Policy Analysis of New York City Housing Authority¡¯s Land-lease Strategy

Rebecca White

A hotly contested topic currently in the local news is the New York City Housing Authority¡¯s (NYCHA) exploration into leasing property it owns in Manhattan to developers for the construction of mixed-income housing. Having faced NYCHA chronic budget shortfalls for over a decade, the aim is to generate much needed revenue (Dailey, Engquist, Gregory, Hawkins, Litvak & Navarro, 2013). Since 2001, it has lost $857 million in funds from the federal government (approximately $71.4 million per year), as compared to its Department of Housing and Urban Development (HUD) determined eligibility for federal funding (Rhea, 2013). Added to this, Governor George Pataki¡¯s 1998 decision to eliminate $13 million in General Assistance in New York State, as well as the decision to eliminate $25 million from NYCHA¡¯s budget beginning in 2001 (orchestrated by New York City mayors Rudolph Giuliani and Michael Bloomberg), has put increasing financial pressure on NYCHA (Millstone, 2007).

Leasing NYCHA property for commercial and housing development as a way to create an alternative source of revenue was first proposed by the agency in 2006 in a report entitled ¡°The Plan to Preserve Public Housing¡± (New York City Housing Authority, 2006). Seven years later, federal funding for NYCHA continues to evaporate.[1] In a recent testimony before the City¡¯s Committee on Public Housing, NYCHA chairman John Rhea (2013) indicated that, in addition to pursuing other revenue-generating initiatives, NYCHA is moving ahead with its plan to lease its ¡°under-utilized¡± land (p. 2). Rhea (2013) estimates that the land-lease strategy will yield $30 million annually in revenue by 2016.

NYCHA¡¯s plan to build 80-20[2] mixed-income housing on its under-utilized property has been met with substantial resistance from residents of NYCHA, New York City Council members, and affordable housing advocates. Many of the under-utilized areas already house parking lots, basketball courts, and community centers that are heavily used by residents (Dailey, 2013). There is also concern on the part of residents that an influx of families paying market-rate rents in the neighborhood will be followed by retail stores catering to high-earning new-comers, and hence create a tide of gentrification (Navarro, 2013). Further, the estimated $30 million per year that NYCHA expects to generate from this project makes up 0.95% of its calculated Total Revenue from Operations for Fiscal Year 2017 (New York City Housing Authority, 2013). The lack of clarity surrounding the benefits of this policy to the people it intends to serve, as well the apparently minimal percentage of revenue it will yield for NYCHA, make it an excellent policy for further analysis.

This paper will use Stone¡¯s Polis Model as a framework for analysis. Stone (2011) proposes an idea of society (the polis) where people are collectively oriented, yet also motivated by self-interest. In fact, the major conflict in the Polis Model of society lies between self-interest and public interest. Policy making in this environment is thus complicated and frequently motivated by conflicting conceptions of goals and values. The polis model casts light on the paradoxes and differing conceptions of these goals and values that shape the creation of policy. This model is also a helpful framework for examining the effects of a policy on equity, welfare, security, liberty, and efficiency within a society. It is also timely to use Stone¡¯s polis framework to demonstrate the potential impacts of NYCHA¡¯s proposal on itself, NYCHA residents, and the greater community. At present, NYCHA has yet to implement its proposal to lease land for development of mixed-income housing. Stone¡¯s concept of efficiency as a goal of policy-making within the polis model is particularly salient and will be employed in this analysis. NYCHA faces the extremely difficult task of maintaining care for its residents, buildings and staff through making more efficient use of continually decreasing resources. Other concepts such as liberty, welfare, and security can also apply to the analysis. However, due to limited space and an interest in thorough discussion, efficiency will be the concept examined in the following paragraphs.

The idea of efficiency describes the objective of getting the most for the least (Stone, 2011). In order to analyze the efficiency of a particular policy proposal, it is helpful to explore who benefits and who bears the burdens of the policy in question. NYCHA¡¯s proposal is to lease under-used land for development of 80-20 mixed-income housing so that it can add a total of $81 million to its revenue during the next five years (New York City Housing Authority, 2013). In this proposal, NYCHA benefits from the $81 million by using it to make repairs and rehabilitate existing public housing (New York City Housing Authority, 2013). The strategy also directly benefits buildings in need of repairs and the residents who live in them. It must be noted, however, that NYCHA estimates the cost of completing a backlog of maintenance and repair to be around $500 million (New York City Housing Authority, 2013). The $81 million that NYCHA expects to generate from the land-lease strategy is only 16% of this figure.

