Deal Between NYCHA and Private Developers Provokes Questions

torres nycha

CM Ritchie Torres outside of a NYCHA building (photo: @RitchieTorres)

A recently announced venture between the New York City Housing Authority (NYCHA), L+M Development Partners, and BFC Partners is expected to rehabilitate six especially dilapidated Section 8 housing developments.

The deal was announced in December and calls for the six developments, containing 900 units in three boroughs, to receive increased federal funding under the Department of Housing and Urban Development (HUD) Mark-Up-To-Market program (MUTM) that prompts contract renewals between HUD and Section 8 development owners. Though HUD’s Section 8 program generally subsidizes privately-owned developments, these six – three of which NYCHA inherited after a private owner defaulted – are owned by the City. As a result, in order for any contract renewals to take place under MUTM there must be, according to federal law, a for-profit owner involved. Thus, NYCHA sought corporate partners in its efforts to increase revenues and rehab the buildings.

Questions, however, quickly emerged regarding the lack of transparency in the deal’s initial proposal, the deal’s possible long-term effects, and whether the deal is a key step in the “privatization” of NYCHA.

On Tuesday, the City Council’s Public Housing Committee, chaired by Council Member Ritchie Torres, a Democrat from the Bronx, will take up these questions and relevant issues. The Council website lists the hearing as “Oversight – A Fair Deal for NYCHA? A Look at NYCHA’s Decision to Sell a Stake in Project-Based Section 8 Housing to Private Developers.”

Tenants living in any of the city’s roughly 91,000 Section 8 units pay an affordable rate, generally under a 30-percent-of-income cap, while federal funding covers the difference to reach market rates by providing tax exempt bonds or 4 percent tax credits to private owners. NYCHA’s Conventional Public Housing, on the other hand, whichincludes over 178,000 units, is itemized in a separate line in the HUD budget and does not require private ownership.

Federal funding for Section 8 developments must go to private developers as dictated by the Low-Income Tax Credit (LIHTC) Program, enacted by the federal government in 1986. Moreover, funding under LIHTC, which was established to incentivize private investment in affordable housing, cannot be allocated without a private developer. Following LIHTC protocol, the responsibility to allocate tax credits to developers is then relegated to states’ housing agencies. Politically, passing LIHTC afforded legislators under a Reagan-led government the ability to better fund public housing while simultaneously touting pro-business housing models.

A problem has arisen due to the fact that federal funding for Section 8 Housing has been significantly reduced over the past decades. According to a report released in July, 2014 by Victor Bach and Tom Waters of the Community Service Society (CSS), “by 2013, the cumulative operating [federal] subsidy loss since 2001 had mounted to nearly $1 billion.”

As part of the recent deal between NYCHA and the two developers – which raised many eyebrows when it was announced – the two companies will pay NYCHA gradually for their 50 percent stake: $150 million at the outset of the deal, $100 million over the next two years, and $100 million more spread across a 15-year span. It totals $350 million in revenue and the developers plan to invest another $100 million in renovations, they say. NYCHA insists it is protected by an opt-out clause and other carefully constructed elements of the deal.

With a $77 million deficit and $18 billion in capital and building needs throughout NYCHA’s 328-development portfolio, it’s easy to understand the authority’s motivation for cutting a deal with private developers to get an infusion of cash.

During an interview with Gotham Gazette, Bach of CSS explained that after the deal, which ensures continued Section 8 status under the MUTM program, federal subsidies that normally require an annual renewal, will be guaranteed a steady 30-year stream and protection from possible changes in HUD funding policy.

In short, NYCHA will receive revenue from L+M and BFC as well as more secure and increased federal funding. L+M and BFC, in exchange, receive tax exempt bonds and tax credits. This will be the case, anyway, for at least the next 30 years until – and this aspect of the deal is the cause of some suspicion – the developers, upon NYCHA’s approval, may upgrade the units to full market-rate prices when federal aid expires.

