NYS Threatens Huge Tax Hike For Island's Mitchell-Lamas

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6 • The Main Street WIRE, Sat., Nov. 17, 2007 Mitchell-Lama Snafu Crystalizes Views on Island Housing... ESDC from page 1 unable to make its tax-equivalency payments without a maintenance increase that DHCR won’t grant. If the increases remain in force, they will destroy affordable housing for Westview and Island House. A probable majority of current tenants, unable or unwilling to pay the increases required, would seek other housing. But this would present a problem for the owners. Michell-Lama rules specify income ranges for replacement tenants, and the rents are keyed to what families in those income ranges can afford to pay. As their names popped up on the list to take over available apartments, existing applicants would no longer be getting an offer of an apartment within their financial reach, and it’s likely many would turn down the opportunity to move in. How this happened is not altogether clear, even to VanAmerongen: “What exactly triggered them to focus on this issue, I don’t know,” she said Tuesday. But late last week – going into Saturday – she and other officials at DHCR were trying to make it clear that they had nothing to do with it – that the action was entirely that of ESDC, which inherited the rights and responsibilities (and bond debt) of the Urban Development Corporation (UDC) when it went bankrupt. They were, said the DHCR officials, “as surprised as anybody.” Conspiracy Theory Despite those comments, some saw a deliberate act, which they were attributing to the Commissioner of Housing, Deborah VanAmerongen. She also chairs the RIOC Board of Directors, and she has set a goal of losing no units of affordable housing here. Across the City and State, many Mitchell-Lama developments have left the program, and she seeks to stem that flow. In the case of Roosevelt Island, long-term affordability is a requirement VanAmerongen has set forth for the future of Island House, Westview, and Rivercross. (Eastwood already “escaped” Mitchell-Lama under the Pataki administration, with a program that moves apartments to market rate when they become vacant.) VanAmerongen doesn’t want the three remaining original Northtown buildings to leave the program or, if they do, she wants guarantees of long-term affordability. The thought was that VanAmerongen was in league with ESDC, creating a crunch for Rivercross’s tenant-shareholders and for Charles Lucido, who heads the consortia that own Island House and Westview. Supposedly, they would run to VanAmerongen with a request that she hold off ESDC and she would respond with an offer to solve the crisis – but with conditions. But DHCR denials include that theory, which raises other possibilities. The first is that, within the Spitzer administration, there is a left hand (ESDC) acting fully independently and without the knowledge of the right hand (DHCR) – ESDC effectively pulling the plug on DHCR’s affordable housing policy, or at least “preserving its claim” to its power to do that, as VanAmerongen described it Tuesday. It suggests a serious lack of communication and consultation within the Spitzer administration that may include HFA, the Housing Finance Agency. The second is the possibility that VanAmerongen may exact a price in return for her good offices in getting ESDC to back off. That price, presumably, would be an ironclad plan for long-term affordability. On Tuesday, she said: “After the [ESDC rent] notices went out, I went back and asked for reassurance that they are still willing to have discussion: ‘Would you be willing to enter into discussions and renegotiate a TEP [tax-equivalency payment] level that will be affordable?’ They have assured me that they will be.” By seeking such a reassurance from ESDC, VanAmerongen acquires leverage with the Island’s housing companies. She would then be in a position to impose her affordability requirements in future negotiations as the price for keeping ESDC at bay. “Our understanding is that the housing portfolio of ESDC has been moved, under the Spitzer administration, to HFA, from a policy perspective, with DHCR continuing to serve from a regulatory perspective,” IHTA’s Davis told The WIRE. “The nitty-gritty of that transition between agencies is still being integrated into their internal systems, approaches, and mindsets. Part of ESDC’s initiative in this regard may have been to push a particular agency agenda forward in the State’s policy debate concerning affordable housing and which agency is in charge.” “I’m presuming affordable transactions can be put together – that it can be negotiated,” VanAmerongen said. Speaking specifically of the Rivercross cooperative, she later added, “I have not had any discussions with the Rivercross folks about the particulars