Posted by Kerry Spitzer, March 9, 2010
Every year the same story is told during the New York City Housing Authority’s (NYCHA) City Council budget hearings: There is a multimillion dollar budget gap in NYCHA’s operating budget, due primarily to the fact that neither the city nor the state provide operating funding for the 21 developments they built between 1949 and 1978. Because the city and state do not provide funds to independently support these developments, the federal funds intended to cover the 315 federal developments are being stretched to cover the costs to maintain all of NYCHA’s developments. According to NYCHA, the fact that these 21 developments have no dedicated support is responsible for $90 million of NYCHA’s annual operating deficit, which is projected to be $137.1 million in 2010. In addition, the developments are missing out on $20 million in capital financing that they would receive were they federal developments.
The American Recovery and Reinvestment Act raised the possibility of ending this storyline for good. Through a onetime exemption to the Faircloth Amendment, which prohibits the federal government from creating any new federally subsidized public housing, it will allow NYCHA to “federalize” the 21 orphan developments. To take advantage of this opportunity, NYCHA has developed what is called a Mixed-Finance Moderation plan. Under the plan, the 21 developments (which contain 20,143 apartments) will be sold to two non-profit affiliates, in which NYCHA will have a controlling interest. Stimulus money, bonds, loans and low-income housing tax credits that will leverage private funds will finance the purchase and rehabilitation of the developments. NYCHA will continue to own the land on which the developments are located and will continue to manage the apartments. Residents will continue to have the same rights and will not be displaced. While the lifting of the Faircloth Amendment restrictions will allow public housing authorities around the country to pursue similar plans the scale of the NYCHA plan is unprecedented.
For this plan to be realized, all of the needed funds must be obligated and the Mixed-Finance transaction must be completed by March 17, 2010. All stimulus-funded rehabilitation work must be completed by March 2012. The gears are in motion to make the plan a reality. According to NYCHA, the majority of the funds for the rehabilitation work have already been committed and the city’s Housing Development Corporation (HDC) has approved selling $535 million of tax-exempt and taxable bonds to finance the deal. As early as this week HDC plans to market a portion of the bonds. Furthermore, the state Assembly and Senate have approved the plan, and late last week Governor Paterson signed the bill. The deal needs approval of the New York State Division of Housing and Community Renewal. Lastly, the U.S. Department of Housing and Urban Development will need to issue final approval. NYCHA and the Bloomberg Administration are optimistic that the necessary approvals will be obtained in time for the deal to go forward.
The plan will benefit NYCHA by providing ongoing federal operating support for all of its developments. NYCHA anticipates that as early as October 2010 it will begin receiving the additional federal support. Under the plan, NYCHA anticipates receiving at least $65 million in new federal operating and capital subsidy over the course of federal fiscal year 2011, and hopes that when the plan is fully implemented it will receive $75 million to $100 million annually. Even though federal support for public housing is subject to appropriation risk, these funds are formula based and would be a much steadier source of revenue than the city or state. The private partners will benefit by obtaining Community Reinvestment Act Credits and tax credits.
While these funds will go a long way towards stabilizing NYCHA’s budget, the agency will continue to face operating and capital deficits. NYCHA’s Annual Plan for Fiscal Year 2010 projected an operating deficit of $137.1 million in 2010 and noted that the capital funds it has on hand are not sufficient to meet the ongoing needs of the aging developments. NYCHA expects that the additional funds will greatly reduce, but not eliminate, their operating deficits; nor will they be enough to fill the gap between the capital needs and resources of NYCHA. Federalization, if it is implemented as planned, will very much improve the financial stability of NYCHA, but it is not a silver bullet and more will need to be done to further stabilize NYCHA’s finances.