To ensure that the City has the initial capital revenue to support new residential populations, the program assumes that something on the order of 40% of IZ fees will go to transit, educational and medical infrastructure in the City.
On top of that initial revenue from IZ fees, expanding residential construction also vastly expands the long-term revenue base of the City for all other day-to-day social needs. The initial shorter-term fiscal boost would be the increased taxes paid by workers constructing the buildings, the induced tax revenue from their personal consumer purchases and taxes on materials in constructing the buildings. Over the likely decade or so of construction, this would add an estimated $10 billion of revenue to City coffers.[i]
Once the buildings were finished, a range of City taxes would be paid both by the new residents, the workers maintaining the buildings, and by those employed to provided services and goods to those new residents. Combining both the initial market rate units and the affordable units[ii], the total additional revenue to the City would likely be more than $5 billion per year—a roughly 10% increase in City revenue. In a sense, this revenue boost can be understood as the City recapturing a portion of the revenue currently lost to commuters working in the City but who live outside its tax jurisdiction because of the current high costs of housing. City politicians have sought legislative ways to impose (or rather reimpose) a commuter tax on such individuals, but increasing the housing supply so that people working in the City can afford to live there as well is a far more effective long-term solution to that revenue problem.
The projected revenue would be even greater if the inequities in the current City property tax system could be fixed. Currently, that property tax system is a complicated nightmare of multiple classes of property, discounted assessments, and odd ways of attributing value to buildings that has the net effect of often allowing lavish luxury dwellings in Manhattan to be assessed at rates far below the percentage rate for more modest homes. For example, while the average Manhattan residential property pays 0.078 percent of its value each year in property taxes (an amount quite low by national standards)[iii], an investigation by the New York Times found that luxury condos on Central Park were paying property taxes at rates less than a tenth of that amount.[iv] Reforming the property tax code – which would likely require support from Albany – would add potentially billions more in annual revenue from luxury units build under this program.
[ii] This analysis assumes that the affordable units would not pay property taxes as is common with various tax breaks granted in their construction.