BILL NUMBER:  S3851

 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 75b 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

 FISCAL IMPLICATIONS ::
None.

 EFFECTIVE DATE :
Immediately.