Industrial Development Agencies Look to Dish Out Housing Tax Breaks

As the governor urges more housing, IDAs are looking to pitch in. Critics say it goes beyond their legal role.

Arabella Saunders and J. Dale Shoemaker   ·   December 20, 2023
Gray poster-style houses over a sepia landscape.
IDA-provided housing subsidies exist in a legal gray area, with some arguing they’re not permissible under state law. | Photo: Garrett Looker | Illustration: Maia Hibbett

Governor Kathy Hochul’s push for more housing has been interpreted by industrial development agencies as a green light to ramp up controversial tax breaks for developers.

The state’s 107 IDAs have never been explicitly authorized to subsidize housing, and some lawmakers say that’s for a reason: Housing creates few permanent jobs compared to the industrial and commercial projects the agencies were designed to support.

When IDAs do subsidize housing, it tends to be for market rate rather than affordable units. IDA subsidies in general — property, sales, and mortgage tax breaks — reduce the revenue local schools and municipalities can collect, shifting the burden to other taxpayers. That dynamic has recently sparked outcries in parts of the state.

John Kaehny, executive director of the good government group Reinvent Albany, called IDA subsidies for housing “abysmally stupid, on top of being illegal.”

“What the governor is essentially doing publicly, it appears, is pretending that she has the authority to allow … IDAs to subsidize residential housing. And that’s just simply made up,” he said.

“Are we gonna start helping middle class people buy cars next, you know, through IDA tax exemptions?”

—Sean Ryan, Senate economic development committee chair

In July, Hochul issued an executive order directing state and local agencies to “consider the goal of creating additional housing in any policy or programmatic decisions.”

Hochul does not have control over IDAs — they’re independent, local authorities — but IDA leaders, lawyers and trade groups read the order as a directive to offer subsidies to housing developers to spur construction.

“She asked every public agency, which includes IDAs, to do what you can to promote housing and it did catch a lot of people’s attention,” said Shawn Griffin, an attorney whose firm, Harris Beach, represents 30 IDAs across the state.

The New York State Economic Development Council, a trade group representing IDAs, said it has a similar understanding of the executive order. The group “saw this as a call to action by the governor,” Ryan Silva, the group’s executive director, said.

Justin Henry, a Hochul spokesperson, confirmed that the administration sees a role for IDAs in getting more housing built. Under Hochul’s $650 million “pro-housing communities” program — one of the unilateral initiatives she undertook this year after the legislature shot down her plan to double the pace of housing construction — towns and counties that build a certain amount of housing get a better shot at certain grants.

IDAs can be one tool to help them achieve those goals,” Henry said.

Henry declined to answer all other questions or make administration officials involved in the issue available for interviews.

Greg LeRoy, executive director of the subsidy watchdog group Good Jobs First, said housing subsidies in other states “don’t typically involve property or sales tax abatements, because more households mean more school students and the tax base is needed for that.”

Much of the housing IDAs support, including recent projects in Binghamton, North Tonawanda, and Williamsville, a wealthy Buffalo suburb, is market rate. The Niagara County IDA approved subsidies for four new housing projects this year alone, all of them for market rate apartments — and explicitly cited Hochul’s executive order in the decisions.

An October report by the state Economic Development Council found that just a quarter of housing subsidized by IDAs is affordable.

“If rich people want luxury housing, they should buy it,” said Michael Kink, executive director of the Strong Economy for All Coalition. “They shouldn’t get it subsidized by their lower-income neighbors. It’s insane.”

While Hochul has announced that she would not propose housing legislation in the coming session, the issue of IDAs subsidizing developers is already teeing up another clash over housing in Albany.

Trade groups for IDAs and developers are supporting a bill to explicitly authorize IDAs to subsidize housing projects.

“There needs to be clarification to expand the authority of the IDAs to engage in housing projects, and therefore enabling them to effectively contribute to addressing the state’s housing crisis,” said Senator Monica Martinez, the bill’s sponsor.

Some of her colleagues are pushing in the other direction. Senator Sean Ryan, who chairs the Senate’s economic development committee, has introduced legislation barring IDAs from abating property taxes that would otherwise go to schools. And Senator James Skoufis in a September statement drew a clear line on IDAs subsidizing housing, calling them a “sham.”

Jeffrey Pearlman, a former Hochul aide and the executive director of the Authorities Budget Office which oversees IDAs, co-signed that statement.

“​​The ‘I’ in ‘IDA’ stands for industrial,” the pair wrote. “And there is nothing industrial about housing.”

In cities from Buffalo to New York City, at least half of renters are “rent burdened,” meaning more than 30 percent of their monthly income goes to a landlord. To help solve that problem, Hochul proposed state action to get 800,000 new units of housing built over the next decade — and IDAs are looking to join the effort.

But that comes with a big concern: IDAs subsidizing housing is a legal gray area. Since its creation in 1969, the state’s IDA law has been amended multiple times to allow the agencies to subsidize projects like horse tracks and solar farms — but never housing.

