Rejects Hopes for a Political Solution

Frank Farance Disputes Affordable Housing Claims for Roosevelt Island

Frank Farance
Frank Farance Disputes Affordable Housing Claims for Roosevelt Island
Photo courtesy of Frank Farance

In the RI Daily's July 28, 2017 article Lynne Strong-Shinozaki Wants You... To Vote!, while I agree with Ms. Strong-Shinozaki that we should encourage people to register to vote, and then to vote, part of her rationale includes "housing protections." I feel this is a misleading statement.  

Prior to 2010, those of us who were running for RIRA, RIOC Nominee, building tenants associations, etc., always mentioned a position plank on saving-preserving-adding "affordable housing."  

As a candidate, it was a no-brainer to advocate for that because: (1) it's something everyone wants, (2) it's a Good Thing, and (3) there were options and issues to address in "affordable housing".

However, almost a decade later, it's a very different picture, based upon changes on Roosevelt Island, and I've been further informed in my building's own Affordable Housing Preservation process: Island House is the only Mitchell-Lama in New York State to exit to an Affordability Plan (all others go to some form of market-rate housing), which was also acknowledged by our Borough President Gale Brewer in her 2016 State of the Borough address.

In short, counter to Ms. Strong-Shinozaki's statement, there really aren't any additional "housing protections" that will come, and politicians already know that.  I feel that residents should be told the truth here, not given platitudes than can't be realized.

First, here is what she said, with David Stone's follow-up:

Strong-Shinozaki: "I think we Ninety-Nine Percenters are ready for a government for the people again. The impact of cuts will effect so many in the very near future. It breaks my heart just to think about the injustice, [...] Very shortly none of us will be able to afford to live in this wonderful community that we participated in making great."

Stone: "Many Roosevelt Islanders have been set back on their heels by the sustained wave of change generated as residential buildings transitioned out of the Mitchell-Lama Program that built ours as an economically mixed community. Only Westview remains under the Mitchell-Lama umbrella, but that is likely to change soon as an exit vote has already been overwhelmingly approved. Strong-Shinozaki insists the answer is to turn voting into a power tool by getting more people involved."

Strong-Shinozaki: "Hopefully, if [we] get our voting power up, we will be able to effectively get housing protections that we need. Roosevelt Island was meant to be a mixed community. We are very close to losing that forever, [...] If we want our children and our children's children to have opportunities, we need to act now."

Here is the reality...

There is nowhere left to build, as per the GDP (General Development Plan). The last main plots of land were Octagon and Southtown.

Although Southtown had some "affordability" requirements, they were all given to employees of the institutions that lease the buildings, i.e., not open to the public. Maybe Southtown #8-9 might have some affordable units, but at best this will be maybe 100-ish units ... certainly nothing in the 1000 range to make up for the loss in other buildings.

With the anticipated conversion of Westview, this will leave affordable rentals (for newcomers) to just 2-4 RR, which is approx 200 units of Section 8 housing, plus some pockets of 20-40 units of "affordable" rentals here and there.

In other words, (excluding Southtown #8-9, because I don't have the exact numbers yet), of the approximately 5,000 units of housing on Roosevelt Island, about 400 units will be affordable housing rentals.

Now compare that to the year 2000 (prior to Octagon and Southtown) when there were around 3,200 units of which 2,400 where affordable housing, i.e., a loss of about 2,000 affordable rental/co-op units since in the past decade or so.

Second, I've heard people say "We'll just stay in Mitchell-Lama (M-L) indefinitely."  

Most people don't understand M-L, which is an accounting mechanism for apportioning building costs among apartments. For example, a 2-BR apartment counts as 4.5 rooms, a 3-BR apartment counts as 6 rooms. Add up all the "rooms" (not apartments) and divide that into the building operational costs, and that's your M-L rent.  

The reason why M-L housing is affordable is precisely because newly built building have very low operational costs. Once the building reaches middle age (20, 30, 40 years) there are significant costs for repair large systems (roof, elevators, plumbing, etc.).

So while the costs might be apportioned, they might be unaffordable with the major repair costs factored in.

Thus, M-L buildings exit from M-L right about middle age. Unless the State is willing to fund (subsidize) the additional building costs (very unlikely), then M-L buildings are no longer "affordable" (e.g., 100%-200% Area Median Income).

Factor In RIOC's Outstanding Debt

Third, RIOC owes a billion dollar in debt/liability to NY State.

In short, the monies owed stem from the infrastructure and construction costs in the 1970s, and the RIOC operating deficits in the 1980s and 1990s.

In 1988, RIOC agreed to the amounts and a payment mechanism. At present, with 5.74% interest rates, RIOC owes Empire State Development Corporation (formerly UDC) about a billion dollars, with interest accruing at a rate of about $4 million per month, i.e., about $50 million annually, which dwarfs RIOC's $25 million operating budget.

Why should you care about this billion dollars?  Because it will be $20 billion in 2068 and, with the present ground leases, all your apartments will be vacated and returned to RIOC, as per present ground leases (which will then be turned over to the City).  

At 5,000 apartments on the Island, that's a $4 million debt/liability when apportioned, or about $200,000 per apartment in today's dollars.

But many of us will not be alive in 2068, so why should we care?  Answer: 40 years prior to 2068 is 2028, and lenders/mortgages want to have at least 40 years left on a lease to lend at low homeowner rates.  

