BILL NUMBER:S456

TITLE OF BILL:
An act
to amend the private housing finance law, in relation to windfall
profits on the dissolution or first sale of rental companies and the
dissolution and/or reconstitution of mutual companies

PURPOSE:
The proposal provides for a transfer fee of
75% of the fair market value in dissolution or sales of a rental project
or mutual company. This bill is intended to forestall the further loss
of Mitchell-Lama affordable rental and co-op units or to compensate for
that loss by making funds available by a windfall profit transfer fee
for affordable housing purposes.

SUMMARY OF PROVISIONS:
This bill would impose a
windfall-profit transfer fee of 75% on the dissolution or first sale of
any limited profit rental housing company. In the case of a limited
profit mutual company, the 75% windfall-profit transfer fee would be
payable on the first sale by each shareholder after dissolution and/or
reconstitution of the mutual company.

The funds generated by this transfer fee would be used by HDC or the New
York State Housing Finance Agency:
              

(a) to continue to subsidize the development for as long as the
purchaser of a rental development remains in the Mitchell-Lama program;

(b) for the City or State to purchase the land and to lease the land to
the tenants and convert the project to a limited profit mutual company,
with a 99 year lease;

(c) for repair loans at 0% interest for as long as the company remains
in the Mitchell-Lama program to fund necessary capital improvements;

(d) for each year that the company remains as a limited profit company,
to forgive 1/30 of the principal of any repair loan each year;

(e) for the subsidization of other limited profit housing companies;
and, sixth, for the development of other affordable housing.

JUSTIFICATION:
Mitchell-Lama affordable rental and
co-op units were built to serve a public purpose to provide affordable
housing to low income New Yorkers. At the time Article II of the Private
Housing Finance Law was passed there were insufficient units providing
decent, safe and affordable housing. This situation is even more acute
today since the value of real estate and, consequently, average rents
and purchase prices for co-ops have risen to levels which are
unaffordable to most New Yorkers. Those who cannot afford to pay
privatized rents, unless they receive further government subsidies, have
been and will continue to be evicted from the housing they have occupied
unless this accelerating trend is reversed. This emergency legislation
is intended to counter this trend.


Although the Mitchell-Lama legislation provided that owners and co-op
shareholders could "buy out" of the program after a certain number of
years, it is totally inconsistent with public policy to permit them to
"buy out" and render the housing unaffordable without paying back to the
government a large portion of the profits they reap. The government has
been a co-investor with them, frequently having assembled the land,
always given having real estate tax exemptions, and often having further
subsidized the development though rent subsidies to the tenants. The
windfall profit transfer fee is intended to recapture some of increase
in value, to which the government contributed so heavily, to maintain
the viability of these units as affordable housing or to provide funds
to supply affordable housing alternatives. This legislation is
consistent with subsidies under Medicaid which must be repaid when funds
are available to the recipient of this government aid.

In the case of Mitchell-Lama rentals and co-ops, all have received New
York City real estate tax exemptions since the inception of the program.
New York City taxpayers, some with very little income themselves, have
subsidized this housing to ensure its affordability. In a number of
cases additional federal, state and local subsidies have also been
provided. It is estimated that 90% of tenants at Starrett City receive
such additional subsidies which are then paid to the landlord to ensure
the financial integrity of the project. If these Mitchell-Lama rentals
are sold or allowed to privatize without paying out a significant
portion of the increase in value to the government, eligible tenants
facing Monumental increases in rent frequently will be evicted or must
be further subsidized, with the money from these additional subsidies
going to the owners. As a consequence, too much of the federal Section 8
money allocated to New York City is going to further subsidize these
tenants and, ultimately, their landlords. This leaves insufficient
federal subsidy money available to other low income New Yorkers. Funds
from the transfer fee will ameliorate this situation.

In the case of co-ops, the situation is similar. For example, a
shareholder who paid $5,000 for a three bedroom apartment in a
Mitchell-Lama co-op in 1972 and who has been subsidized by the New York
City taxpayers for thirty-five years in the form of real estate tax
exemption, low cost government financing and very low maintenance
charges, can now sell that apartment for $1,000,000 reaping a profit of
$993,000 for just having been subsidized. Under this legislation,
shareholders, if they voted to privatize the project and make the
purchase price unaffordable to their fellow New Yorkers, would only
receive $250,000 and the government would receive $750,000 to either
subsidize those in the project who could not afford privatized carrying
charges or to provide affordable housing alternatives.

Developers and shareholders of limited profit housing companies have
benefited from significant subsidies in the form of cheap land
acquisition, tax exemption, below market rate financing, and, in some
cases, federal subsidies to insure the viability of the project. In
light of the fact that it is government subsidies that have brought
these properties to the point where they now command astronomical
prices, it is unconscionable to permit owners who have taken little risk
to extract every penny of profit out of these developments and not give
back a significant amount to assist those who live in these developments
and others in need of affordable housing. This bill would correct this
situation.


LEGISLATIVE HISTORY:
2007-08:  S.4610
2009-10:  S.3851

FISCAL IMPLICATIONS::
None.

EFFECTIVE DATE:
Immediately.