BILL NUMBER:S3162

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 Mitc-
hell-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  trans-
fer  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 mutu-
al 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 purchas-
er 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  consist-
ent  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  share-
holder  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  acquisi-
tion,  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 proper-
ties  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 situ-
ation.

LEGISLATIVE  HISTORY:     2007-08:  S.4610  2009-10:   S.3851   2011-12:
S.456/A.1465

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Immediately.