(photo by Daniel Lobo, via Flickr)
This week we published “The Rising Cost of Buffalo’s Worst Tax Break,” our second report examining the 485-a tax exemption, a vaguely worded tax break added to New York’s property tax laws in 2002. The 485-a exemption has been abused by real estate developers across upstate New York, but nowhere more than in the City of Buffalo, where we estimate the exemption will force Buffalo property owners and renters to pay $66.9 million in taxes for wealthy developers whose properties have been awarded exemptions. This price is up from our previous estimate of $63.5 million in our 2018 report on the program.
Rampant abuse of 485-a has landed the program in the sights of housing justice advocates seeking to create 600,000 units of public and social housing by ending developer subsidies and implementing new taxes on the ultra-rich. Repealing 485-a is one part of a sweeping package of housing reforms being advanced by the Upstate Downstate Housing Alliance to build on the momentum of the 2019 legislative session during which the coalition drove a historic expansion of New York’s tenant protections.
The 485-a exemption was intended to spur builders to repurpose vacant commercial and industrial buildings in Buffalo and other upstate cities into mixed-use developments. While it has been used for its intended purpose, developers have also taken advantage of the law’s vague wording to avoid taxes on newly constructed projects and even developments where they tore down existing housing to build.
So far, efforts to reform the program have stalled. Buffalo Common Council President Darius Pridgen introduced a proposal to opt out of 485-a, which has been tabled since July 2018. A state-level bill that would enact modest reforms to curb the most egregious 485-a abuses passed through the New York State Assembly unanimously in June 2019, though the Senate version was returned to committee on the last day of the session before a floor vote could be held.
In “The Rising Cost of Buffalo’s Worst Tax Break,” we report:
- The City of Buffalo has shifted an estimated $66.9 million in taxes on 96 properties from luxury developers to other taxpayers. This is the amount for properties that have been awarded the 485-a exemption from 2007 through 2019, and will increase as more properties are awarded the exemption.
- The City of Buffalo has awarded 485-a exemptions worth $3.6 million to 11 properties since our previous report on the program. Beneficiaries of new 485-a tax breaks include major developers Rocco Termini, Carl Paladino, and Randy Benderson.
- Developers continue to exploit the “Benderson loophole,” adding single apartments to projects to qualify for massive tax exemptions, subverting the intent of the law. PAI has identified three properties that have been awarded 485-a exemptions worth $7.2 million by exploiting the Benderson loophole and at least three others whose owners have declared their intent to obtain exemptions by exploiting the loophole.
- Chris Jacobs, a state senator who represents part of Buffalo, has a stake in two properties with 485-a exemptions worth $862,697. Jacobs reported rent income from 678 Main Street and 686 Main Street, both of which have benefited from the 485-a regime, in his 2018 personal financial disclosure.
- Tim Kennedy, a state senator who represents part of Buffalo, is the son of the Buffalo Commissioner of Taxation and Assessment who awarded all of the 485-a exemptions currently in effect in the city. Martin Kennedy was the tax commissioner for 12 years, overseeing an explosion in 485-a awards, and defended the program to the Buffalo Common Council and to news media.
- Chris Jacobs and Tim Kennedy have received at least $153,915 in campaign donations from beneficiaries of 485-a since 2011. Major donors to both State Senators who benefit from 485-a include Nick Sinatra, Randy Benderson, and Paul Ciminelli and their companies.
Our findings were covered in the Buffalo News, which has also editorialized against the abuse of 485-a on multiple occasions. Developer Rocco Termini told the News that criticism of 485-a was unfounded, claiming that some real estate investments “just barely squeak by with a return” and that without the tax exemption “nothing would be happening in the city.”
Termini is the second biggest beneficiary of the 485-a program in Buffalo, and through it he has been awarded seven exemptions worth $7.3 million. Termini has also spent more than $125,000 on political contributions since 2011, including at least $16,875 to Buffalo Mayor Byron Brown, who has stridently defended 485-a. Termini has also given $5,858 to State Senator Chris Jacobs, $2,500 to Buffalo Common Council President Darius Pridgen, and $2,000 to State Senator Tim Kennedy.
Absent some action by local and state lawmakers, the cost of luxury loft subsidies borne by Buffalo property owners and renters is guaranteed to keep increasing. In Syracuse, where abuse of the tax breaks has also driven critical media coverage, Mayor Ben Walsh has pledged to reform 485-a.
PAI will continue to follow the 485-a program in Buffalo and across New York State as housing justice advocates press policymakers to divest from wealthy developers and invest in public and social housing.
Our full report can be read online at PAI’s website.