Provides for a transfer fee of 75% of the fair market value in dissolution or sales of a rental project or mutual company

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.