of their situation... We need to circle back around with Rivercross and ESDC involved.” Potential Owner Response If the ESDC boost in PILOTs were to stand, VanAmerongen’s DHCR would be faced with an immediate and desperate request from building owners to increase, dramatically, the maintenance payments (in the case of Kellner to the Battle, Trying to Get Spitzer’s Attention Governor Eliot Spitzer Executive Chamber State Capitol, 2 nd Floor Albany, NY 11248 Dear Governor Spitzer: I am seriously alarmed by the recent action taken by the Empire State Development Corporation (ESDC) dramatically increasing the Tax Equivalent Payments (TEPs) for the three remaining Mitchell-Lama buildings on Roosevelt Island: Island House, Rivercross, and Westview. The TEP increases range between an astronomical 600 and 700%, removing all incentives for these buildings to remain within the Mitchell-Lama program and jeopardizing the long-term affordability of thousands of tenants’ homes. While ESDC has the right under its ground leases with the owners of Westview, Island House, and Rivercross to discontinue the tax abatements after 30 years, doing so would unilaterally and effectively eliminate the affordable housing stock on Roosevelt Island. These actions threaten to undermine the work done by Division of Housing and Community Renewal (DHCR) Commissioner Deborah VanAmerongen and Roosevelt Island Operating Corporation (RIOC) President Stephen Shane to preserve affordable housing in this community. One of the buildings, Rivercross, a Mitchell-Lama Co-op already desperately in need of millions of dollars for basic repairs, has been told that their TEP will increase 685% from approximately $525,000 to an alarming $3.6 million. The tenant leaders of Rivercross estimate that the new TEP will cause monthly maintenance payments to be raised by 45% for each household. This will undoubtedly create an extreme financial hardship on residents, 66% of whom are senior citizens and most of whom live on fixed incomes. Tenants living in Westview and Island House will be similarly and unconscionably burdened. In 2005, after authorization from the State Legislature, the New York City Council passed Resolution No. 388-A, extending real property tax exemptions for 50 more years to Mitchell-Lama housing companies if buildings remain in the program. Since the passage of Resolution No. 388-A, there has been some question as to whether or not it is applicable to Roosevelt Island’s Mitchell-Lama buildings. So you are aware, attached to Resolution No. 388-A, was a list of buildings covered by the legislation, that includes Westview, Island House, and Rivercross. It is clear to me that when the State Legislature and the City Council voted to extend these tax exemptions, they explicitly intended to include Roosevelt Island. To date, your administration has shown a strong commitment to preserving and enhancing affordable housing, particularly Mitchell-Lama housing. ESDC’s actions are contrary to your work in this direction, and I hope represent a correctible error. DHCR and RIOC are the State agencies that work most closely with Roosevelt Island. ESDC should not be allowed to create policy in this community without first engaging these agencies. I understand that ESDC has recently agreed to meet with DHCR about this issue. This is not enough. Before irreversible harm is done to the tenants of Roosevelt Island, I urge you to instruct ESDC to rescind the recent tax equivalency bills issued to the owners of Island House, Westview, and Rivercross and continue to grant them their former tax abatement for as long as they remain in the Mitchell-Lama program. I thank you for your immediate attention to this matter. Very truly yours, Micah Z. Kellner Member of Assembly Rivercross) and rents (Island House and Westview). In short, if VanAmerongen can’t get ESDC to back off completely or almost completely, her agency will be faced with the impossible task of attempting to maintain affordable housing in apartments that have moved, almost overnight, out of the “affordable” category. The owners would be looking to leave Mitchell-Lama as soon as possible, to have the means of raising the funds required to pay the taxes. ESDC’s increase is, therefore, untenable, say those who are following the situation. Westview co-chair Opher Pail said, “This is absurd. The basis of our discussions with DHCR [toward resident ownership] was a freeze at the current level for 20 years. It’s a shocker – a bureaucratic snafu, not intentional – I hope.” But VanAmerongen said, “I’m not going to say that the [TEP] bills don’t mean anything, I’m being told that they are willing to discuss some negotiation on the TEP payments presuming there is some long-term affordability on those properties. –DHCR Commissioner Deborah VanAmerongen because they could