BILL NUMBER: S135

SPONSOR: KRUEGER
 
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 afforda-
ble 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 HOC 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 sharehold-
ers 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 govern-
ment 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 subsi-
dized the development though rent subsidies to the tenants. The windfall
profit transfer fee is intended to recapture sonic of increase in value,
to which the government contributed so heavily, to maintain the viabil-
ity 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 than 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 end shareholders of limited profit housing companies have
benefited from significant subsides 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 Housing Committees

2009-10: S.3851

2011-12: S.456/A.1465

2013-14: S.3162/A.3864

2015-16: S.2799/A.846

2017-18: S.3184/A.4441 Rosenthal

2019-20: S.1917/A.932 Rosenthal

2021-22: S.493/A.1836 Rosenthal

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
This act shall take effect on the sixtieth day.