Testimony at New York City Council Committee on Public Housing Oversight Hearing

Victor Bach

Joint Testimony:
Lucy Newman, Legal Aid Society
Victor Bach, Community Service Society

New York City Council Committee on Public Housing Oversight Hearing: A Fair Deal for NYCHA? A Look at NYCHA’s Decision to Sell a Stake in Project Based Section 8 Housing to Private Developers

NYCHA’s Financial Crisis
Public housing in New York City is a vital source of affordable housing for low-income New Yorkers, with over 500,000 residents living in 179,000 apartments spread throughout NYCHA’s 334 developments.  In recent years, NYCHA has fallen into critical condition, marked by significant operating deficits year after year and accelerating deterioration of its housing infrastructure.  Today, NYCHA faces many challenges, including an estimated $99 million operating deficit due to inadequate funding.  Additionally, NYCHA has over $15 billion in unmet capital needs to improve its aging buildings.  Residents are living with chronic deterioration and face year-long waits for needed repairs in their apartments. 

NYCHA has spoken repeatedly about its need for increased funding to sustain its aging inventory of affordable housing.  Against a backdrop of long-term government disinvestment in public housing—by all levels of government—NYCHA has been exploring new ways to raise revenues and secure its financial stability.  In December, 2011, it released Plan NYCHA, its “roadmap” for preservation.  Most recently, Chair Shola Olatoye has announced a NextGeneration NYCHA Plan to be released in May, 2015.

NYCHA’s Project-Based Section 8 Sales
For many years, NYCHA has owned and managed six “hybrid” developments (containing 874 units) that are funded and administered under the HUD Project-Based Section 8 Program, not under the HUD Public Housing Program through which its other developments receive federal operating and capital subsidies. The six developments are: Bronxchester in the Bronx; Campos Plaza I, East 4th Street Rehab, East 120th Street Rehab, Milbank-Frawley Houses in Manhattan; and Saratoga Square in Brooklyn.  In early December, 2014, a Wall Street Journal article revealed that NYCHA had contracted to sell a 50% ownership stake in the six developments to Triborough Preservation Partners (TPP), a partnership between L&M Development Partners (L&M) and BFC Preservation Development Partners (BFC).  This mixed-finance project will provide funding for critical work to improve the apartments in these developments.

Over the years, these developments and the residents living within them, have been treated by NYCHA as public housing developments, for all intents and purposes.  For instance, NYCHA manages the day-to-day activities of the buildings, tenants in these developments have been receiving Tenant Participation Activity (TPA) funds and residents have the same grievance rights and are subject to the same termination of tenancy procedures as NYCHA residents who reside in “conventional” public housing.

NYCHA estimates that these six developments are in need of $48 million in capital work over the next five years and $113 million over a 15 year period.  As currently structured, these developments are funded under HUD project-based Section 8 rental subsidy contracts, which are renewed annually under the federal appropriations process. They do not receive federal capital funds provided to public housing as such.

The Request for Proposals for these Section 8 sales was initiated by NYCHA in June 2013, under the Bloomberg administration. Problems with the selected developer delayed their going forward, until late 2014, when NYCHA negotiated a new agreement with the current developer. NYCHA claims it has an unusual opportunity through a special agreement with HUD, under which ongoing Section 8 rental subsidies can be increased and guaranteed for a 30-year period, which will allow funds to be raised for capital repairs. However, in order to take advantage of this opportunity, Federal rules require that ownership be transferred to a for-profit entity.

Under the terms of the transactions, NYCHA will retain a 50% ownership stake in the developments and continue to own the land. Going forward, the developments will receive increased rental subsidies under the Project Based Section 8 program and will be administered under the HUD Multi-Family program. The 30-year rental assistance guarantee, at a higher funding level, will enable the owner to attract private capital investment for major improvements, in a financial package that includes Low Income Housing Tax Credits and bonding through the NYC Housing Development Corporation. NYCHA expects to receive $150 million upfront at the time of the closing from the developers and $100 million over the course of the next two years. TPP plans to invest $100 million in renovations of the developments including rehabilitation of apartment interiors (approximately $80,000 for each apartment with work to include new bathrooms and kitchens) and rehabilitation of the building exteriors and landscaping of the public spaces. NYCHA reports that they will be receiving a further $100 million over the course of 15 years from the developers.

With privatization, however, there are also inevitable risks that the Section 8 developments may be lost to the affordable housing inventory. The enriched Section 8 subsidy streams are due to expire in 30 years, without any assurance that they will be extended. Moreover, if the owner or developer defaults for any reason during that period, the property will be subject to foreclosure proceedings, possibly sold to the highest bidder without use restrictions, and end up at market rent levels. In response, NYCHA claims that, with a 50 percent ownership interest and its land rights, it will have sufficient control at such crisis points to determine the future of the property and retain affordability.

We understand the package will also include training and employment opportunities for residents. In addition, when vacancies occur, we understand they will be filled from the NYCHA public housing waiting list, rather than a waiting list maintained by the new owner. It should be noted, however, that we have not yet seen a written final version of the agreement; these are our understandings based on news reports and a briefing by NYCHA staff.

Lack of Transparency Surrounding Transactions
There is no doubt these sales come with substantial potential benefits. NYCHA will be able to secure $100 million in funds for capital repairs at the six developments and will receive $150 million upfront to assist with reducing its operating deficit.

However, we have serious concerns about the process under which NYCHA pressed these sales forward in late 2014, particularly in an authority that has pledged to increase its transparency and strengthen its faulty past record in resident engagement in community planning.   In her Message, issued at the time of her appointment, Chair Shola Olatoye acknowledged the damage that was done to the relationship between NYCHA and its residents during the prior Administration and committed to rebuilding the “trust with residents … through open and transparent communication.” 

Without any resident consultation or public process, NYCHA designated TPP as the new developer in July, 2014 and completed the deal in November, 2014, with closing stated to occur in early January, 2015.  Nor were the projected sales included in NYCHA’s draft FY2015 Annual Plan last summer. The sales were first made public in an early December article in the Wall Street Journal. The process has been fast-tracked by NYCHA, with November, 2014 presentations to residents and then elected officials, and a projected closing of the deal in early 2015. This process did not give enough time for resident associations to obtain independent legal and technical assistance as they negotiate their way through these complex transactions. One resident leader stated that the plans were “thrown at us.”

This sudden announcement to the public and the advocacy community, through the Wall Street Journal, raises the question once more of NYCHA transparency and its new commitment to resident engagement.  We question whether the haste and secrecy are really productive in the long run.We understand that NYCHA is still interacting with residents in several of the developments and that the HUD agreement remains to be detailed.  There may be substantial questions about the quality of jobs for residents and their hourly wage levels, as well as concerns about whether prevailing wage levels will be respected in the development process.
In short, the current agreement needs to be made public as soon as possible so that it can be reviewed by residents and the concerned public. And the timetable needs to be extended so that resident leaders can have a more effective voice in the future of their communities. Thank you.

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