demand a payment and could pursue it aggressively.” Speaking of the managing partner for both Island House and Westview, she said, “I recommend that [Charles] Lucido reach out to ESDC directly. I’m being told that they are willing to discuss some negotiation on the TEP payments presuming there is some long-term affordability on those properties – willing to hold off until we have a deal to present to them.” Others suggested that Lucido could finally throw up his hands in disgust, and file for exit from Mitchell-Lama, a move which, if successful, could make both buildings far more valuable – particularly if he could anticipate getting an extension on the buildings’ ground leases sometime in the next 15 to 20 years, which observers consider likely. But VanAmerongen said, “It would be premature to talk about rent increases or opting out [of Mitchell-Lama] to have the money to pay [the increased TEP], until we know. We are still on the same path and the need for an argument for a good affordable-housing transaction is stronger than it ever was. It’s another reason we have to do affordability, not just because I want it, or RIOC wants it. It’s another reason to do an affordable transaction, to get ESDC to the table.” She added, “Opting out of Mitchell-Lama would be the wrong way to be thinking about this.” Choices Even so, the threat of an ESDC tax-equivalency hike does create a starkness to building choices. Leaving Mitchell- Lama, if it can be done successfully, would allow rent increases, but they would unquestionably be a serious hardship for most current residents of Island House and Westview. (Rivercross would cover increased taxes by keeping a substantial portion of the selling price of vacated apartments.) The other alternative is to bow to specific DHCR demands regarding future affordability and hope that VanAmerongen has the leverage with the Governor, and thus ultimately with ESDC, to keep the TEPs from going so high as to drive tenants out with rent increases that her agency would have to approve. M. E. Freeman, an attorney who is a pioneer Rivercross resident and a member of the building’s committee working toward an exit from Mitchell-Lama, told The WIRE on Wednesday that, “If ESDC goes through with this, it is essential and beyond argument that Rivercross will have to convert – become a conventional private-housing cooperative. We would have no ability to handle the PILOT increase without a 45% incease in maintenance fees, which is our only way under Mitchell-Lama to meet such costs. If we convert, we’ll be able to meet these costs through exit fees” (the building’s share of profit from the first sale of each apartment). Freeman said such a course would “allow our existing shareholders to remain in their apartments. That has always been our primary goal.” Politicians representing Roosevelt Island were in gear soon after the notices were received, attempting to head off a housing panic by demanding a rollback, or at least a delay in implementation, of the PILOT increase announced by ESDC. But there were no unqualified successes in that effort. Assemblymember Micah Kellner said, on Tuesday, “From what I understand, this is ESDC not understanding that these buildings are still within the Mitchell-Lama program. Deborah [VanAmerongen] thought they had an understanding, and this came out of left field.” He added, “The only thing that’s been agreed to is that ESDC has agreed to meet with Commissioner VanAmerongen to discuss how to further the policy of affordable housing. ESDC doesn’t realize that they’ve made an incredible mistake here. I’m asking the Governor to intercede and instruct ESDC to rescind the TEP bills they’ve sent out, and to work with
DHCR on the affordable housing goal.” Kellner was preparing a letter to the Governor but commented, “If we can’t solve this administratively among the agencies and the administration, we’re going to have to seek a legislative solution.” City Council’s 2005 Action In fact, there was a legislative solution. It is another dimension to the legal and regulatory climate in which the ESDC action took place. At least in theory, it could render the ESDC increases moot. But there’s a question of what the State Legislature intended in passing a law, and of how that law would be interpreted in the case of Roosevelt Island. The law, passed in 2003, gave municipal legislatures, including the New York City Council, the power to extend Mitchell-Lama tax abatements by up to 50 years. In 2005, then-Coucilmember and City Council Speaker Gifford Miller proposed that the City Council do just that, and it did. Westview, Island House, Rivercross, and Eastwood were specifically included in the City Council’s list of such buildings, but it later emerged that the Island buildings were technically excluded because they pay PILOTs, not “real