In The Nick of Time

When it comes to the Climate Mobilization Act—specifically Local Law 97, which requires larger buildings to cut their carbon emissions under specified caps or else face stiff fines—boards fall into three different camps. Many of them don’t even seem to know about the law, even with the first deadline looming in 2024. The second group is aware of the expensive retrofits needed for their buildings but are scrambling to find the money to pay for them. And the final group has done the math and decided it is more cost-effective to pay the fines, which will grow steeper in 2030 and beyond, rather than make costly investment decisions now.

The common thread between the three camps is financing. Lowering carbon emissions can be a very expensive endeavor, and while the city, state and utility companies offer grants and incentives, many buildings will still struggle to meet carbon-emission caps. A recently introduced bill in the state assembly (A5050) seeks to marry energy investment with carbon reduction and to offer the carrot of property tax abatement for making the match.

“There’s no question that the implementation of Local Law 97 is going to present co-ops and condos with a huge financial burden,” says Assemblyman Edward Braunstein, the bill’s sponsor who represents District 26 in Bayside, Queens. “Offering financial relief in the form of a tax abatement will help them offset the costs of the work they need to do.”

Property Tax Relief

The proposed legislation ties a reduction in carbon emissions to a 10-year property tax abatement. Based on a sliding scale, the abatements would start at 5% of the cost of energy-efficiency projects that result in a reduction of 2% to 5%, up to a 9.5% abatement for an emissions reduction of 25% to 29%. (See box, p.14). Buildings that cut their greenhouse-gas emissions 30% or more would receive a tax abatement of up to 20 years.

The base line used for calculating your building’s emission reduction will be your energy benchmarking report, which buildings larger than 25,000 square feet are required to submit annually to the Department of Buildings under Local Law 84. Eligible project costs include a wide range of building work that result in greenhouse gas reductions, including the technical analysis work required before investments are made. Additionally, any increases to your building’s assessed valuation resulting from these improvements would be exempt from taxation for twenty years. 

 Theoretically at least, the numbers can quickly add up to significant savings. For example, a board that spends $100,000 to install solar panels and cuts its building’s carbon emissions by 2% would receive a $5,000 abatement annually for 10 years totaling $50,000—half of its investment. A building that spends $1 million to replace its oil-fueled boilers with a cogen system for heat and hot water and achieves an emissions reduction of 25% would receive a $95,000 annual abatement, recouping a grand total of $950,000 over 10 years.

 J-51 Cousin

A5050 is similar to J-51, the cherished property tax abatement program for co-ops and condos to help defray the cost of capital projects, such as window replacements, elevator upgrades and facade work. Under that program, a building’s property tax assessment is frozen at the rate before the improvements were made, resulting in a lower tax bill. Indeed, Braunstein, who also sponsored the recent legislation to extend and expand J-51, says A5050 was modeled after it but offers boards even more of an incentive to tackle energy-efficiency projects—most of which aren’t covered under J-51—because the abatements are on a sliding scale based on effectiveness.

 And unlike J-51, which is targeted to benefit middle-class co-ops by limiting eligibility to buildings with an average per-unit assessed valuation of $45,000 or less (an amount equivalent to a market value of roughly $350,000), the current version of A5050 has no such threshold, making the abatement available to all. The bill also avoids a problem with the abatement part of J-51, which covers a portion of the cost of building renovations. “The problem is you get a fixed amount rather than a percentage of what you spend,” says Mindy Datik, a tax abatement consultant at Jack Jaffa & Associates, which helps boards comply with city regulations. “But that amount is based on a handbook with a schedule of values, or reasonable costs for each type of improvement, which haven’t been updated since the ’80s. The costs are woefully out of date.”

Hurdles Ahead

While A5050 is welcome news, the measure is still in its early stages. The bill, which was first introduced in February and is now being considered by the State Real Property Taxation Committee, could significantly change before a final version is submitted for a vote. And ultimately, that requires buy-in from the city, which would have to foot the cost of the abatements—and take in less tax revenue to pay its own bills. “We’ve had initial conversations with some representatives, who have expressed interest in the idea,” Braunstein says. “But the fiscal impact is something that needs to be discussed, and amendments will have to be made.”

 Braunstein, who hopes to reach an agreement before the Legislature reconvenes in January, knows that one such amendment could be imposing an assessed-valuation cap for eligible buildings like that of J-51. “I can’t predict what a threshold would be, since that would depend on the city doing a financial analysis,” he says. But relief for some, he adds, is better than no relief for all: “Whatever changes we make to the bill, the abatement has to help make energy projects affordable to middle-class folks. There’s a balance that needs to be achieved.”

 Including a valuation threshold may also be the best strategy to get A5050 passed into law. “I don’t have a crystal ball, but it’s been my experience with other statutes that they start out broad and end up much narrower,” says Geoff Mazel, a partner at the law firm Hankin & Mazel who worked with Braunstein to draft the bill. “The more customized a bill is toward middle-class homeowners, the better chance you have.”

Grace Powers, a partner at Korngold Powers, a law firm specializing in real estate tax matters, says: “We just have to wait and see how things evolve and whether there will be any type of assessed-value limitations in Manhattan. Hopefully there will be no other strings attached.”

What’s Realistic

A5050 lays out carbon-emission reduction goals, but the question remains: How realistic are these and can boards reasonably expect to achieve them? “It all depends on the building, but certainly a 30% reduction would require aggressive retrofits,” says Mark Balsam, the president of ReDocs, an energy compliance consultant. “But low-hanging fruit type improvements, like boiler or chiller optimizations, could get you in the 10% to 15% range.”

The prospect of offering carrots in the form of tax abatements as opposed to the stick of stiff fines couldn’t come too soon. “We’ve been advising our boards for a couple of years on LL97 compliance, getting analyses and proposal costs for potential energy projects they could do,” says Dennis DePaola, the executive vice president at the management company Orsid New York. “We’ve been trying to get people to modify their long-term capital plans. But costs keep escalating and spiraling, and there just isn’t sufficient payback for boards to invest in these projects without financial incentives. With this bill, there could be.” n

INCENTIVE PLAN

Assembly Bill A5050 would offer a 10–year property tax abatement for the cost of energy–efficiency projects resulting in carbon–emissions reductions based on a sliding scale:

5% abatement for reductions between 2%–5%

6.5% abatement for reductions between 5%–10%

7% abatement for reductions between 10%–12% 

7.5% abatement for reductions between 12%–15%

8% for abatement for reductions between 15%–17%

8.5% abatement for reductions between 17%–20%

9% abatement for reductions between 20%–25%

9.5% abatement for reductions between 25%–29%

Up to a 20-year abatement for reductions of 30% or more