A developer looking to develop 80-20 housing on NYCHA property also benefits from this policy. In exchange for an average of $16.2 million per year, the developer will receive a 99-year lease on the properties (Litvak, 2013). All of these properties are located in attractive and gentrifying neighborhoods in Manhattan, such as the Upper West Side, the Upper East Side, and the Lower East Side, and could generate up to 4300 new apartments borough-wide (Litvak, 2013). Additionally, developers may be able to take advantage of the 421a program, a tax incentive wherein newly constructed housing development in the city is eligible for a 10-15-year exemption from property taxes (Pratt Center for Community Development, 2005). It is estimated that in Fiscal Year 2006, this tax incentive cost the city approximately $300 million (Pratt Center for Community Development, 2005). This implies that developers made a total of $300 million off the incentive in one year. Clearly this tax incentive must be taken into account when reviewing the actual cost of the land-lease strategy to developers.

To recap: through the land-lease strategy, NYCHA gets about 16% of the funds it needs to complete its backlog of repairs. Accordingly, 16% of repairs can be assured funding and 16% of tenants can expect repairs from this strategy. Developers, on the other hand, will pay $16.2 million and may expect a nearly 16% credit to their investment in the form of property-tax exemption under the 421a program.[3] Several concerns from this analysis result: first, why is NYCHA pursuing this policy when it appears it will yield such a tiny fraction of revenue in comparison to the amount needed to make necessary repairs? Secondly, what is NYCHA¡¯s plan for funding the 84% of needed repairs not covered in this scenario? Finally, what other options does NYCHA have for securing funding for repairs?

In considering the efficiency of this policy proposal, an analysis of who will bear its burdens must also be taken into account. NYCHA bears the burden of securing another $419 million to cover all necessary repairs. It also bears the burden of ceding its control and use of 30.5 million square feet to private developers (Manhattan Borough President¡¯s Office, 2008). NYCHA tenants also face a burden. Residents of the Washington Houses complex in East Harlem face the destruction of their community center, which provides after-school and summer programming, tutoring, and programming in fatherhood, college-prep, re-entry, and the arts. So far, no site for relocation of the center has been proposed (Gregory, 2013). If the proposal passes, residents will also lose parking lots, ball courts, on-site trash compactors and access to open space and sunlight. Additionally, residents are concerned about overall air quality and traffic congestion during construction, as well as how construction will impact the structural integrity of surrounding buildings (Hawkins & Engquist, 2013). Following construction, an influx of tenants who can afford to pay the market rate for apartments presents the potential to gentrify and squeeze out NYCHA residents from their use of the area and its resources (Navarro, 2013).

Additionally, while 20% of new apartments will be made ¡°affordable,¡± it must be noted that this means they will be available to people earning below 50% of the area median income (Schwartz, 1997). Median household income for New York City in 2011 was $49, 461 (United States¡¯ Census Bureau, 2012). This is not an unrealistic salary for someone with a Master¡¯s degree in Social Work or teaching in the city. Thus, low-income people looking to occupy these apartments will be in competition with highly educated middle-class professionals making as much as $49,000 per year.

The potential level of burden NYCHA residents stand to bear from this policy in comparison to the gains they can expect from its implementation is a major concern. Further, what is NYCHA¡¯s plan to hold developers accountable for maintaining acceptable standards of air quality and congestion during construction? Where will it propose to relocate parking lots, community centers, and ball courts, all of which will be lost to the development of mixed-income housing? How is NYCHA planning for the fact that ¡°affordable¡± housing is by definition going to be available to a wide range of people, not just those in the lowest income brackets? This begs the overall question: does this policy proposal¡¯s vision include a plan to maintain overall community sustainability and prevent further gentrification of the areas in question?