taxes.” Nonetheless, Alexander “Pete” Grannis, who represented Roosevelt Island at the time in the State Assembly, assured Islanders that Mitchell-Lama buildings here were included, in spirit and intent if not in the specifics of the language. The WIRE ran a series of articles and commentaries on the matter, reaching the conclusion that, strictly speaking, the Island Mitchell-Lamas were not included and that the PILOTs could therefore be increased. But few believed that the Island’s Mitchell-Lama developments would be excluded from the “gift” of longer-term tax relief bestowed on all the other Mitchell-Lamas in the State. In fact, it seems highly unlikely that the State Legislature intended to exclude Roosevelt Island’s Mitchell-Lama buildings when it gave the power of tax abatement extension to local city councils. It’s also likely there was no intent to include the buildings – that is, that the Legislature didn’t consider Roosevelt Island at all. But attorney Robert Chira, who has written commentaries for The WIRE on housing issues, says that, in his view, “The City Council resolution takes precedence over the leases.” Chira goes on to explain, “The City Council is the legislative body that imposes real-estate taxes on properties in New York City – not the Mayor, not the State, not any State agency like ESDC or UDC... The very Lease provision derives from the Mitchell-Lama law. It is not an independent provision that UDC came up with and put into the Lease. It is in the Lease because the Mitchell- Lama law mandates a 30-year exemption.” But last week’s action showed that ESDC, at least, didn’t share the belief that the City Council had the power to extend tax abatements for the Island’s buildings. Kellner commented, “This is, again, the interesting issue of Roosevelt Island being its own unique universe.” Rivercross resident Freeman, seeing the overall situation through legal eyes, said, “It’s simple. We want equal treatment under the law. We are asking to be treated like everyone else.” She discredits any claim that the 2003 law and the 2005 City Council resolution don’t apply on Roosevelt Island. “We were told by our elected officials that, to the extent that the resolution did not effectively cover Roosevelt Island, appropriate steps would be taken to include us. We expect our elected officials and our government to give us that treatment by whatever means necessary, on the same basis it was extended to other Mitchell-Lama buildings.” She added, “To treat us otherwise would be discriminatry, arbitrary, and capricious, and it would fly in the face of this administration’s alleged policy of affordability.” Incentive to Leave Even if the matter is resolved in a return to the old PILOT levels, the action raises a question about what a future ESDC, perhaps under another Governor, might do. That, in turn, seems to increase the incentive for the buildings to get out of Mitchell-Lama without any long-term promises about affordability, so that they’ll have the power to increase rents (and maintenance payments) as necessary, should ESDC ultimately increase taxes. Once out of Mitchell-Lama, tax abatements go away, anyway. So the building tenants, trying to take over ownership of their buildings, and Rivercross tenants, who already own the corporation that owns the building, face a choice made simpler by the prospect of the ESDC increase: Leave Mitchell-Lama, gain the right to sell apartments at full market, levy a “flip tax” (a share of each apartment sale that goes to the corporate entity the tenants own), and use those funds to pay the higher taxes. In the case of Rivercross, that’s the heart of a plan recently described to the tenant-shareholders. As Rivercross started celebrating its 30th anniversary last Sunday with a party throughout its lobby areas, resident leaders seemed to have reached some tentative conclusions: • That the ESDC action provided increased incentive for Rivercross to opt out of Mitchell-Lama and use a flip tax on apartment sales to fund PILOT payments, and • That the PILOT increases imposed by ESDC cannot stand in light of the buildings’ financial structure and DHCR’s likely unwillingness to grant rent (or maintenance) increases adequate to cover the increased cost. Rivercross, however, faces a special problem. Chira points out that, because it has already paid off its Statebacked mortgage and switched to a private mortgage, the ESDC action could make the lender uneasy about the possibility that the building’s tenant-shareholders could be unable and unwilling to make the PILOT payments called for. If the building fell into a tax default, either by inability to pay or by virtue of mounting a legal battle against the ESDC The Main Street WIRE, Sat., Nov. 17, 2007 • 7 ...With Hints of Infighting on Who Has Authority Over Housing Lappin Weighs In