Get Informed: HPD’s Proposed Regulatory Agreement & Tax Break

Read: Affordable Co-ops at a Crossroads: How HDFCs Benefit from Reasonable Regulation and Oversight

 

What's happening?

In July 2016, the Department of Housing Preservation and Development (HPD) presented to the Manhattan Borough Board the outline of a proposed new Regulatory Agreement and tax break for HDFC co-ops. The idea is that HPD will tie this Regulatory Agreement to a new tax break that is deeper than the DAMP tax cap (the tax abatement that most HDFCs currently receive). At the same time, HPD will phase out or eliminate the DAMP tax cap. So the main way that HDFCs will receive a property tax break going forward is by signing the new Regulatory Agreement.

Since July, HPD has presented this proposal at several Community Boards in Manhattan, and will continue to do outreach before taking this proposal before City Council for a vote in 2017.

Below you’ll find more detail about the proposal, some Frequently Asked Questions, a response from UHAB’s executive director Andy Reicher, and information about how to take action to preserve affordable HDFCs.


 

Frequently Asked Questions

 

What is HPD proposing?

  • HPD is proposing that the city council vote to sunset the DAMP tax cap early and replace it with a new, deeper tax abatement. In order to receive the new abatement, an HDFC will have to sign onto a Regulatory Agreement with HPD.
  • The proposed Regulatory Agreement has many similarities to current Regulatory Agreements that some HDFCs already have, but with some new provisions and restrictions. The proposed Regulatory Agreement includes mandatory third-party monitoring and price caps for resales.
  • Here is a summary of the provisions in HPD’s proposed Regulatory Agreement: The full Regulatory Agreement and HPD’s presentation can be found on their website


What would it take for this proposal to go into effect?

City Council will have to vote to approve a new tax break for HDFCs before this program can go into effect. The hearing for this proposal has not been scheduled, but HPD anticipates that it will happen in the first half of 2017.

 

What is a Regulatory Agreement, and how many HDFCs have one?

A Regulatory Agreement is a standard tool for preserving affordable housing, which sets a series of expectations between the residents and a governing body or lender. Approximately 200 HDFCs already have Regulatory Agreements through various financing and subsidy programs. Any HDFC formed since 2003 through the Third-Party Transfer (TPT)  program automatically has an agreement, and others have agreements as required by HPD for programs such as tax relief or city loans.

Some common provisions in Regulatory Agreements for HDFCs include income caps for new shareholders, price caps for resales, requirements to create an annual budget, have board elections, to report building financials to HPD, and restrictions on subletting.
 

What is a Third-Party Monitor?

Having a monitor is a standard part of any Regulatory Agreement as they facilitate both sides upholding the agreement. In the context of HDFCs, the monitor is likely a non-profit that can also offer support and technical assistance to the HDFC. 



What is the difference between monitoring and management?

A management company can be hired by the building to look after day to day issues of running a building. This could be everything from collecting the rent on behalf of the board to coordinating repairs. Managers are hired by the board.  

A monitor’s primarily role is to ensure that a building’s regulatory requirements are met, and to support the governance of the HDFC co-op. This includes certifying annual elections, assisting with budget preparation, and submitting required reports to HPD. HPD is working on a list of approved monitors for HDFCs.

 

What is the DAMP tax cap?

The DAMP (Division of Alternative Management Programs) tax cap is a tax abatement that applies to the majority of HDFC co-ops. It restricts the assessed value of each residential unit in an HDFC to about $9,000 (with an increase every year). Due to the cap, most HDFCs have never had to pay market rate taxes, ensuring their affordability to low-income New Yorkers.  The DAMP tax cap is not permanent, and is set to expire in 2029.  
 

How much would my building be paying in property taxes under the new tax break? 

To work out your new taxes under the proposed abatement, as well as what your building currently pays and what your building’s market rate taxes would be, please use this worksheet



My building is self-managed. Would we need to get an outside manager under the proposed Regulatory Agreement? 

Under the proposed Regulatory Agreement, buildings that are self-managed would be able to receive a waiver excusing them from outside management.
 


My building is not “financially distressed” (i.e., does not have any municipal debt). Would we still need to sign the proposed Regulatory Agreement in order to get the new tax break?

For any building to receive the new tax break, they will have to sign onto the proposed Regulatory Agreement, regardless of current financial standing. This would also be true for any other HPD program, such as loans, grants, or tax forgiveness.
 


My building already has a Regulatory Agreement with HPD. Would we still need to sign the proposed Regulatory Agreement in order to get the new tax break?

If your building already has a Regulatory Agreement with HPD, then the agreement (and the associated tax break) stays in place until its expiration. The only exception to this is the J-51 tax break, which could phase out earlier than your Regulatory Agreement.  

 


What are some of the most common issues that HDFCs face? 