With less than 40 years, there will be a risk and a depreciation (2.5% straight line depreciation) without the 2068 problem solved, e.g., in 2030 your apartment will go down 5% in value, and 2032 your apartment will down another 5% in value (now worth 10% less).

Add to that a higher mortgage cost for the potential buyer... and (and this is really big) possibly a $4 million bill due in 2068, or approximately $460,000 taken off the value of your apartment in addition to the 10% devaluation in 2032.

So 2028 is fairly close: when one looks at negotiating ground leases and such, this took Island House about a decade to negotiate its affordability plan.

Now imagine doing that for all 20 buildings on Roosevelt Island, each with their own and different ground lease, and each with their own financial and negotiating terms.  

Now add into the mix: the City and the State will play a role, and the State has several agencies of interest (RIOC, ESDC, HCR, etc.), along with the Governor's office.  

Also add to the mix: the State's unions, because if people/politicians are going to put pressure on ESDC to drop the $20 billion debt/liability, then there are State unions and other entities who will be complaining "those monies could go towards State pensions and healthcare benefits not giveaways to rich Roosevelt Islanders with Luxury Apartments on the East River."  

So getting the State to give up on a $20 billion debt/liability might have problems.

In other words, we (the Island) really need to start negotiating this now because waiting until 2028 will be too late, and people will have difficultly selling/buying apartments for next 10 years (up to 2038).

But you think: maybe we (the Island) won't have to pay this at all, RIOC will owe the money (not us), and when 2068 comes, the City will either renew the Master Lease or the City will take over.

It is possible that residents might have to pay this sooner, which would mean higher maintenance/rent.  

I'm sure many people have heard about Cornell, the land transfer from RIOC back to the City, and the delays on getting funds from the State.  

Here's the inside perspective: You might ask, why doesn't the City just pay RIOC for the land it gave back?  Really good question.  

The answer lies in the 1988 Revenue Allocation Agreements that mandate RIOC pay all profits (monies over operating expenses) back to the State to pay back the debt/liability, and any payments for transfer/condemnation of land also go directly back to the State.  

So if RIOC received money from the City, they'd just have to hand it over to the State ... so that's the reason for all of these contortions.

But it gets worse.  For the past decade or so, RIOC may have misled the State on its budget: on a year-to-year basis, RIOC has had a break-even budget.  

However, RIOC hasn't spent all of its approved budget, so this has accumulated into approximately $100 million of approved but unspent budget - or said differently, RIOC was actually making a profit but hid it with budget that it didn't spend.  

How does this happen? RIOC's auditing process is disconnected from its budgetary process.  

In other words, there are tens of millions of dollars from RIOC that should have gone back to the State for repayment of debt/liability.  

Can the State take the money out of RIOC's bank account? Yes.  

And what happens to the monies needed to operate the Island? Every building ground lease (with the exception of Rivercross) has a Facilities Fees clause that, in essence, allows RIOC to tax all of the buildings (except for Rivercross).

As homeowners/renters, it is possible that we might have to pay back those monies, not directly, but indirectly.  And of course RIOC is well aware of the 1988 agreements. That's why they couldn't take money directly from the City (or Cornell) for the land.

Fourth, because we pay our property taxes to the State (ESDC/RIOC) and not the City (Department of Finance), the SCRIE/DRIE increase exemptions for seniors/disabled are funded by ESDC, and not the City.  

We've learned this in the Island House privatization: while the building owner was happy to continue SCRIE/DRIE post privatization, it was the State (ESDC) that did not want to fund these exemptions, and they were pretty strong in their opposition.  

Although these exemptions are very important to seniors/disabled, they really don't amount to a large sum of money. That's how petty/oppositional the State is on SCRIE/DRIE.  

In Island House, we might devise a self-funded system for SCRIE/DRIE equivalents, but that would be funded by the rest of the tenants in the building.

What to do?

As Island leaders, we should be honest with the community and tell them the truth. When Ms. Strong-Shinozaki says, "...we will be able to effectively get housing protections that we need. Roosevelt Island was meant to be a mixed community. We are very close to losing that forever ..." that's not the truth.

Here's the truth: (1) There are no additional housing protections to provide without breaking the ground leases; (2) There is virtually nothing we can change about the present housing mix, which is moving away from affordable housing, i.e., we've already lost it forever; (3) RIOC Board members, gave away affordable housing in the Rivercross privatization, and further allowed negative financial consequences to the Island by letting $300 million in windfall profits go off the Island (rather than recouping a portion, as is true in other Island buildings) and an exemption from future ground lease increases (so Rivercross won't have to pay their fair share, but everyone else will); and RIOC Board members circa 2006 (David Kraut and others), allowed Eastwood to privatize without keeping 546 as senior/disabled housing, and with no long-term plan for keeping affordable housing.

However, there are a couple things that we can do, but I would not call these "housing protections":

  • Get working on that 2068 transition right away so we can be ready by 2028.  Without being ready, it will be a disaster for lots of residents, possible for renters, too.  This also involves negotiating the arrangements post-2068, and the disposition of the billion dollar debt/liability (which will be $20 billion in 2068).
  • Immediately complete the Westview privatization: this affects 400 apartments and 1000 people. Without it Westview will very very quickly become a market-rate building.
  • Rivercross should pay its fair share, including being obliged to pay additional Facilities Fees (as all the rest of the Island is required).

Sorry, there's not much else for existing renters, which are becoming fewer and fewer.  

Really, residents should be told the truth about affordable housing on Roosevelt Island: largely, it's lost forever, and our elected representatives can do very little about it.