Real estate interests and their allies downtown and outside Manhattan are making a final push to renew a decades-old tax break before the state legislature adjourns next week.The Relocation and Employment Assistance Program, or REAP, has existed for years but will expire June 30 unless the Senate and Assembly pass legislation renewing it.
REAP was left out of the budget deal reached in late April even as the legislature approved extensions or improvements of a series of other tax breaks, including a $100 million-a-year increase and a lengthy extension to the controversial film tax credit.
Also not included was a new proposal from Mayor Eric Adams called RACE — for Relocation Assistance Credit for Employees — designed to fill older office buildings in Manhattan.
Last week a delegation led by the Five Boro Jobs Campaign, composed of the Real Estate Board of New York, borough chambers of commerce and business improvement districts, went to Albany to argue their case for the two tax breaks. Borough presidents from Brooklyn, Queens and the Bronx sent a letter to legislative leaders Monday supporting both.
The Adams administration backs both incentives as does Gov. Kathy Hochul, who included them in her original budget proposal.
“REAP and RACE are wins for our entire city,” said deputy mayor Adolfo Carrión, who also went to Albany to lobby for passage. “They will help turn empty offices into bustling businesses and create good-paying jobs for New Yorkers across the five boroughs.”
But this year, state senators from Manhattan have put up a roadblock to their renewal, arguing that with Manhattan still not recovered from the pandemic the city should not be offering incentives for companies to relocate to other boroughs.
They join fiscal watchdogs who have long criticized the programs. A report from the Independent Budget Office this spring noted its analysts didn’t have access to the business tax filing data required to evaluate REAP.
The Citizens Budget Commission has long been a skeptic as well.
“It would be best to evaluate REAP before a long-term extension to determine whether it is worth the cost or should be tweaked,” said CBC president Andrew Rein.
Compared with other tax breaks, the cost of REAP is modest, totaling about $28 million a year. It dates back to 1987, when companies were fleeing the city for New Jersey, and provides a $3,000 annual tax credit for 12 years for every employee a company moves to most areas north of 96th Street in Manhattan or to the other boroughs. It expires June 30.
RACE would authorize the city to provide a one-time $5,000 credit per full-time worker for firms moving to New York and leasing at least 10,000 square feet in a building built before 2000. As proposed by Adams it would be relatively modest, capped at 500 employees per firm and 3,000 in total.
Business leaders in the boroughs outside Manhattan insist they need help to overcome the damage the pandemic did to their office sectors as they are not seeing the increased leasing occurring in Midtown.
While places in Brooklyn like DUMBO and Industry City are seeing activity, the vacancy rate for office space in downtown Brooklyn is about 22%, said Regina Myer, president of the Downtown Brooklyn Partnership BID.
“We have a much smaller amount of desirable Class A office space. Every lease counts and REAP makes a huge difference,” she said. In response to Manhattan legislators, she added, “I don’t think that REAP undermines the strength of Manhattan. We just want Brooklyn to get a share of office leases.”
Tenants in a Financial District office building use reflective shades to block the sun, July 24, 2023. Credit: Ben Fractenberg/THE CITY
Downtown Manhattan has its own REAP benefit, which was passed following 9/11 and also needs to be renewed. Its benefits are similar but firms must come from out of state to qualify or, if they are located elsewhere in the city, must grow their payroll by 25% or add 250 employees. Only 2.24 million square feet of office space was leased last year in lower Manhattan.
“Unfortunately for us 2024 was a terrible year in commercial leasing, worse than after 9/11 and the 2008 financial crisis,” said Jessica Lessin, head of the Downtown Alliance BID. “We have lost our momentum.”
What improvement has occurred in the area is primarily the result of office buildings being converted to residential use, but 20 million square feet of lower Manhattan office space remain vacant, she said.
Not surprisingly, companies that receive the tax break say it is crucial to either staying in the city or expanding their operations.
The Downtown Brooklyn Partnership notes that it has seen a series of leases from architecture and other design firms. The BID says 80% of all architects who live in the city reside in the borough.
The Architecture Research Office needed to find more space as its lease in Hudson Square near the new Disney headquarters expired and it weighed one location in the financial district and another in downtown Brooklyn. The cost of each was close when the rent and landlord incentives were factored in.
But REAP provides the firm about $100,000 a year and it used the money to increase its staff to its current total of 35.
“It’s a big number for us,” said Stephen Cassell, founding principal of ARO. With some of his work involving universities that are subject to big cuts in federal research grants, the money is especially valuable at the moment. “Having that cash is a big deal for now.”
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