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URGENT ALERT: NYHC urges you to stop the BIC measure!
Dear NYHC Member:
In a move that has taken our housing community by surprise, when Albany passed the emergency appropriations bills on March 29th, a measure was slipped in by Governor Paterson which subjects the New York City Housing Development Corporation (HDC) to a Bond Issuance Charge (BIC) each time it issues bonds to finance affordable housing.
This is the first time in 38 years that New York City will be subject to this fee and it will have an immediate and severe impact on HDC’s financing capacity – diminishing HDC’s capacity to finance affordable housing by 285-430 units per year, and resulting in an additional cost of $10-$15 million per year incurred by HDC and its projects.
We are urging the members of the State Legislature to remove this language from the State Budget and make it retroactive to March 29th.
It is important to nip this in the bud. The BIC measure poses an ominous, long-term threat to affordable housing.
While the State budget is already two weeks past due, the parties could reach agreement on a new budget at any time, so time is of the essence.
The key legislators we are contacting are listed below. However, your expressed support is essential to this issue so please join us in this effort by sending an email or letter today. To facilitate this process, we have attached a sample letter and contact information below.
Thank you for joining us in supporting our position on this issue, Judy Calogero
Sample Letter:
I am writing to you regarding an issue of critical importance to New York City and its affordable housing efforts. On March 29th when the legislature passed the State’s emergency appropriations bills, a measure was included which subjects the New York City Housing Development Corporation (“HDC”) to a Bond Issuance Charge (“BIC”) each time it issues bonds to finance affordable housing. This is the first time in 38 years that New York City will be subject to this fee and it will have an immediate and severe impact on HDC’s financing capacity. Due to the BIC, HDC estimates their capacity to finance affordable housing will be diminished by 285-430 units per year and result in an additional cost of approximately $10-15 million per year incurred by the HDC and its affordable housing projects.
Given the nature of HDC’s projects—the high cost it takes to build in New York City and the relatively low rents tenants can afford to pay—these transactions require HDC to draw upon their corporate reserves to subsidize the projects and make them affordable to low and moderate income tenants. This newly imposed fee will just increase the amount of subsidy necessary for projects to achieve feasibility, resulting in fewer units of housing, less economic activity, fewer jobs and fewer tax dollars flowing to the City and State.
In affordable deals, the BIC will effectively increase project costs, creating gaps which will be incumbent upon the government to fill. These costs can be passed through only if additional subsidy is incorporated into the financing. In addition, where HDC issues bonds to raise money for subsidies or to securitize assets of New York City, there is no borrower to pay such charge so the BIC would be paid “out of pocket” by HDC.
Moreover, the BIC also threatens the feasibility of existing, multi-year transactions, for which HDC has issued an initial series of bonds. For example, NYCHA’s historic “Federalization” transaction—which the State legislature and Governor played a crucial role in bringing to fruition—will be burdened with $2 million in unanticipated fees, for which no budget sources exist.
Given the harmful impact of the BIC on the financing of low and moderate income housing within New York City, as the legislature moves towards the passage of final budgetary legislation, we urge you to advocate for the removal of language that imposes a BIC on HDC and do so retroactively to March 29th. Should you have any questions concerning this issue, please do not hesitate to contact me at 518/691-0537 or 212/265-6530. Thank you for your consideration of this important matter.
Contact Information:
Hon. David A. Paterson
Governor
State Capitol
Albany, NY 12224
Fax: (518) 408-2549
Hon. Pedro Espada, Jr.
Majority Leader
NYS Senate
Capitol Building Room 420
Albany, NY 12247
Fax: (518) 426-6858
Hon. John L. Sampson
Democratic Conference Leader
NYS Senate
409 Legislative Office Building
Albany, NY 12247
Fax: (518) 426-6806
Hon. Malcolm A. Smith
Temporary President
NYS Senate
Office of New York State Senator Malcolm A. Smith
909 Legislative Office Building
Albany, NY 12247
Fax: (518) 455-2816
Hon. Carl Kruger
Chair, Senate Finance Committee
NYS Senate
913 Legislative Office Building
Albany, New York 12247
Fax: (518) 426-6855
Hon. Sheldon Silver
Speaker
NYS Assembly
LOB 932
Albany, NY 12248
Fax: (518) 455-5459
Hon. Herman D. Farrell
Chair, Ways and Means Committee
NYS Assembly
LOB 923
Albany, NY 12248
Fax: (518) 455-5776
Hon. Vito J. Lopez
Chair, Committee on Housing
NYS Assembly
LOB 943
Albany, NY 12248
Fax: (518) 455-5789
As the nation’s largest and most successful affordable rental housing production program, the Housing Credit program has financed more than two million apartment homes since 1987 and about 120,000 annually in recent years. According to the National Council of State Housing Agencies, approximately 90 percent of all affordable rental housing is financed annually through the Housing Credit. According to the National Association of Home Builders, until recently the program supported about 180,000 jobs annually, and benefitted local economies from the addition of $1.5 billion in taxes and other revenues.
