Trump tax schemes expose flaws in NYC rent-stabilization laws

This week, the New York Times released a blockbuster investigation into President Donald Trump’s finances and those of the larger Trump family, exposing what the Times calls “a pattern of deception and obfuscation, particularly about the value of [family patriarch] Fred Trump’s real estate, that repeatedly prevented the I.R.S. from taxing large transfers of wealth to his children.” (The state announced late on Tuesday that it would look into the Times’s allegations.)

The Trump family accomplished this in a variety of ways: by downplaying the value of its buildings on appraisals submitted to the IRS; by evading the IRS’s 55 percent “gift tax” on multiple occasions; and by using grantor-retained annuity trusts—which the Times calls “one of the tax code’s great gifts to the ultrawealthy”—to pass gobs of money from father to children without paying much in the way of taxes.

Another method that the family used to pad its coffers will be much more familiar to those who’ve ever dealt with a shady landlord: The Trumps used a provision in the New York state rent laws, known as major capital improvement (MCI) increases, to raise the rents in rent-stabilized buildings they owned in the outer boroughs—but in many cases, those increases were based on falsified information.

Per the Times, a company owned by the Trumps, All County Building Supply & Maintenance, padded invoices—“marked up by 20 percent, or 50 percent, or even more”—that were used by the family as proof that major repairs were being made throughout its properties. This is crucial, because under the MCI provision, “[w]hen owners make improvements or installations to a building subject to the rent stabilization or rent control laws, they may be permitted to increase the rent based on the actual, verified cost of the improvements.”

By padding All County’s invoices, the Trump family was able to claim that they spent much more than they actually did on, say, new boilers; thanks to the MCI provision, they were then able to jack up the rents in buildings where those boilers were installed. “[A]fter All County’s creation, the Trumps got approval to raise rents on thousands of apartments by claiming more than $30 million in major capital improvements,” according to the Times. “Tenants repeatedly protested the increases, almost always to no avail, the records show.”

While the Trump family’s abuse of the MCI provision is egregious, it’s hardly unique, which is why tenant advocates have long argued that it must be reformed, or abolished altogether. “We see really dramatic rent increases through MCIs, and they’re full of fraud,” says Cea Weaver, the policy director of New York Communities for Change. Landlords are allowed to raise the rent by up to 6 percent per year, depending on the scope and extent of the repairs, which can lead to hikes of hundreds of dollars. “[It’s a] one-time cost for the landlord but a permanent increase for the tenants,” Weaver explains.

The system is also easy to abuse: Increases based on MCIs are overseen by the state’s Division of Housing and Community Renewal (DHCR), which Weaver says is “horribly underfunded” and doesn’t always thoroughly vet applications. And according to DHCR’s own fact sheet, the only proof that a landlord needs in order to get an MCI comes from the landlords and contractors themselves, which can easily be falsified.

“As Trump proves, the major capital improvement program is less about improving buildings than it is about legalizing fraud,” says Aaron Carr, the executive director of watchdog group Housing Rights Initiative. “Our broken campaign finance system, our broken ethics system, and our broken election system have given rise to the Trumps, Cohens, and Kushners of the world. It is time for New York state to grab a bucket and a mop and clean up this unholy mess of corruption.”

That time may come sooner than later: New York’s rent-stabilization laws—which include the MCI provision, along with vacancy decontrol (which allows an apartment that reaches a certain monthly rent to be de-regulated) and the vacancy allowance (which lets a landlord hike rents by up to 20 percent in between tenants)—are up for renewal in 2019.

While attempts have been made to reform, or outright abolish, the MCI provision, they’ve been mostly unsuccessful; but with more progressive legislators likely heading for Albany after November’s midterm elections, tenant advocates are hopeful that change is on the horizon. “It’s going to be one of the major issues that NYCC and tenant groups across the city are going to be fighting around,” says Weaver.

And already, there has been some progress: New York state Sen. Michael Gianaris and state Assembly Member Brian Barnwell introduced a bill over the summer that would eliminate the MCI provision, and would instead give landlords a tax credit for repairs. “Landlords have been abusing the MCI system since it was created and it’s no surprise the Trump Empire was at the center of the storm,” Gianaris said in a statement to Curbed. “My bill will protect tenants from unscrupulous landlords and I am hopeful a Democratic Senate majority will get it done.”

The de Blasio administration has also committed to strengthening rent-stabilization laws in the city, with limiting MCIs (rather than abolishing them entirely) as one of several reforms it’s pushing for. “The revelations about Trump’s tax fraud are outrageous and a prime example of why rent laws must be strengthened,” Jane Meyer, a spokesperson for the mayor’s office, told Curbed. “For years, we have been working aggressively with our state partners to pursue rent reform in order to tackle the affordability crisis. Lax enforcement and regulations have hurt tenants for far too long.”

But according to Weaver, more needs to be done to protect tenants from the sorts of predatory practices that the Trumps—and many other NYC landlords—have long engaged in. “It’s really critical that we not only use this moment to close the loopholes in rent stabilization, but expand rent stabilization,” she says.