulted in an investment of more than $100 Million and the creation of 685 housing units in the Center City,” Warren wrote. 

According to the Rochester Downtown Development Corporation, the neighborhood’s population has more than doubled since 2003, the first year that the city participated in the 485-a program. 

Matthew Drouin, a real-estate developer with OakGrove Development, said the tax break has been instrumental in creating new housing in Rochester’s downtown.

The 485-a program “actually creates the incentive to create housing units,” Drouin told New York Focus. “In my experience with working for a development company, there’s several projects that we looked at that if it wasn’t for this program, they wouldn’t have gotten done. And these were all vacant buildings.”

‘Driver of Displacement’

Tenant organizers say that 485-a has left the city’s less affluent neighborhoods behind and deepened housing instability among working-class residents.

“It’s a major driver of displacement in our communities,” Singh said. 

She points to 485-a’s biggest beneficiary in Rochester, a former bank tower now home to 88 apartments, where rents for a two-bedroom apartment reach as high as $3,650. (The U.S. Department of Housing and Urban Development puts the fair market rent for a two-bedroom in the Rochester area at $1,006, but even that amount would barely be affordable to most residents of the city proper, where the median household income is less than $38,000, according to Census data.)

Rising rents in the center of town, housing analysts say, ripple outwards towards poorer neighborhoods, as renters and home buyers seek more affordable places to live.

“This increased demand leads to higher prices there, pushing families with the lowest incomes out even further from the urban core, from employment opportunities, and often from the neighborhoods where they have lived for generations,” wrote Robert Galbraith, research analyst at the left-leaning Public Accountability Initiative, in a 2018 report on the effects of 485-a in Buffalo.

Drouin, the developer, counters that adding high-end housing actually decreases the pressure on the surrounding neighborhoods, because young professionals can find the apartments they’re looking for downtown, rather than outbidding lower-income tenants in the existing housing market.

Critics of 485-a also worry that exemptions for major developers shift the city’s tax burden onto smaller landlords and homeowners less able to afford it.

A New York Focus analysis of property tax records for the 29 Rochester developments that have received 485-a exemptions found that they will cost the city at least $1.8 million in foregone taxes this year and could add up to more than $20 million by the time the last of the current exemptions expire. (The mayor’s office did not respond to New York Focus’s request for this figure.)

“The city has bills, and the bills have to get paid,” said Elizabeth McGriff, a homeowner in Rochester’s gentrifying 14609 district and an organizer with Singh at the City-Wide Tenants Union. “In order to pay those bills, they use the taxes of individuals that are in the community.”

McGriff, who got involved with the housing movement while successfully resisting foreclosure and multiple evictions after the 2008 financial crisis, said the assessed value of her home has nearly doubled in the twenty years she’s lived there, and taxes have risen with it.

Shirley and James Thompson have seen a similar pattern. The Thompsons, like McGriff, are Black homeowners living in a long-neglected neighborhood — in their case, a section of the city’s north side known for its high rates of poverty and gun violence. They rank among the relatively few Black homeowners in a city that has one of the biggest gaps between Black and white homeownership rates in the country. And they, too, have seen their property taxes rise, adding more than $200 to their annual bill in just the last year.

The increase hasn’t been a major burden for the Thompsons, who are both retired from stable jobs in the care sector. But for others, rising property taxes are one expense too many, putting them at risk of losing their homes. Local news station WHAM recently reported that 149 homes in the city face tax liens, meaning they could be sold to a debt collector and seized. (Rochester indefinitely suspended tax lien sales in 2020.)

Small and mid-sized landlords are also feeling the squeeze. Rich Tyson, a Rochester native who took up real-estate investing after leaving the Navy and bought 37 rental properties across the city, has over the last year sold nearly all of them off again—in part because he could no longer afford the taxes.

Tyson above all blames the state’s eviction moratorium, which he says has allowed some tenants to stop paying rent without justification. But he shares housing organizers’ sense that tax breaks like 485-a are unfair and put smaller landlords at a disadvantage.

“These guys that probably already have the funding to do the development, they’re getting the tax breaks… [while] the guys like myself, that are getting hammered right now, can’t get any relief,” Tyson told New York Focus.

Tyson calls the downtown developments “tenant-protection proof,” in contrast to the homes he invested in, which he said cater overwhelmingly to low-income tenants. Of the thirty properties he has sold off in the last year, all but four have been snapped up by absentee investors, including large firms from out of state.

Proposed Reforms

In an apparent concession to critics, Mayor Warren’s bid to renew 485-a in Rochester includes two reforms. The first would require new developments under the program to set aside 20 percent of the new units for residents making below 60 percent of the area median income (AMI). The second amendment would submit 485-a projects to the same targets for participation from minority- and women-owned contractors as public works in the city. The two new requirements would come in addition to reforms of 485-a passed at the state level last year, which tightened the program’s rules after developers in multiple cities were found to be flouting its requirements.

Critics say the changes fall far short of what would be needed to justify renewing 485-a.

“First of all, we’re still subsidizing 80 percent luxury housing, and the 20 percent [of apartments] at 60 percent AMI are still not affordable,” said Lupien, the councilmember. “The apartments that we need to house the people that currently live in our city are more around 30 to 50 percent of AMI. Nobody’s subsidizing those landlords to make their apartments habitable at that income range.”

Rochester does have housing available for its lowest-income residents, Lupien added, “but you wouldn’t want your worst enemy to live there.”

Singh points to the recently passed Housing Our Neighbors with Dignity Act as a better way to promote the conversion of commercial properties into permanently affordable housing. More broadly, tenant organizers would like to see the next city government pursue a vision of “development without displacement,” channeling funding towards initiatives like community land trusts.

The city already has one land trust, City Roots, which grew out of McGriff and her neighbors’ years-long campaign to keep her in her home. Since 2016, the trust has grown to include 16 homes, in some cases involving major renovations.

Shirley Thompson would like to see the model spread.

“We have so many abandoned homes in the city,” she said. “It would do wonders for our neighborhood and others to have those developed and made affordable.”