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Night of the living tax break

New York City’s zombie corporate property tax abatement died in 2008 but endures at a cost to the city of hundreds of millions of dollars a year

It’s the night of the living tax break.

Five years after state lawmakers killed a corporate property tax exemption that had outlived its original purpose, it’s still stalking New York City’s finances, to the tune of more than $650 million this year.

One of the biggest beneficiaries is finance giant JPMorgan Chase, whose Park Avenue headquarters is getting a property tax break of some $8.2 million this year from the city Department of Finance, or about 35 percent of its original $23.6 million bill.

Other windfalls went to the headquarters of News Corporation — the owner of the New York Post — whose tax bill is cut by some $2.2 million this year, and Manhattan’s East River Plaza mall, a project co-owned by real estate giant Forest City Ratner, which got two breaks totaling $8.1 million.

Then, there’s the former Toy Center building at 1097 Broadway, which houses Eataly, the high-end destination for Italian food. It’s getting $4.6 million off its taxes this year.

ICIP

These are among the more than 7,000 properties that continue to receive abatements on property taxes under the city’s Industrial and Commercial Incentive Program, or ICIP, first launched in the 1980s to encourage businesses to locate or remain in New York City.

That program was open to a wide array of business that built or made improvements to their properties. It expired in 2008, amid widespread criticism that it was too generous. But any company that had successfully applied for the break before then would continue to get it — for as long as 25 years.

In fact, the cost of the tax break to the city has swelled since it supposedly died, rising from $512 million in 2008 to a peak of $682 million in 2012. That’s because the properties, as a condition of the tax break, have undergone improvements that increase their value over time.

The cash kept by the corporations means bigger bills for other New York City taxpayers, according to James Parrott, chief economist at the Fiscal Policy Institute, a labor-sponsored research group. The city expects to collect $18.4 billion in property taxes this year.

“It effectively reallocates the commercial property tax burden to other property tax payers,” Parrott said. “It makes them pay a little bit more.”

The Department of Finance, which administered ICIP and other tax breaks, did not respond to a request for comment.

The building at 200 Fifth Avenue is getting a tasty $4.6 million tax break this year. Photo: Lorelai Germain

The undead ICIP remains the city’s second-most costly tax exemption, after the billion-dollar 421-a program promoting new housing development.

The tax incentive emerged in the late 1970s and early 1980s, when the city was recovering from a fiscal crisis and lawmakers wanted to keep businesses from fleeing to New Jersey or other suburbs.

“We had a big problem of companies moving out. And they were moving overwhelmingly to within the region,” said Alair Townsend, the city’s budget director for three years under Mayor Ed Koch in the early 1980s. “You have to remember what things where like at that time — which was generally not good.”

The idea was to encourage job-producing construction — either new buildings, or renovations — by not immediately taxing owners on improvements to their property. Projects qualified on an “as-of-right basis,” not based on need — meaning that as long as they met a certain set of criteria based on location, use, and size of investment, they’d get the subsidy.

Following scathing audits of the program, the Bloomberg administration took a hard look at what all the tax breaks were paying for. A 2007 study by the city’s Economic Development Corporation revealed that more than 75 percent of participating projects — which cost some $2.8 billion in subsidies — would have gone ahead even without the ICIP exemption.

It also showed that projects below 59th Street in Manhattan were getting 37 percent of all ICIP benefits, with about 42 percent of all the tax breaks going to the top two percent of recipients.

And, while the program was supposed to be saving the city money over the long term by beefing up tax rolls with new revenues, it turned out that ICIP would actually result in a net loss to the city of $1.1 billion, the study found.

“This is an example of an as-of-right program run amok,” said Bettina Damiani, project director for the advocacy group Good Jobs New York, which supplied the New York World with ICIP data acquired from the Department of Finance through a public records request. (Download the data, showing abatements received in 2012, in CSV format.) “When you start subsidizing midtown retail and midtown office buildings, things have clearly gone awry.”

Rego Center Mall in Queens is one of the biggest beneficiaries of an undead tax break. Photo: Chelsey Luger

The exemptions also extend to several large Queens malls, where visitors and workers were surprised to hear about the value of the tax breaks being extended to corporate owners.

“It’s upsetting,” said Taisha Delgado, 29, a Lower East Side resident who was shopping last week at the Rego Center mall, which is receiving a $9 million abatement this year. “A lot of the mom-and-pop stores that make New York City what it is are almost gone.”

“I understand you want to build up a community, change a neighborhood,” added her husband, George Delgado, 31. “But at the expense of what?”

Outside Eataly, programmer Shawn Chellaram said he was skeptical that the city’s investment in the Toy Center had been necessary to stimulate the economy.

“I don’t think it’s fair that they get those big tax breaks,” he said.

In East Harlem, some shoppers were willing to give the tax break the benefit of the doubt.

“They’re following the rules,” said Luiz Chaves, a biophysics researcher at Rockefeller University. “I don’t agree but it’s the rules. I think it has created some jobs.”

After ICIP’s demise in 2008, the city replaced it with the Industrial and Commercial Abatement Program, which is more discerning in handing out property tax breaks — just over $5 million this year.

But Parrott said that lawmakers should be watching the new program closely, given the lingering cost of ICIP — which he noted was more than enough to cover the city Parks Department’s annual budget.

“In the case of economic development programs, my sense is they should always be done on a short-term basis; they should always require revisiting,” he said. “They shouldn’t be on automatic pilot, where they’re allowed to evolve and multiply well beyond what the original purpose was.”

Additional reporting by Lorelai Germain and Chelsey Luger

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