In August 2008, the Manhattan Borough President¡¯s Office (MBPO) issued a report in which it discussed NYCHA¡¯s plan to lease property for development. The report noted that NYCHA¡¯s undeveloped space is equivalent to over 11 Empire State Buildings¡¯ worth of space[4]¡ª¡°an asset worth potentially billions of dollars¡± (Manhattan Borough President¡¯s Office, 2008, p. 1). ¡°Billions of dollars¡± is vastly different from ¡°$81 million dollars by 2017¡±. Perhaps this highlights the fact that there seems to be no agreed-upon figure of how much NYCHA could get for its under-utilized properties, a point that the MBPO report makes. The MBPO Report does not discuss how it arrived at its ¡°billions of dollars¡± figure, but it does offer several critiques of NYCHA¡¯s 2006 Plan to Preserve Public Housing:

¡­the annual plan provides little clarity as to the agency¡¯s ultimate goal¡ªwhether to build as much affordable housing as possible, to make as much money for NYCHA as possible, or to strike some kind of balance between the two¡­. Perhaps most critically, it provides no indication of the overall development potential that NYCHA properties possess (Manhattan Borough President¡¯s Office, 2013, p. 3)

The MBPO Report recommends that first and foremost, NYCHA must conduct an inventory of all developable land it owns, and make an accurate assessment of the value of that land. Secondly, NYCHA should solicit input from state, city, and local agencies to develop a thoughtful, long-term, strategic plan for how it will put its development rights to use. Finally, NYCHA must tailor planning processes for development to the sites they will occupy, and attain input from local tenant associations and community members (Manhattan Borough President¡¯s Office, 2008).

The MBPO Report was written by thirteen staff members in the current administration, including senior urban planners and policy advisors. These officials detail their process of finding information for the report on page three, which includes cross-referencing information they obtained from the Gazetteer of City Property with data from the 2008 Primary Land Use Tax Lot Output report. Scott Stringer, the current Manhattan Borough President, has done work relating to housing reform, including voting against attempts to weaken rent regulations in New York City while serving on the New York State Assembly (Stringer, 2006). During his time as Borough President, Stringer also issued a report exploring the role of under-utilized properties in meeting Manhattan¡¯s affordable housing needs (Manhattan Borough President¡¯s Office, 2008).

It would appear from his political record that Stringer and his administration truly have the interests of the community at heart. It makes sense that the MBPO would take an interest in NYCHA¡¯s plan to develop its properties in Manhattan, and to encourage community participation where possible. An important issue in Manhattan (and all over New York City) is the relationship between development and community sustainability, and it appears that the office is very interested in having input where there is talk of creating development. Indeed, one of the first sentences under ¡°Role of the Office¡± reads, ¡°The Borough President’s job is to make sure that communities are protected from powerful interests who, all too often in the process, come in, take what they need or build what they need¡ªthe community be damned¡± (Stringer, 2006, p. 1).

The Borough President is an elected position with a four-year term. The President must be thoughtful about the interests of his constituents and mindful that he may be out of a job every four years if he does not heed their concerns. Although irresponsible development is a cause for concern, the President probably does not want to alienate revenue-generating opportunities for the borough. This may explain why the MBPO Report walks the fine line of criticizing the way NYCHA is exercising its development rights without offering total opposition to the exercising of those rights.

The MBPO Report includes an interesting observation, which lends to a discussion of the ethical dimensions of NYCHA¡¯s proposal to lease its under-utilized land for development. The Report notes that if NYCHA chooses to exercise or transfer its development rights to its property, it does not need to hold a land-use or environmental review (Manhattan Borough President¡¯s Office, 2008). NYCHA is required to consult with affected tenant associations in question, but there is no discussion of what must be involved in that consultation (Manhattan Borough President¡¯s Office, 2008). This is problematic, given the results of the analysis section above, where it is suggested that the brunt of the burden involved in NYCHA¡¯s proposal will be borne by the community. It is unethical to propose a policy that will have an enormous impact on the community, without serious engagement of the community in question. In fact, the community has had to take steps to force engagement with NYCHA over this policy. The Good Old Lower East Side, a community organization located in the neighborhood for which it is named, is organizing to slow the pace at which NYCHA is attempting to implement the land lease strategy (Litvak, 2013).

Given the amount of evidence that suggests that this policy is in need of considerable review, it is relevant to question why it has been proposed in the first place. Background research on the current chairman of the NYCHA, John B. Rhea, reveals that he was a former Wall Street investment banker with J.P. Morgan Chase and, later, Lehman Brothers, with no prior experience in managing public housing (Fernandez, 2009). Rhea was appointed by Mayor Michael Bloomberg in 2009, who is himself a former Wall Street banker. The potential for a conflict of interest is great if the Chairman of the agency responsible for proposing a policy that essentially panders to the pockets of developers has ties to the financial industry himself. Given his background, can it be safely assumed that Rhea has the interests of the NYCHA and its tenants at heart? The ethical dilemma here is the proposal of a policy, at the heart of which is the very real potential for a conflict of interest between the Chairman of the NYCHA, the agency itself, and its tenants.