On this topic, Moses Gates, the Director of Planning and Community Development at the Association for Neighborhood and Housing Development (ANHD), told Gotham Gazette, “If I were to ask NYCHA about this, I would ask ‘What is the guarantee that the public will retain ownership at the end?'”

The ostensible answer seems to be that there is no guarantee. However, Gates hoped that a clearer picture of what NYCHA’s deal will look like 30 years from now might be addressed during Tuesday’s city council hearing.

New York State Assembly Member Robert Rodriguez expressed similar concerns in a recent op-ed in this publication. Rodriguez questions whether this one deal could be the gateway to a new public-private policy that, Rodriguez worries, could lead to privatization of NYCHA units.

“On the surface raising money to fix the buildings makes sense,” he wrote. “But there is more to any deal involving NYCHA. In fact, I struggle to see how this fits into the long-term affordable housing plan for New York City. Is this ‘pilot’ part of a larger plan to diminish the City’s stake in housing?”

The possibility of a substantial disruption in affordable housing at the hands of private developers coupled with a Housing Authority so crippled by deficit that it has no choice but to acquiesce to privatization is unsettling to many. But, between Gates’ assessment that “this deal is not a template,” and Bach’s warning “to keep in mind that these are only six of NYCHA’s 328 developments,” the fears of Assembly Member Rodriguez and others may be at least slightly alarmist.

Possibly exaggerated fears notwithstanding, a lack of transparency regarding the future of these Section 8 developments and the deal itself has been a point of contention. The source of Bach’s greatest apprehension was the lack of transparency surrounding the proposal.

The deal, Bach said, seemed to have “crept in under the radar.” NYCHA was originally considering the partnership in June 2013, during former-Mayor Michael Bloomberg’s tenure. A deal was proposed, but the private developer involved at the time ultimately withdrew. As a result, the notion carried over into Mayor Bill de Blasio’s term mostly unnoticed behind his ambitious housing plans, efforts to boost NYCHA, and clear assertions from new NYCHA leadership led by Chair Shola Olatoye that “we will not tear down public housing, or privatize it.”

Looking at the new NYCHA deal with two private developers, Bach questions Olatoye’s assurance. “NYCHA claimed it’s not privatization. We said it certainly looks like it,” he said. Assembly Member Rodriguez, of northern Manhattan, and some city council members clearly also see a red flag.

Upon request for an interview a NYCHA spokesperson declined, but later stated in an email that “NYCHA is not giving up ownership or privatizing. This is not a profit making endeavor; all dollars re-invested…NYCHA and the Authority will remain in control over the future of these buildings.” [bold and underline theirs]

Furthermore, the deal comes at a time when NYCHA’s credibility and competence is in question – granted, though, that a scathing audit from City Comptroller Scott Stringer does not reflect the current NYCHA leadership or Mayor de Blasio, in office just over a year.

An audit report published Dec. 16, 2014 by Stringer’s office concluded that NYCHA missed out on $692 million in revenue and savings for failing to meet basic HUD guidelines. In an example of “incompetence,” NYCHA spent $10 million on a Boston Consulting Group study, but when the group made suggestions that, if followed, projected $106 million in revenue and savings by 2014, the suggestions were left unacknowledged.

One of the audit report’s more clear, and obvious, suggestions for improvement reads “Improve planning and follow-through on revenue and cost-saving initiatives.”

Olatoye, however, dismissed the audit’s findings as “exaggerated financial claims projected out over future decades with little connection to NYCHA today under new leadership.” The audit did in fact range the years preceding Olatoye’s leadership and Mayor de Blasio’s new housing policies, which have included a sharp focus on NYCHA not shown by prior administrations.

Given the new leadership of de Blasio and Olatoye, Stringer’s audit, and the City Council’s oversight, there could very well soon be a more clear picture of the new NYCHA Section 8 deal. NYCHA officials certainly seem clear-eyed with regard to assuring those concerned that the units will not be turned over to private hands in 30 years. Tuesday’s question-and-answer period will undoubtedly be illuminating.

by Jarad Sassone-McHugh, Gotham Gazette

Note: this article has been updated to reflect that the deal being discussed is indeed final.