Housing Credit properties are also managed very well, with an extremely low annual foreclosure rate below 0.1%, according to Ernst & Young. Not only has it produced quality, well-managed apartments, and well paying jobs, the Housing Credit brings well designed rental housing to a wide variety of communities—from inner cities to rapidly growing suburbs to rural towns. It builds new affordable apartments and saves valuable, at-risk, existing affordable housing. It provides affordable homes to working families and vulnerable populations with special needs—the elderly, people with disabilities, and people who are homeless. It addresses the housing needs of acutely underserved communities, such as farm workers and Native Americans, and it is the key housing resource for transformative community redevelopment and revitalization efforts nationwide.
However, the recession and the financial crisis have drastically reduced investment in the Housing Credit program over the past 18 months, preventing the production of needed affordable housing and eliminating tens of thousands of jobs. Private investment in the Housing Credit has fallen from a high of about $9 billion in 2006-2007 to about $5.5 billion in 2008, and is expected to drop even further in 2009. If no action is taken, this reduced investment will result in as many as 60,000 fewer affordable apartments built and 90,000 lost jobs annually in coming years.
Congress responded promptly, through the American Recovery and Reinvestment Act of 2009 (Recovery Act), by providing $2.25 billion in the HUD-administered Tax Credit Assistance Program (TCAP) to help jumpstart stalled development. It also gave state housing agencies the ability to exchange a portion of their Housing Credit allocations for direct spending funds that can be used to maintain the affordable housing development pipeline.
But TCAP and the exchange programs are temporary programs meant to deal with the immediate affordable housing crisis. Investment markets will not fully recover in 2010, and further action is needed to ensure
The undersigned include many coalition partners in The Affordable Rental Housing A.C.T.I.O.N. (A Call To Invest in Our Neighborhoods) — a national, grassroots coalition focused on stimulating investment in affordable rental housing — and represent a broad cross section of organizations dedicated to the creation of affordable rental homes for lower income families throughout the country. We support the following legislative proposals that will help restore investment in affordable rental housing, produce and preserve needed affordable apartments, and employ tens of thousands of working Americans. These proposals, in no order of priority and designed to work together, represent the consensus of a broad cross section of the affordable housing community and other organizations.
Campaign Legislative Proposals
2. Immediately Stimulate, Broaden the Investor Base for, and Maintain Housing Credit
A. To immediately stimulate investment demand, investors with existing Housing Credit financed housing should be permitted to carryback for up to five years Housing Credits from their returns they file in the 2008 – 10 tax years, but only to the extent they immediately reinvest credit amounts carried back in new affordable rental housing. In order to be fully effective in stimulating additional investment, the alternative minimum tax relief Congress provided under the Housing and Economic Recovery Act of 2008 should be extended to credits carried back under this part.
B. In addition, in order to broaden and maintain steady investor demand, Congress should permit taxpayers to carryback credits generated by new Housing Credit financed housing up to five years as they arise during the ten-year credit period. This part would apply only to investments in buildings for which credits are first claimed after 2008. This will enable participation by investors for whom a significant barrier to program participation is the uncertain prospect of ten straight years of reliably positive taxable income. Allowing investors in new housing to carry back Housing Credits up to five years also helps put the Housing Credit on a more equal footing with other tax credit programs, which have shorter compliance and investment holding periods.
3. Further Broaden the Investor Base. Under present law, the tax code’s passive loss rules restrict the pool of potential Housing Credit investors. The undersigned organizations support providing parity with widely held C Corporations by allowing some S Corporations, Limited Liability Companies, and closely held C Corporations to offset revenue with Housing Credit tax benefits that would otherwise be taxable when passed through to the owners of these businesses. To ensure the high standards of oversight associated with the program are maintained, we support limiting this ability to such entities that satisfy the following tests: (1) have at least $10 million in annual gross receipts; (2) the principal purpose of forming the entity is not the avoidance or evasion of Federal income tax; and (3) there is an expectation of reasonable asset management. Such a policy change will broaden investor demand and prove particularly beneficial in rural areas where many community banks and other potential investors are currently prevented from participating in the program.