Based on this policy analysis, there are a few recommendations for change. The first is that NYCHA should immediately suspend its proposal to lease under-utilized land for development of mixed-income housing. Second, NYCHA should conduct a comprehensive assessment of the potential value of its underdeveloped land. Echoing the MBPO Report, NYCHA should draw up a comprehensive long-term development strategy for this land, and create more low-income housing that it owns and oversees. Third, NYCHA must focus on creating a more comprehensive strategy to capture funding to make $500 million in repairs. In 2009, the Metro Industrial Areas Foundation (MIAF) encouraged NYCHA to apply for a $300 million one-time grant for brickwork and roof repairs from the Department of Housing and Urban Development (HUD). The MIAF noted that NYCHA chose not to apply because ¡°they didn¡¯t have the qualified staff [to make the repairs]¡± (Smith, 2012, p. 1). Frustrated, the MIAF wrote a letter to Mayor Bloomberg in 2011 stating, ¡°NYCHA seems to lack the capacity to put credible applications together for these desperately needed funds¡± (Smith, 2012, p. 1). This suggests that in addition to increasingly limited federal funding, both poor management and lack of initiative in pursuing funding opportunities are also responsible for NYCHA¡¯s fiscal problems.

Lastly, NYCHA may capture some of the funding it needs for maintenance costs through internal restructuring. The Boston Consulting Group[5] (2012) notes that NYCHA could save approximately $70 million and generate approximately $55 million by 2016, by identifying and eliminating fraud in its operating structures, and by enforcing reasonable rents in its Section 8 program. The report notes that NYCHA has incorporated many of its proposed initiatives in a revised 5-year-operating-plan, resulting in the generation of $35 million in salary and fringe savings by 2016. However, this leaves out $20 million in revenues and $70 million in cost-savings for a total of $90 million, which NYCHA could and has apparently not taken advantage (Boston Consulting Group, 2012). Why should NYCHA cede development rights to 30.5 million square feet of its under-developed land, generating $81 million dollars by 2017 (or 16% of funds needed to cover the cost of necessary repairs), when it has been given a roadmap for making $125 million (25% of funds needed to cover repair costs) by 2016whilemaintaining development rights to all of that land?

NYCHA must re-ground its management culture and policies in its mission to provide safe and affordable housing for low- and moderate-income New Yorkers. This policy analysis highlights how easily social welfare policy may slip into lip service concerning the importance of social welfare, while simultaneously dismantling actual social welfare. Social welfare policy and social work practice with a commitment to integrity must be grounded in social welfare as defined by the people directly impacted by the policy or practice, rather than those in control of making the policy or carrying out the practice. Further, it is na?ve to pretend that power differentials do not exist in our society, and any analysis of a policy must include an analysis of how relative possession of power shapes and defines the outcomes of that policy.

Footnotes

[1]In 2012 Congress passed a 6-month Continuing Resolution, which mandates funding of NYCHA operations at 80% of 2013 eligibility, resulting in the loss of $202 million for Fiscal Year 2013 (Rhea, 2013). In addition to this, NYCHA expects further funding cuts resulting from the recent Sequestration legislation (Rhea, 2013).

[2] This type of housing is structured so that 20% of apartments are rented out to people with incomes at or below 50% of the area median income, and the rest (80%) are rented at market rate(Schwartz, 1997).

[3] In 2013-2014, the property tax rate for class 2 buildings (3 residential units or more) was 13.15% (The City of New York, 2014).

[4] Approximately 30.5 million square feet throughout the borough of Manhattan. This is different from another figure cited in the literature that reports 3 million square feet is to be leased out (Hawkins, A. & Engquist, E., 2013). This incongruence may suggest that there is no real understanding of how much ¡°under-utilized¡± developable land NYCHA possesses.

[5] The Boston Consulting Group was hired in 2011 by NYCHA to conduct an assessment of internal efficiency and effectiveness and to offer proposals to reshape agency structures for more efficient and cost-saving performance (Boston Consulting Group, 2012).

References

Boston Consulting Group. (2012). Reshaping NYCHA support functions. Boston: Boston Consulting Group.

