The sudden momentum for the tax surprised even supporters of the proposal, which for years failed to gain traction. But it was especially unexpected to the real estate industry, which had not been consulted on the idea, had not expected it to go anywhere, and had not mobilized against it.
The industry wasted little time.
Developers hired well-connected lobbyists and presented legislators with printouts of economic analyses. They wrote opinion pieces and warned that the high-end market, already weakened, would collapse under the weight of a recurring surcharge.
By Friday, the proposal was dead. In its place, lawmakers were discussing a one-time fee on all real estate transactions over $3 million, although that threshold was still fluid.
Legislative leaders said the replacement proposal would achieve the same ends of making the wealthy contribute more to the city’s upkeep. But the abrupt rise and fall of the so-called pied-à-terre tax also illustrated the challenges in translating progressive rhetoric into policy, and the continuing influence of the traditional powers in Albany.
“I don’t think there’s a question that real estate has driven politics, really, forever,” said Assemblywoman Deborah Glick, one of the bill’s sponsors. “So it’s not a shock.”
The purchase of a $238 million apartment on Central Park South by Kenneth C. Griffin, a Chicago-based hedge fund billionaire with an estimated net worth of $10 billion, had lent the pied-à-terre tax political viability. But logistical concerns soon emerged, as regulators would have had to determine whether someone was using a home as a primary or secondary residence.
The Assembly speaker, Carl Heastie, said a transfer tax at the time of sale would be easier to administer.
“People could play games as to whether it’s their primary” residence or not, Heastie said, adding that a transfer tax afforded the “ease of the transaction.”
He added that the revenue generated, which would go to the city’s subway system, would be “roughly the same.”
But there is disagreement on just how much revenue that would be. Heastie estimated the new tax could bring in between $300 million and $400 million, equivalent to the $370 million that the Real Estate Board of New York (REBNY), an industry group, projected the pied-à-terre tax would have brought in. But the New York City comptroller, Scott M. Stringer, had predicted that a pied-à-terre tax would bring in a minimum of $650 million annually.
Sen. Brad Hoylman, a sponsor of the original bill, suggested on Friday that the real estate industry’s narrative had won out.
“We know that the real estate industry was very present over the last couple of weeks,” he said. “I think they did a number on the pied-à-terre.”
The industry’s mobilization was noticeable.
William L. Zeckendorf, of the firm Zeckendorf Development, wrote in Crain’s that the proposal would hurt the economy. Last week, Zeckendorf walked the halls of the Capitol alongside a hired lobbyist, Patrick B. Jenkins, and an economist from REBNY. Jenkins is a close friend of Heastie, the Assembly speaker; the two were college roommates.
Public lobbying disclosures show Zeckendorf’s company hired Jenkins’ firm for just two weeks, from March 15 to April 1, for $5,000.
A who’s who of real estate also made personal overtures to lawmakers, with six developers calling Hoylman over the past two weeks.
When they met with individual lawmakers, industry members handed out printouts showing that the pied-à-terre tax would capture far less revenue than Stringer had predicted.
On March 13, the Citizens Budget Commission, a nonprofit group, called the tax “appealing but problematic.” The commission’s board of trustees includes several REBNY members. By Tuesday, Assembly counsels were telling rank-and-file members that the pied-à-terre tax was likely unconstitutional.
Glick said she had realized by Thursday that the bill was dead; that same day, real estate industry insiders were referring to the push for the tax in the past tense.
“The recurring pied-à-terre tax proposal lost momentum after people began to understand that it would reap far less than initially estimated and that the city had no ability to implement the tax,” REBNY’s president, John H. Banks, said in a statement. “Most importantly, people realized that a recurring pied-à-terre tax would have a devastating impact on New York City’s economy.”
Hoylman offered a different assessment: “They basically went to the playbook of how to kill a bill and flipped through every page,” he said, adding that he had not yet seen any replacement bill language.
“You do wonder who is writing it,” he added.
Legislative leaders emphasized that they were not backing off from taxing the wealthy, a fact that did appease supporters of the pied-à-terre tax. But they remained disappointed at the apparent ease with which the real estate industry was able to steer the conversation from one policy to another, demonstrating its outsize influence in Albany, even with Democrats in control.
Michael Kink, the executive director of the Strong Economy for All coalition, a group of unions and community organizations, said a pied-à-terre tax “zeros in on the global ultrarich,” while a transfer tax on expensive properties could also affect families in gentrifying areas of Brooklyn or Queens looking to sell their longtime homes.
“If I had my druthers, it would be to do the pied-à-terre tax because it does target nonresidents,” said Ron Deutsch, the executive director of the Fiscal Policy Institute, a union-backed think tank.
But others said the argument for a pied-à-terre tax over a transfer tax, for the sake of political optics, proved that the latter was a better idea.
“I’m not sure what the goal of the pied-à-terre was except to say, we don’t like people coming into the city and having a house they don’t stay in all the time,” said Martha Stark, the city’s former finance commissioner.
“I know it has a little bit of appeal in that it’s taxing people who are uberrich,” she said. “I just don’t see this as being a feasible and implementable tax in terms of how it was structured.”
Still, Hoylman said he would claim an increased transfer tax as a victory.
“This would never have happened last year,” when the Senate was controlled by Republicans, he said.
Kathryn Wylde, the president of the Partnership for New York City, an influential business group, said the death of the pied-à-terre tax showed political rhetoric meeting reality.
“As much as the political winds are blowing against landlords, real estate is still a very important industry in New York,” she said.
This article originally appeared in The New York Times.