NEW YORK—The city’s real estate lobby’s influence on the state legislature is being scrutinized on the heels of subpoenas issued to some of the city’s biggest landlords earlier this month.
A state senator and fair elections activists are now calling on Governor Andrew Cuomo to appoint the Moreland Commission to investigate the Real Estate Board of New York (REBNY). The board is the main lobbying body for the real estate industry at the state legislature in Albany.
REBNY and the 37 companies that comprise its leadership have spent $43.9 million on state and local candidates, committees, and PACs, since 2005, according to a report by the non-partisan non-profit Common Cause.
State Senator Liz Krueger believes that REBNY and its members are exercising unethical pressure on state legislature in exchange for lucrative tax breaks and incentives. Some 73% of the total contributions went to representatives outside of New York City, making it easier for them to vote for measures detrimental to the city constituents without fear of voter lash back.
“Certain people in real estate are spending millions of dollars to buy legislation to get billions of dollars in tax exemptions and credits when we’re not getting any affordable housing for it,” said Krueger.
At the center of the controversy is the “LLC Loophole,” a provision in the New York State campaign finance laws which allows for Limited Liability Corporations (LLC) to be treated the same as individual donors. The loophole extends the maximum contribution limit for an LLC to $150,000, instead of the $5,000 limit assigned to corporate donors.
Since real estate companies do much of their business through LLCs, the loophole is particularly easy to use. Glenwood Management contributed over $10 million through 40 LLCs and subsidiaries since 2005, according to the Common Cause report. The Durst Organization used 61 LLCs to contribute over $3 million in the same time period.
Such contributions, Krueger and others believe, are influencing legislative decisions on multi-billion subsidies like the 421a and J-51 programs. Both affect millions of New Yorkers, but are also sources of profits for real estate developers. According to one estimate the 421a program alone is costing New Yorkers over $1.1 billion in the 2013 tax year. The program was developed in the 1970s to incentivize development of affordable housing, but some say it is no longer effective with just 15 cents of every dollar in foregone taxes going towards affordable housing.
The real estate lobby’s influence on state politics has been under fire after tax exemptions for five ultra-luxury developments were inserted into an unrelated housing bill at the end of the legislative session.
Under the 421-a program certain buildings are eligible for a tax exemption if they set apart 20 percent of units as “affordable.” The developer can also build the units elsewhere to meet the requirement, as was the case with Extell Development’s One57 ultra-luxury condominium. The building, which is offering a $115 million penthouse condo, was not eligible for the 421-a program before the law was passed, but is now receiving a 94 percent tax reduction. According to a Daily News calculation the property will benefit from $44 million in tax breaks over the next 10 years. Extell spent $5.9 million on affordable housing and $1.4 million on fees, netting a $35 million profit.
On July 2, 2013, Cuomo appointed the Moreland Commission “to probe systemic corruption and the appearance of such corruption in state government, political campaigns and elections in New York State.” The commission has issued subpoenas to several members of REBNY, but not the board itself.
Thor Equities refused to comment on the issue. Silverstein Properties and Extell Development did return a request for comment.