Executive Deputy Commissioner Patrick Foye Empire State Development Corporation 30 South Pearl Street Albany, NY 10017 Dear Deputy Commissioner Foye: I am writing to express my shock and dismay regarding the recent action taken by the Empire State Development Corporation (ESDC) to increase the Tax Equivalent Payments (TEPs) by 600-700% for the Mitchell-Lama buildings on Roosevelt Island. At the present time, Island House, Westview, and Rivercross are all in the Mitchell-Lama program. These three buildings provide 1,148 units of affordable housing to middle income New Yorkers. While I am aware that the ground lease agreements between ESDC and the owners of Westview, Island House, and Rivercross give ESDC the ability to increase TEP payments after 30 years, it is bad public policy to do so at this time. As long as these buildings remain in Mitchell-Lama, they should benefit from tax abatements. In 2005, the City Council and the State Legislature passed legislation to extend property tax exemptions for Mitchell-Lama buildings to fifty years, instead of thirty, and certainly intended for Roosevelt Island to be covered by this legislation. These increased TEPs will make it impossible for Rivercross to remain in the Mitchell-Lama program and for residents of Island House or Westview to achieve their goal of a tenant sponsored buyout. Not only will these increases force market rate conversions, they will also make it impossible for shareholders or tenants to retain any affordable housing in these buildings. Even worse, these increased payments will certainly force hundreds of Roosevelt Island residents from their homes. It is my understanding that ESDC did not reach out to the New York State Department of Housing and Community Renewal Commissioner (DHCR) Deborah VanAmerongen, Roosevelt Island Operating Corporation (RIOC) President Steve Shane, or any local elected officials before deciding to send out these TEP increases. In failing to do so, ESDC undermined our collective efforts to protect tenants and maintain short and long term affordability on the Island. I hope that ESDC will review and reverse this decision. I look forward to working with you to resolving this issue in an amicable and timely manner. Jessica Lappin Council Member, 5 th District-Manhattan TEP invoice received “out of the blue” by Rivercross’s mortgage holder, The Community Preservation Corporation, puts the building’s monthly tax-equivalency cost at a high multiple of the past cost. increase, the lender’s mortgage could suddenly become a very risky proposition. One concern for Rivercross residents could be that DHCR might attempt to treat that building differently, that is, to cause ESDC to back off on the higher TEP payments for Westview and Island House, but to allow them to be im- The WIRE’s 2005 coverage of the tax abatement issue for the Island’s Mitchell- Lama buildings is available on line, on Website NYC10044. Internet addresses for the relevant issues are shown, with dates, below. February 19, 2005 nyc10044.com/wire/2512/wire2512.pdf March 5, 2005 nyc10044.com/wire/2513/wire2513.pdf April 2, 2005 nyc10044.com/wire/2515/wire2515.pdf May 14, 2005 nyc10044.com/wire/2518/wire2518.pdf posed on Rivercross while it is attempting to exit Mitchell- Lama. However, attorney Freeman says that would be unequal treatment, illegal under the law. She said she would expect Rivercross to be treated according to its legal status as a Mitchell-Lama cooperative, without regard to any plans it might be making to exit the program. Commenting on DHCR’s policy of keeping units in Mitchell-Lama, Freeman said, “They’re concerned about future unborns.” Noting that the affected buildings are in need of catch-up maintenance that Rivercross hopes to fund through the exit fees, she said, “Our concern must be with present-day residents – our fixed-income and senior shareholders.” Even if ESDC backs off on the increases, Freeman said, “We will be in the same position we were in before they imposed this, which is that we want to exit Mitchell-Lama and we have a plan to do it, and we will continue on that course for all the reasons that we first presented the plan.” “We collectively are pawns in this debate,” IHTA’s Davis told The WIRE. “From no matter what perspective – owner, investor, tenant association. Our strength is that our issues are ‘real’ people issues, not concepts. In order for the policies to be brought to life, they have to concretize into a ‘real people’ scenario. This is what we provide the State in this debate. The good news is that the debate is still fluid and we can influence it.” Davis added, “As to what will happen going forward, it depends on how committed Governor Spitzer’s administration is to upholding the rights of tenants to become homeowners.”
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