TESTIMONY
Kim Darga on the J51 Tax Incentive Program
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11 min
Kim Darga, Deputy Commissioner, Development, Department of Housing Preservation and Development, provides an extensive testimony on the J51 Tax Incentive Program. Darga explains the program’s objectives, historical context, the proposed changes, and the rationale behind these transformations. The testimony addresses the program's focus on housing quality, stabilization, and efforts to incentivize major capital improvements in low-cost residential buildings. The discourse includes the program’s evolution, emphasizing the shift towards a more targeted approach aimed at buildings housing lower-income New Yorkers and explaining the program's impact on rent-stabilized properties. Key components such as eligibility criteria, enforcement mechanisms, and anticipated benefits towards sustainability and affordability are outlined. Darga provides detailed responses to questions on program administration, including compliance, the characteristics of buildings that have benefited, and procedural aspects of applying for and receiving J51 benefits. The testimony concludes with Council Member Pierina Ana Sanchez transitioning the discussion to Council Member Alexa Avilés for further inquiries.
Kim Darga
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Alright.
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Good morning.
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Hi, cheer Sanchez, a members of the committee on housing and buildings.
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My name is Kim Darga, and I am the deputy commissioner for development at the Department of Housing Preservation And Development.
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I'm joined by my colleagues, Lucy Joffey, our associate commissioner of housing policy and Tricia Deets, our assistant commissioner for housing incentives.
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We thank you for the opportunity to testify in introductions 654 sponsored by chair Sanchez.
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A significant part of HP's focus is on housing quality and stabilization.
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J51 has long been one of the agency's most important tools for that purpose.
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Following enactment of authorizing legislation by the state legislature in 2023, this bill would authorize New York to once again implement J51, a longstanding as a right preservation program.
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The program incentivizes and part offset the cost of major capital improvements in low cost residential buildings that otherwise struggle to fund this type of work.
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Through J51, we ensure that residents in low cost housing can live in safe, quality, and energy efficient buildings.
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Since J51 lapsed at the state level in 2019, there has been no as of right preservation tool available.
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This followed years in which we allowed J51 to become outdated and underutilized, leaving a significant gap in our arsenal of resources to ensure the quality and longevity of our remaining low cost housing.
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While J51 has been used in a range of housing types, it plays a critical role in the ecosystem of rent stabilization in particular.
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As you know, for decades, we saw rising rents across our rent stabilized housing stock and the loss of 100 of 1000 of low cost rental homes.
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In 2019, the state legislature passed the housing stability and tenant protection act, HSTPA, limiting owners ability to increase rents or to exit rent stabilization.
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We want to ensure, however, that owners of rent stabilized buildings also continue to invest in and improve building quality, particularly as our rent stabilized buildings age.
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Our rent stabilized stock is typically older than our market rate housing.
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While on a whole, it is in relatively good shape as measured by the New York City Housing And Vacancy Survey.
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It is generally occupied by older New Yorkers, lower income New Yorkers, and households that are more likely to have a member with a disability, making it especially important that we maintain building quality to protect these New Yorkers or the no those New Yorkers who are most vulnerable to poor building health.
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Major capital improvements such as installation or replacement of heating systems, plumbing, wiring, elevators, windows, or roofing, are exactly the types of critical upgrades that impact housing quality for residents of the entire building.
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These types of improvements ensure that new workers get to live in safe, quality, and more sustainable housing.
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The new J51 program, which the council has the opportunity to authorize for use in New York City, offers a well targeted resource that particularly off that partially offsets the cost of major capital improvements while critically prohibiting those costs from getting passed along to current or future rent stabilized tenants.
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Rather than financing the improvements through higher rents, the billing owner can qualify for a property tax abatement reducing the cost of operations.
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For our rent stabilized stock, J51 is therefore a critical compliment to HSTPA, allowing New Yorkers to live in and benefit from low cost housing for decades to count.
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Com without sacrificing building quality or sustainability upgrades.
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While J51 is a critical tool for rent stabilized housing, the program will also benefit other multifamily housing, such as Mitchellamas, other affordable regulated housing, and lower cost cooperatives.
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Many of which are also struggling to keep up with ongoing major capital work and invest in improvements that improve sustainability.
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Here too, J51 creates opportunity for work that is central to ensuring building health and stabilization without passing those cons cost on to low and moderate income residents.