In 1985, the Village of Port Chester asked the state comptroller whether an apartment complex could be considered a “commercial” facility, and therefore eligible for assistance. The comptroller punted, passing the interpretation of the law back to the IDAs. The two standards the comptroller set — that a project should promote “employment opportunities” and prevent “economic deterioration” — remain that office’s only legal interpretation of IDAs and housing.

In the absence of state direction, IDAs have taken varying approaches to housing.

Some don’t support housing projects at all. (The state explicitly bans New York City’s IDA from supporting housing, routing subsidies through other programs instead.) Others, like in Erie County, primarily use housing subsidies to convert old commercial buildings into apartments or condos. Yet others, including those in Niagara and Nassau counties, subsidize new-build housing.

“If you look at the state law, it is basically silent on this matter,” Skoufis said. “I would argue that it’s … at minimum, a legal gray area.”

Pearlman said IDAs need to make clear rules for housing projects and follow them. And if they don’t?

“Then they really should not be in the business of just building housing, especially market rate housing,” he said.

It’s not clear how many housing projects IDAs subsidize. Pearlman’s agency does not keep such data. Individual IDAs maintain their own record-keeping systems, meaning information is collected piecemeal.

The best data has come from the Economic Development Council. In March and April, the group surveyed 80 IDAs around New York, finding that between 2018 and 2022 the agencies had granted subsidies to 425 projects that included a housing element. Those projects included some 39,625 units, 10,080 of which were labeled as affordable. Long Island and western New York topped the list for number of housing projects induced.

As for jobs, housing creates temporary construction work but few permanent positions. For example, the $4.7 million in tax breaks for the four Niagara County housing projects approved this year produced just two permanent jobs.

“What is the governmental reason to subsidize market rate housing?” Ryan asked. “Are we gonna start helping middle class people buy cars next, you know, through IDA tax exemptions?”

Beyond legality, another key question underlies the debate: Do developers really need the money?

New York City developers have relied on subsidies for decades, according to Mark Willis, the senior policy fellow atNew York University’s Furman Center. The projects just don’t “pencil out” otherwise, he said.

It’s a different story upstate, where IDA subsidies weren’t seen as critical — at least until recently.

“In the old days, it was just sort of like, ‘Yeah, I’ll take it. I don’t really need it,’” said Jason Yots, a Buffalo attorney and developer who consults for other builders.

Now, though, upstate developers say that interest rate hikes, construction cost increases, and nervous lenders have made them more reliant on tax subsidies than ever before.

Developers blame the banks. Several builders told Investigative Post and New York Focus that receiving a project loan is significantly more difficult without some sort of tax break in their back pocket.

Kevin Dagher, a Buffalo developer who recently received $1 million in tax breaks from the Erie County IDA, said “eight out of 10” banks he approached for the project refused to lend to him “because they’re not certain what’s happening with the economy and the environment.”

Yots put it this way: “If you don’t talk to [the IDA], the bank’s gonna say, ‘Well, why are you not talking to the IDA?’ It makes the deal healthier financially.”

A bald man in glasses stands in a hallway.
Attorney and developer Jason Yots said that banks expect developers to work with IDAs. | Garrett Looker

It’s a problem across the state, said Peter Florey, an affordable housing developer and president-elect of the New York State Builders Association.

Subsidies, he said, are “an essential ingredient in obtaining financing today. Now it has become a requirement.”

When the IDA subsidies expire, some predict rent increases.

“The additional property taxes that the developers or landlords are not bearing, they are going to pass that on to their tenants typically unless they get an extension to their abatement,” said Bill Fioravanti, executive director of the Orange County IDA.

ida tax abatements already have a major fiscal impact on New York schools. A February report by Good Jobs First found that schools across the state lost a collective $1.8 billion in 2021 alone due to tax breaks. The now-expired 421-a housing abatement in New York City and IDA tax breaks elsewhere contributed to that figure.

Lawmakers and school leaders alike worry that more IDA subsidies for housing will further strain district budgets. On Long Island, for example, a union official said he’s worried about the strain of apartment complexes that are housing students but not paying full property taxes to the schools.

“So now we’re educating those children with less resources,” said Greg Wallace, president of the Riverhead teachers union.

Making a similar argument, the Wyandanch school district filed a lawsuit against the Town of Babylon IDA to overturn a 30-year tax break for an apartment building. The school district claimed the subsidy would be “robbing” the district of needed tax revenue. A judge rejected the suit.

And during the last school year, the Binghamton City School District lost $1.4 million in revenue due to tax breaks doled out by the Broome County IDA. Some of those abatements came from housing projects. That’s money that could have paid for staff and programs, school board president Steve Seepersaud said.

All of this could factor into lawmakers’ debate over IDAs and housing next year.

“The politicians want to give tax breaks to people who have money and put the burden on the taxpayers who don’t have money,” said Maliyka Muhammad, a teacher’s assistant at a Broome County middle school.

“This is not equitable.”

Arabella Saunders is a Report for America corps member covering economic development for New York Focus. Her reporting has also appeared in Vice, HuffPost, DCReport, and The Assembly NC.
J. Dale Shoemaker is a data and investigative reporter at Investigative Post.
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