Dailey, J. (2013, February 6). NYCHA wants luxury apartments on parking lots, playgrounds. Curbed NY. Retrieved from http://ny.curbed.com/archives/2013/02/06/nycha_wants_luxury_apartments_on_parking_lots_playgrounds.php

Fernandez, M. (2009). Investment banker to run city housing authority. The New York Times. Retrieved from http://www.nytimes.com/2009/05/14/nyregion/14nycha.html

Gregory, K. (2013, April 8). Private development feared in city-owned complex. The New York Times. Retrieved from http://www.nytimes.com/2013/04/09/nyregion/east-harlem-residents-fear-private-development-in-city-owned-complex.html?_r=2&

Hawkins, A. & Engquist, E. (2013, March 20). Tenants boycott NYCHA land lease pitch. Crain¡¯s New York Business. Retrieved from http://www.crainsnewyork.com/article/20130320/BLOGS04/130329988

Litvak, E. (2013, March 5). A closer look: NYCHA¡¯s plan to build luxury housing on the Lower East Side. The Lo-Down. Retrieved from http://www.thelodownny.com/leslog/2013/03/a-closer-look-nychas-plan-to-build-luxury-housing-on-the-lower-east-side.html

Manhattan Borough President¡¯s Office. (2008). Land rich, pocket poor: Making the most of New York City Housing Authority¡¯s (NYCHA) unused development rights. New York: Manhattan Borough President¡¯s Office.

Millstone, D. (2007, October 30). NYCHA¡¯s phony fiscal crisis. The Daily Gotham. Retrieved from http://dailygotham.com/blog/daniel_millstone/nycha_phony_fiscal_crisis

Navarro, M. (2013, March 11). Tenants worried by plans to build near city projects. The New York Times. Retrieved from http://www.nytimes.com/2013/03/12/nyregion/plan-to-lease-open-land-at-housing-projects-stirs-concern.html

New York City Housing Authority. (2013). 5 Year Operating Plan Calendar Years 2013-2017. New York: New York City Housing Authority.

New York City Housing Authority. (2006). The Plan to Preserve Public Housing. New York: New York City Housing Authority.

Pratt Center for Community Development. (2005).Understanding the NYC ¡°421-a¡± property tax exemption program: How can it be reformed to create affordable housing? New York: Pratt Center for Community Development.

Rhea, J. (2013). Testimony from Preliminary Budget Hearing before the Committee on Public Housing. New York: The City of New York.

Schwartz, A., and Tajbakhsh, K. (1997). Mixed-income housing: Unanswered questions. Cityscape: A Journal of Policy Development and Research 3(2), 71-92.

Smith, G. (2012). NYC Housing Authority boss John Rhea seeks millions for ‘desperately needed’ repairs – 2 years too late. The New York Daily News. Retrieved from http://www.nydailynews.com/new-york/nyc-housing-authority-boss-john-rhea-seeks-millions-desperately-needed-repairs-2-years-late-article-1.1171730

Stone, D. (2011). The policy paradox: The art of political decision-making (3rd edition). New York: W.W. Norton & Company.

Stringer, S. (2006). Scott Stringer, Manhattan Borough President. Retrieved from http://www.mbpo.org/index.asp

The City of New York. (2014). Tax rates. New York: The City of New York. Retrieved from: http://www.nyc.gov/html/dof/html/property/property_rates_rates.shtml

United States¡¯ Census Bureau. (2012). New York City¡¯s household income at $49,461 in 2011, American Community Survey shows. (Publication No. CB12-R.01). Washington, DC: U.S. Government Printing Office. Retrieved from: https://www.census.gov/newsroom/releases/archives/american_community_survey_acs/cb12-r01.html

U.S. Department of Housing and Urban Development. (2013). HUD-DOE partnership: Multifamily Weatherization of Public and Assisted Housing. Retrieved from http://portal.hud.gov/hudportal/HUD?src=/recovery/partnerships/HUD_DOE

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About the Author

Rebecca White is a second year student in the Community Organizing Track at the Silberman School of Social Work. She completed her first year internship in tenant rights counseling and tenant organizing with Neighbors Helping Neighbors, an affiliate of the Fifth Avenue Committee. She currently interns with La Fuente, which does civic engagement and community organizing with immigrant communities in New York City, Long Island, and New Jersey. She can be reached at rebecca.nur@gmail.com.

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