Testimony of

Victor Bach, Senior Housing Policy Analyst

Community Service Society of New York (CSS)

at

Hearings on Proposed Developments at

95 Maiden Lane and 90 Washington Street to Be Financed with Liberty Bonds

New York City Housing Development Corporation (HDC)

May 5, 2003

The Community Service Society (CSS) is a leading nonprofit organization that, for over 150 years, has worked to improve conditions and opportunities for low income New Yorkers.  We applauded Mayor Bloomberg in December 2002 when he unveiled his Vision for Lower Manhattan, in which he stated:

“We’ll provide developers with a subsidy to make 20 percent of the new units Downtown affordable to people who couldn’t otherwise live in market-rate housing.” 

We are deeply disappointed that the proposals before HDC today do not live up to the promise the Mayor made in December.  For that reason, CSS voices its opposition to the use of Liberty Bonds to finance the 95 Maiden Lane and 90 Washington Street developments as currently proposed.  We understand from HDC that apartments will be exclusively high-end market rentals; not a single unit is designated as affordable to low or moderate income New Yorkers.

These are the first developments proposed by HDC in which publicly subsidized Liberty Bonds will be used for residential construction.  HDC has made the choice to finance only high-end rental development. Apartments will not be affordable to low-income households—under  the HUD definition, about $45,000 annually for a family of three.  Nor will a single unit will be available to many of the rescue workers—the firefighters, the police, the EMT workers who risked their lives in the 9-11 rescue efforts. 

Instead, HDC tells us its 3 percent loan origination fee—about $9 million for an estimated 225 units—will be used to build affordable housing elsewhere. Laudable as that fund may be, it is not acceptable as a plan for the residential rebuilding of Lower Manhattan.   Housing development opportunities, at lower cost, exist and are needed in other neighborhoods, but this is a step backward from the Mayor’s inclusive vision for Lower Manhattan.  The commitment of a new funding stream also invokes memories of the broken promises to use Battery Park City excess revenues for off site affordable housing. Most importantly, it means that the city now endorses a housing policy in which economic segregation, based on neighborhood sub-markets, will—by design—be a defining characteristic.  What HDC is telling the world watching this reconstruction process is that in the future, New York’s downtown is to belong solely to the affluent.

New York City’s Affordable Housing Crisis

            The evidence of a worsening crisis is all around us, most clearly evident in the record numbers of homeless families seeking city shelter.  But the crisis is more widespread—in the city’s tight, high-cost rental market one out of four households pays more than half of its income in rent alone.  As you might expect, these affordability problems are most strongly felt by lower income households, now experiencing declining income and employment.  A September 2002 CSS survey of low income New Yorkers—The Unheard Third—found that among the poor and near-poor families about 3 out of 10 had fallen behind in rent or mortgage payments within the last 12 months.  One out of five had their utilities or phone turned off because they could not pay the bills.

Liberty Bonds: An Opportunity for Affordable Housing

            Given the tight fiscal constraints facing the city and state, the federal set-aside of $1.6 billion in Liberty Bonds for housing, is an unusual opportunity to generate a large stream of low-cost capital to address the severe need for affordable housing among a wide income range of New Yorkers and promote the reconstruction of Lower Manhattan.  These “private activity bonds,” which are publicly subsidized by federal, state, and city tax exemptions, make it possible for the private sector to finance housing development at lower costs.  In return for these subsidies, developers are usually required, under federal law, to set aside at least 20 percent of units for low-income families—hence the term 80/20 housing.  These federal requirements were loosened in the Washington reconstruction package that provided Liberty Bonds, but the federal government’s failure to explicitly require that the units be affordable does not mean that the city should ignore the very real needs of low income New Yorkers.  Surely our vision extends beyond doing simply what is required of us by Washington. 

            HDC and the NY State Housing Finance Agency have long track records demonstrating the feasibility of developing 80/20 housing in New York City.  This includes the recent development of 111 Worth Street, by Forest City Ratner, financed by the State HFA, completed this spring inside the Liberty Zone.  This 330-unit rental development is more deeply targeted to low incomes than the typical 80/20 requires, with some of the 20 percent reserved for households earning less than 40% of the area median income.  Private developers can, and do, make 80/20 properties work all over Manhattan – including Lower Manhattan – even in the current economic climate.  Considering the severity of the city’s housing crisis, we think that – at the very least – the traditional threshold standard of 80/20 should be maintained.

            Next Steps

            From conversations with HDC, we understand that affordable units cannot be developed with Liberty Bonds in Lower Manhattan without a commitment of CDBG funds from the reconstruction package.  Absent the CDBG commitment, these proposals set a poor precedent, for the remaining $500 million of the Mayor’s bonding authority, which would relegate the Liberty Zone exclusively to high-end market-rate rental housing.  This is a grim prospect.

            CSS urges HDC to reconsider the two proposed developments, and to work with the developers for a more inclusive plan that provides mixed income housing for a wide range of New Yorkers.  In addition, HDC and the city should play a more proactive role in the future, identifying and opening up suitable sites—such as the development-ready site owned by the Battery Park City Authority—and soliciting interest from both for-profit and nonprofit developers.

            CSS urges the Mayor to exercise his leadership to secure the CDBG funds needed from the LMDC to make it possible to target more affordable housing opportunities to low and moderate income New Yorkers.  We urge the Mayor to press Washington for needed changes in the federal reconstruction package—the incorporation of the usual 4 percent Low Income Housing Tax Credits, widening of the Liberty Zone to make more sites available, and an extension on the time needed to make the vision of a mixed income residential community in Lower Manhattan a reality.

            In the coming months, CSS and the other members of the Liberty Bond Housing Coalition will be watching closely whether HDC honors the commitments made by the Mayor to include affordable housing in Lower Manhattan.  And we are willing to provide any assistance we can to help achieve our shared goals. 

            As the Mayor put it in his weekly radio address on July 19, 2002 – the day before the Listening to the City event at the Javits Center:

“We want a mixture of housing…not everybody is lucky enough to be able to afford             housing at any level and we long ago made the decision as a compassionate society that we are going to find a place for everybody to live…You want to have all sorts of people at all sorts of economic levels living there.”

We couldn’t agree more.