By Josh Barbanel

A once politically dead property-tax exemption program designed to promote the construction of apartments in New York City would be resurrected under a deal announced Thursday by New York Gov. Andrew Cuomo.

The agreement to restore and overhaul the lucrative program, known as 421-a, came 10 months after its previous version expired amid a dispute between the real-estate industry and construction unions.

The 421-a program, which had dated to 1971, has been credited with fueling new construction of apartments citywide. The deal outlined Thursday would expand the duration of city property-tax exemptions granted to builders of new rental buildings from up to 25 years underthe old version of the program to 35 years.

Mr. Cuomo, a Democrat, said the deal was worked out between trade associations representing developers and the construction industry. It would still require the approval of the state Legislature, which could in turn reopen negotiations.

In a statement, Mr. Cuomo urged the Legislature to "come back to Albany" to act on the tax-exemption plan and to sign off on $2 billion in state affordable-housing funds that have been pending during the negotiations.

In a victory for labor, the deal would also impose union-level wages on construction costs for large rental projects in more affluent parts of the city: Manhattan below 96th Street, and within a mile of the waterfront in Brooklyn and parts of Queens.

The agreement also incorporates provisions added to the program at the request of Democratic New York Mayor Bill de Blasio to require new buildings set aside up to 30% of their apartments for lower-income New Yorkers. It would extend that requirement to 40 years, from 35 years, and would expand the eligibility for affordable units to some tenants with lower incomes.

Democrat Carl Heastie, the Assembly speaker, said the tax-exemption agreement would be reviewed to "ensure that it meets our goals of providing badly needed affordable housing for our citizens and respond appropriately." He said the Assembly was "close to an agreement" with the governor on the $2 billion for affordable housing.

City officials weren't familiar with some of the terms of the agreement when it was announced, and they reacted cautiously.

"We look forward to reviewing all the details of a new proposal," said Melissa Grace, a spokeswoman for Mr. de Blasio. "Our priority is ensuring that the ultimate legislation passed demands real affordable housing for our people and protects taxpayers from giveaways."

As with the former 421-a program, the program will cost the city and its taxpayers billions of dollars in uncollected taxes. The previous 421-a program is costing New York City about $1.4 billion a year in foregone property tax revenue, said Doug Turetsky, chief of staff of the city's Independent Budget Office.

He said an analysis showed that a similar 35-year tax-abatement program would cost an addition $5.6 billion to $7.1 billion over the next decade. It would also produce between about 10,000 and 15,800 affordable apartments at a cost of up to $568,000 per apartment in lost tax revenue.

Gary LaBarbera, the president of the Building and Construction Trades Council of Greater New York, which represents 100,000 unionized workers, hailed the agreement. He said it "will preserve traditional worker standards and benefits and create opportunities for new categories of workers which will ensure our long-term competitiveness in the industry."

Specifically, theagreement calls for a wage rate of $60 per hour in wages and benefits in Manhattan and $45 per hour for covered projects in Brooklyn and Queens.

It allows developers to enter into separate labor agreements with the union, and still receive the tax exemption.

Rob Speyer, chairman of the Real Estate Board of New York, said the agreement "will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers."

The impasse between the industry and the union developed after the Legislature adopted an extension of the 421-a program in June 2015, but included an unusual self-destruct clause: It would end on Jan. 15, 2016, if the real-estate industry and the construction unions failed to sign an agreement spelling out wage levels for projects covered by the program.

The industry said higher union-level wages would make many project unaffordable.

But by extending the duration of the program from up to 25 years to 35, the bill provided an additional revenue stream for owners to cover the costs of the higher wages sought by the unions. Under the agreement, benefits would be extended to 35 years even for building owners who aren't required to pay union-level wages.

In a statement, the Association for Neighborhood and Housing Development, which represents many not-for-profit developers, said the new agreement "is unconscionable on its face." It said it would create "a tax break that is unprecedented and unjustifiable...at the expense of New York City taxpayers."

--Josh Dawsey contributed to this article.

Write to Josh Barbanel at josh.barbanel@wsj.com

(END) Dow Jones Newswires

November 10, 2016 21:00 ET (02:00 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.