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To be eligible for J51, the owner must first notify tenants within 30 days and no more than a 180 days after commencement of work.
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The owner must submit an application along with proof of payment to HPD within 4 months of completing the work.
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As part of the application review, HPD physically inspects to ensure the work is complete.
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Once deemed eligible, HPD issues a certificate of eligibility and notifies the Department of Finance of the approved maximum amount of the abatement.
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DOF applies the J51 benefit to the building's property taxes, reducing taxes by 70% of the total eligible cost, applied at 8 and 1 third percent each year for up to 20 years.
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HPD also notifies New York State homes and community renewal, HCR, so that they can ensure that J51 covered work is not eligible for major capital improvement increase.
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MCI increases.
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None of the work covered by J51 can be passed along to tenants as rent increases.
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This version of J51 is better than the old version.
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First, it's better targeted to buildings with low cost housing, those buildings that might otherwise struggle to pay for these types of improvements and in which we are very focused on keeping our low cost housing low cost.
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The eligible building types are, 1, those already receiving substantial government assistance such as the city's affordable housing in Mitchalamas, 2 rental buildings in which 50% of the units are low cost, which is defined here as having rents lower or equal sorry.
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Lower or equal No.
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That's Okay.
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Below 80% of AMI, there's some typos in the text.
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Cool.
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Operative and condo buildings with an average assessed value of less than 45,000 per unit.
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So 2nd, the CRC schedule will remain relevant and appropriate as scopes of work and costs change.
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If PAS is designed, we believe that owners will find it more beneficial to use J51 than MCI increases.
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But only if this CRC schedule is up to date.
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J51 was once a program designed to help encourage indoor plumbing, It was created in 1955.
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Now we expect many buildings will be using it not only to replace space major building systems like roofs and heating, but also to improve building efficiency and meet their new local law 97 mandates.
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If passed, HPD will create a green CRC schedule so that users are making the more sustainable and efficient choices whenever possible.
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And helping the city meet its carbon reduction and local on 97 goals.
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As our city evolves so much maj51.
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3rd, it's easier to use and provides a more predictable benefit.
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The prior J51 program had both an exemption and abatement component in addition to complex eligibility requirements based on project type and the scope of work provided.
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Users often had a difficult time determining whether assessed value would increase, and assessing the impact of the exemption on future property taxes.
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In the new program, the user can assess their scope of work their costs and the CRC schedule and know if they are eligible and the amount of the benefit they and plan accordingly.
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4th, it is more protective of tenants.
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Owners will not be able to apply to HCR for MSCI increases for the work covered by J51.
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While owners opt to use J51 and when owners opt to use J51 instead of MCIs, There will be no rent increases for current or future tenants associated with the J51 scope.
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There are also new provisions to guard against tenant harassment.
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Finally, this version of J51 gives HPD new and enhanced tools for enforcement oversight and procedures.
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Up to and including revocation of the benefit in cases of noncompliance or harassment.
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There are also 2 new timing requirements.
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Owners are required to complete work started under a J51 scope within 30 months and are required to submit an application to HPD within 4 months of completion.
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Together, these requirements will allow HPD to more fully review and inspect work scopes and ensure that the work submitted was completed in a timely manner.
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Owner.
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While we are often before city council talking about new housing, preservation of existing low cost housing is one of our critical goals.
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While we continue to invest in housing preservation through various HPD loan programs, we have been missing J51, one of the most impactful programs in terms of supporting investment and housing quality.
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Over the last 15 years, more than 9600 buildings use J51 resulting in increased building health for more than 300,000 households.
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After 5 years without an as of right preservation tool, we finally have an opportunity to bring back J51 and not just the J51 of the past.
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This will be a better, more efficient, more targeted J51 that we think more building owners will choose to use, helping us meet many of our housing goals at once, investing in and improving building health and quality, keeping rents and common charges low, particularly on our low cost housing and advancing our sustainability goals to benefit all New Yorkers.
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But we can only do that if this bill is passed as soon as possible.
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State law authorizes J51 through June 2026.
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So we are already 2 years into the eligibility period.
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We want to take full advantage of the remaining time that we have to benefit as many new Yorkers as possible.
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We're grateful to this committee and the council more broadly for your shared focus on preservation and stabilization.
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Thank you for the opportunity to provide you with an overview of the agency's support of this critical program.
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We welcome any follow-up questions that you may have.