  • Rising costs and municipal arrears: As of March 2016, 354 of 1,271 HDFC co-op buildings (or 28%) were in serious municipal arrears according to HPD data.
  • Governance issues such as absent shareholders, low participation, and lack of transparency from boards of directors
  • Unaffordable resales: Over the last five years, the number of HDFC apartment sales has more than doubled, and there has been an increase in sales that are at or near market rate. HDFC apartments were originally sold for $250 or $2,500 and have received ongoing property tax subsidies to keep them affordable to shareholders. The high priced resales have placed some apartments out of the reach of low-income New Yorkers, and this will continue to increase as gentrification takes hold in our neighborhoods. 


Why is this being proposed now?

A new tax abatement and Regulatory Agreement have been pushed by affordable housing advocates for nearly 25 years. Mayor Bill de Blasio's administration responded to advocates in part because of rising tax and water arrears by HDFCs (over $100 million) and the increasing frequency of market rate sales. In addition, with only 12 years left on the DAMP tax cap, it will become increasingly difficult for HDFCs and shareholders to get 30-year, 15-year, and even 10-year loans when there is uncertainty about property taxes going to market rate in 2029.
 


Does HPD have the authority to sunset the DAMP tax cap early? Does HPD have the authority to write a new Regulatory Agreement?

Yes, Under Article XI, HPD has the authority to grant or revoke tax breaks for HDFCs, with City Council approval, as well as the authority to write Regulatory Agreements. The only portion of this proposal that needs Council approval is the new tax break. 


What if I bought my apartment for above the price caps listed in the Regulatory Agreement?

HPD’s proposal accommodates apartments that have sold above the price caps by excluding those units from price restriction, and offering a higher income cap of 165% of AMI for the resale of those specific units. This way, shareholders who bought their apartments at prices that are above the price caps will not lose any equity when they sell.  

 


The majority of my building’s shareholders bought their apartments at prices that are higher than the price caps. Are we eligible for this new tax break?

Every HDFC that does not have a current Regulatory Agreement with HPD is eligible for the new tax break; however, HPD has said that only up to 1/3 of a building’s shareholders can be “carved out” from the price caps. 


What happens if my building chooses not to adopt this Regulatory Agreement?

If an HDFC opts out of the Regulatory Agreement, the building’s tax burden will rise to the market rate amount. HPD has not indicated when or how quickly this will happen. However, your building would still be incorporated as an HDFC and would continue to be required to serve persons of low income.


How can I get more information about this proposal?

Visit HPD’s website to see a copy of the proposed Regulatory Agreement, as well as their full Powerpoint presentation.

You can also reach out to HPD directly by calling Luis Salguero at 212-863-6540 or by emailing hdfccoop@hpd.nyc.gov.

 

 


UHAB's Response to HPD's Proposed Regulatory Agreement

Throughout our decades of direct work with HDFCs, UHAB has seen firsthand the hard work that HDFC shareholders put into running their buildings every day, and we believe that they deserve to be rewarded for their contribution to the affordable housing landscape of New York City. With the hope of allowing original shareholders to age in place affordably and ensuring that HDFCs can continue to serve new generations of low- to moderate-income New Yorkers, we support the idea of passing a new tax break for HDFCs that will help them keep maintenance fees low in the face of rising operating costs.

At the same time, we’ve worked with many HDFCs that are in distress, either financially or through lack of good governance, and we have realized that the current model of “as needed” technical assistance does not provide the opportunity for ongoing support and intervention with buildings before they face significant challenges, such as compounding municipal debt and the threat of foreclosure.

While we do believe in finding ways to increase oversight of HDFCs while giving them the most generous tax break possible (a 100% tax exemption is what UHAB recommends), we believe that HPD’s current proposal will not work if it is passed as-is. Not only will many buildings choose not to sign the Regulatory Agreement because it is onerous and punitive, but many of those who do sign on will not receive the full property tax exemption that they deserve. Additionally, this proposal does not include price caps that are affordable to the majority of residents in HDFC-dense neighborhoods such as the South Bronx, East and West Harlem, Hamilton Heights, Washington Heights, South Williamsburg, Bed-Stuy, Crown Heights, and Bushwick.

In short, this proposal does not give credit to the majority of HDFCs that have done a remarkable job preserving their affordable housing.  Instead, it offers onerous and punitive requirements. It does not offer enough tax savings to help HDFCs maintain affordable maintenance fees, and it does not go far enough in ensuring that HDFCs maintain affordable resale prices for future shareholders.

We are asking HPD to improve and simplify the proposed Regulatory Agreement so that it is easier for buildings to comply with, to lower the price caps to be affordable to more New Yorkers, and to offer 100% property tax exemption for any building that signs on.

What does a better Regulatory Agreement look like? Review this example.  

Want to let your Council Member know that you are a shareholder who wants an improved Regulatory Agreement and deeper tax breaks for HDFCs? Sign our petition.

 

Sincerely,

Andy Reicher
Executive Director, UHAB