The bill would create a 50 percent differential between non-elevator and elevator loan limits in each FHA multifamily program. It would also provide additional flexibility for the HUD secretary to increase the high-cost factor in extremely high-cost areas to the same high-cost factor now allowed for Special Limit areas.
Although the Weiner/Miller bill does not continue a higher differential for Section 220 loans– and we strongly support higher Section 220 limits – we believe that the legislation, if enacted, would be a significant step forward in the creation of a fully functional FHA in the new economy.
The bill has been assigned to the House Financial Services Committee and its chairman, Rep. Barney Frank, D-Mass. has signed on as a co-sponsor. A Senate companion bill has not yet been introduced.
We urge you to support this legislation. Thank you.
Dear :
We are writing to urge your support for an increase in the Federal Housing Administration (FHA) mortgage insurance base limits that would be a critical spur towards meeting the nation’s multifamily housing needs and could help generate thousands of needed jobs and serve as a boost to the economy. The current base limits are a major barrier to the construction of multifamily elevator buildings in high cost urban areas. Because these FHA programs offer a seamless construction-to-permanent loan, they are critically important to the housing industry now more than ever, with commercial bank lending so dramatically slowed and construction lending at a standstill.
FHA is authorized under the National Housing Act to insure multifamily loans originated by FHA-approved lenders for the construction, substantial rehabilitation, acquisition and refinancing of walkup and elevator apartment buildings (as well as health care facilities). The Act imposes limitations on the per-unit multifamily mortgage amount (“base limit”) that may be insured based on building type (elevator or non-elevator building) and number of bedrooms; periodically the FHA has adjusted these statutory mortgage limits.
Recent mortgage activity, based on data provided by HUD, demonstrates incredibly low usage of the programs across the nation for elevator projects. Of the 478 multifamily projects that received a final endorsement between 2002 and 2008, and were not financed under Federal government programs, only 31 (6.5%) were FHA-insured elevator apartment buildings, and most of those were financed from 2004 to 2006. Only three elevator projects have been financed under these programs in the last two years. See the attached chart from HUD.
A major obstacle is that the low per-unit base limits on FHA insurance make the program practically unavailable in high-cost areas, where elevator buildings are most common. For the first time since 2002, the base limits were increased in April 2009. However the increase was minimal and failed to take into account the much greater increases in construction and development costs since 2002. While the Act permits adjustments for high-cost areas on an area-wide basis of up to 240% above the otherwise applicable levels and up to 270% on a project-by-project basis (a 360% adjustment is allowed for Hawaii, Alaska, Guam and the Virgin Islands), the limits continue to be too low in many metropolitan areas such as Boston, New York City, Los Angeles, San Francisco and Chicago, where mid- to high-rise elevator buildings are more common.
For example, a mixed-income 100-unit building (such as an 80/20 project that uses high market-rate rents to cross-subsidize affordable units) would cost approximately $50 million to construct in Manhattan, hard and soft costs alone. Loans are often sized at 80% of value or cost. A loan at 80% of cost would be at least $40 million, or $400,000/unit. However, the current FHA base limit per two-bedroom unit is approximately $68,000/unit. Even with the existing high-cost area boost of 270% the base limit is only increased to approximately $183,000/unit, leaving a gap of $217,000/unit that would need to be financed somehow to make the project feasible.
The most efficient solution would be to increase base limits for elevator buildings in high cost-areas to approximately $150,000 for a two-bedroom unit and similarly for other sized units. At a base limit of $150,000, the existing high-cost area boost would be sufficient to achieve an insurable loan amount of $400,000/unit. In the current economic environment where many other financing options are no longer available, it is critical to make FHA mortgage insurance more accessible for elevator buildings and in high cost areas.
It is important to note that multifamily elevator projects not only provide housing but create construction jobs, provide an economic stimulus to all affected industries and increase tax revenues to all levels of government.
We believe that with these changes, FHA multifamily mortgage insurance programs could play a significant role in reversing the current trends in the multifamily credit markets. We urge you to support an increase in the FHA mortgage insurance base limits.
Sincerely,
Judith A. Calogero (July 2009)