How Donald Trump Built an Empire on $885 Million in Tax Breaks

The idea was to raze the Bonwit Teller department store, whose prestigious Fifth Avenue address he described as a “Tiffany location.”

To build what he called “the ultimate vision of an elegant life seen through a golden eye,” Mr. Trump wanted a 10-year property tax break under the city’s 421-a program, which was created in 1971 to stimulate housing construction. As the city’s economy rebounded, 421-a and programs like it were coming under criticism as giveaways to developers.

The Koch administration rejected Mr. Trump’s application, saying the project did not qualify because he was replacing a store with hundreds of employees and sales of $30 million, rather than an “underutilized property.”

Mr. Trump sued the city in 1981. Justice Arnold L. Fein of the Appellate Division ruled in the city’s favor, writing that 421-a “hardly contemplates the grant of benefits at the most choice, already adequately utilized location in Manhattan to create residential luxury apartments.”

Mr. Trump appealed and in 1984, the New York State Court of Appeals ruled that the city’s action had “impermissibly erected a barrier to the benefit,” and Mr. Trump was entitled to the tax abatement.

Mr. Trump said at the time that the abatement was worth $7 million to $10 million over 10 years.

The Finance Department, however, said in its recent analysis that the value of the benefit totaled $22.5 million. Mr. Trump later got an additional $15 million tax break under a separate program for renovating the tower’s commercial space.

Mr. Trump continued to fight the Koch administration’s attempts to restrict the tax breaks or to require developer concessions, such as subsidized apartments, in return. After the administration refused to provide tens of millions of dollars in benefits for another project, on the West Side of Manhattan, Mr. Trump declared: “the city under Ed Koch is a disaster.”

‘A Great Selling Point’

It is easy to understand why the tax breaks were so important to a developer like Mr. Trump.

During the two- to three-year construction phase, when there is no rental or sales money coming in, a 421-a tax abatement can save a developer millions of dollars in taxes, because the property is taxed at the rate in effect before improvements are made. Once a building is completed and its apartments are sold, the benefits accrue to the buyers, significantly lowering taxes and making the apartments more appealing.

In the offering plan for a new two-bedroom penthouse at 120 Riverside Boulevard in the Trump Place-Riverside South development, which stretches from 59th Street to 72nd Street on Manhattan’s West Side, the estimated first-year real estate taxes were $617 because of the building’s 421-a tax abatement. Without the subsidy, the taxes on the apartment, which was listed at $1.6 million in 2004, would have been $32,916.

“It was a great selling point,” said Charles P. Reiss, a retired executive vice president for development at the Trump Organization. “For condos, the monthly fee was greatly reduced.”

The benefit declines over time, with the apartment owner paying full taxes after 10 years.

After winning the court battle over Trump Tower, Mr. Trump received 421-a tax benefits from the Koch administration worth $20.8 million for his Trump Plaza and Trump Palace projects.

During the 1990s and into the 2000s, Mr. Trump built a number of New York projects without taxpayer subsidies. But he continued to chase benefits, large — and small.


Mr. Trump showed a picture of the New York City skyline with his Trump World Tower near the United Nations as he testified before a Congressional subcommittee in July 2005.

Joe Raedle/Getty Images

For instance, he sought, and received, a tax abatement worth $48,000 for the conversion of a condominium tower called Trump Parc East under Mr. Giuliani.

And after the Sept. 11 attacks, he obtained a $150,000 grant for 40 Wall Street, an office tower eight blocks from ground zero, through a small-business recovery program.

In the hours after the attacks, Mr. Trump told German television that his property “wasn’t, fortunately, affected by what happened at the World Trade Center.”

At the other end of the spectrum, there was the 10-year tax abatement he got on seven apartment buildings in Trump Place-Riverside South in which he held a partial stake.

According to the Finance Department analysis, the city forgave a combined $331.8 million in property taxes on the buildings, which were completed from 1998 to 2005.

Under the revised rules governing the 421-a program, Mr. Trump was required to set aside 700 of the 3,494 apartments — roughly 20 percent — for low- and moderate-income tenants.

Suing for Subsidy Again

In 2000, Mr. Trump began marketing a new condominium near the United Nations, Trump World Tower, which his brochures described as the “newest — and the most spectacular — achievement of the Trump Organization.” Again, he wanted the city to give him a 421-a tax break.

Ms. Glen, then an assistant commissioner at the city’s Division of Housing Finance, judged the project ineligible for public benefits.

After the city’s court battle with Mr. Trump over Trump Tower, the City Council had passed legislation dictating that 421-a benefits no longer be used to demolish usable buildings at taxpayer expense.

In a letter to Mr. Trump’s lawyer, Ms. Glen said Trump World Tower was to be built on the site of a functioning office building, and denied him the tax break.

Mr. Trump sued and the State Supreme Court ordered the city to review his application. Unable to make any headway, Mr. Trump filed a second lawsuit, which ended in 2003 with a settlement that granted Mr. Trump a 10-year exemption worth $119.5 million for the 371-unit condo, according to the Finance Department.

In return, he paid $9.65 million for tax certificates from another developer for 124 apartments for low- and moderate-income tenants elsewhere in the city, according to court records. He also had to forego a tax abatement during construction.

In 2002, apartments at Trump World Tower sold for an average of $1,046 per square foot, or $1.5 million for a small two-bedroom.

“His whole MO is to exploit the government for everything he could get,” said Jerilyn Perine, the city housing commissioner during the Giuliani and Bloomberg administrations. “In the end, the letter of the law gave it to him.”

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17 September 2016 | 5:52 pm – Source:


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