Financing the Future of NYCHA

As funding for public housing in New York faces the biggest challenges of its history, key policies and structural changes may be NYCHA’s only option to fund the buildings in desperate need of repairs. A clue into NYCHA’s past and present will reveal possible future solutions in order to accommodate the 1 in 14 New Yorkers that call NYCHA home. Please click on the links to the left to explore how NYCHA’s financial resource has declined over the years, and their plan to stabilize and diversify funding. 

– NYCHA is a key economic driver of New York City and State –

NYCHA is a financial key economic driver of New York City and State. According to the research conducted by HR&A Advisor on financial impact of NYCHA in New York City, NYCHA generates a multiplier effect, “for every $1.00 in direct NYCHA expenditures, it is estimated that an additional $1.80 of indirect economics activity occurs in the city and state.” Due to the multiplier impacts in terms of spending and hiring processes done by NYCHA, the annual cash spending of approximately $3.4 billion results in nearly $5.9 billion in economic output in New York City and another $270 million in economic output outside of New York State. In addition, NYCHA creates 30,000 direct and multipliers jobs in New York State annually.  As a result of these jobs, it compensate approximately 11,560 NYCHA employees. NYCHA aims to create economic output by focusing on increasing the annuals jobs and employee compensations.

Here are four areas of how NYCHA’s expenditures can be divided:

  1.  Capital costs, i.e: physical repair and maintenance of properties
  2.  Operating expenditures related to management, upkeep, and leasing residential properties as well as provision of supportive programming including educational, social, and security services.
  3.  Expenditure related to administrative “central office” functions
  4.  Funding NYCHA provides through the section 8 program

– Funding and Expenditure: Present and Future –

A Breakdown of Where Funds Come From

According to NYCHA’s 2016 fiscal report, its Adopted Operating Budget had an overall deficit of $60 million. Its total revenues for 2016 were approximately $3.3 billion, 30% of which came from tenant rent, adding up to about $997 million. Another 30% percent, about $983 million, came from revenue from the Section 8 program. Twenty-seven percent comes from federal operating subsidies from the Department of Housing and Urban Development (HUD). The remaining funds are classified under “Other Revenue,” $140 million of which come from city funds.       

A Breakdown of Where Funds Go

About 43% of expenditures, or $1.4 billion, goes to “personal services” (PS). This is broken up into controllable and uncontrollable personal services. The former refers to full-time and part-time salaries of NYCHA personnel, as well as seasonal employee salaries and overtime pay. Uncontrollable PS goes towards staff fringe benefits, such as insurance coverage, and retroactive pay. Section 8 payments to landlords account for 28% of expenditures, about $961 million. Utilities, such as water, heat, and electricity, account for 18%, while contracts for third-party services, such as painting, elevator maintenance, information technology software, account for 5%, about $162.2 million.

 Moving Forward

The cost of utilities is an expenditure that continues to increase. Costing $600.2 million in 2016, it is predicted to cost about $633.7 million by 2020. Perhaps to account for this, full-time salaries, currently budgeted at $630 million, will decrease to $600 million by 2020. Whether or not the cut will take shape in the form of layoffs is not yet known. Following the impact of Superstorm Sandy in 2014, NYCHA saw an increase in its property insurance premiums. Currently adding up to $55.4 million, it is expected to increase up to $69.3 million by 2020. Fortunately, the City has relieved NYCHA from paying the NYPD for policing services from 2015 to 2019. Costing $70 million annually, this temporary policy relieves a great financial burden from NYCHA.         

Aftereffects of Superstorm Sandy

Following the impact of Superstorm Sandy, $3.084 billion has been awarded in one-time disaster recovery funds. Of this budget, $2.6 billion came from the Federal Emergency Management Agency (FEMA), $317.6 million from the Community Development Block Grant Disaster Recovery funds (CDBG-DR), and $168.7 million from insurance. NYCHA plans to use this allotment for physical assessments, repairs, and large-scale systems improvements at 33 housing developments impacted by Sandy.

Capital Program

Ninety percent of NYCHA’s Preliminary Capital Commitment Plan of $676.3 million is comprised of City funds. It plans to make major repairs in roofs, exterior lighting, closed circuit television systems (CCTV), and non-security projects, such as playground renovations, basketball or baseball fields, and community centers. The largest allocation of City funds, $100 million per year between 2015 to 2018, will go towards roof repairs at 67 buildings. It is estimated that the repairs will reduce capital needs by $600 million in the long-run and will affect about 13,000 residents.

– NYCHA’s Decreasing Budget –

NYCHA’s budget has been steadily decreasing over the years and the housing authority needs funding more than ever at this time because of its deteriorating infrastructures. The average age of a NYCHA residential building is about 60 years – and over this time frame, the buildings have been heavily used. The ceilings are sinking and staining, the elevators break too often, the utilities are obsolete, and it takes way too long for management to accommodate residential repairs. NYCHA being understaffed only worsens these situations. Currently, NYCHA’s budget and revenues have a negative inverse relationship. Expenses are higher than ever, yet revenues (including government assistance) are decreasing. As a result, the overall quality of the developments greatly suffers.

As of 2016, NYCHA’s revenues have been $3.3 billion, while their operating expenses have been $3.4 billion – and this already takes into account the decreasing quality of service and maintenance due to the budget cuts. NYCHA residents pay about 30% of their income for rent. According to the NYCHA section in NYC.gov, that 30% translates to an average of $464 per month in rent revenue for NYCHA, which is definitely not enough to maintain such a demanding establishment. For a building with 400 units, NYCHA receives only $185,600 per month to accommodate its residents, renovate broken equipment, fund security, pay salaries, and manage upkeep. In addition, some residencies allocate a percentage of their apartments to Section 8 residents who pay an average of about $300 per month.Throughout NYCHA, there are 88,467 Section 8 apartments – and this decreases the amount NYCHA receives from residents even more.

 

As you can see, the difference between NYCHA’s expenses and what the residents actually pay is pretty drastic. The amount that NYCHA receives from the rent residents pay accounts for less than a third of NYCHA’s total expenses. As a result, there are major decreases in the quality of service, maintenance, and the relationships between the residents and management.

– Financial Management: Debt & Risk –

NYCHA Debt & HDC Loans

According to “Adopted Budget for FY 2017 And The Four Year Financial Plan FY 2018-2021,” NYCHA has no legal debt limit and its primary source for operating and capital improvement revenues is the U.S. Department of Housing and Urban Development (HUD). HUD also secures NYCHA debt. It entered a Loan Agreement with Housing Development Corporation (HDC) on September 10, 2013, in which NYCHA borrowed approximately $701 million of bond proceeds. The bonds were issued under the Capital Fund Grant Revenue Bond Program with a weighted average interest rate of 4.8%. The face amount of the bonds for Series 2013 A bonds was $185,785,000 and for Series 2013 B was $470,300,000. The proceeds of the face amount of these bonds loaned to the Authority by HDC for principal amount of Series A bond was $185,785,000 and that of Series B bond was $470,300,000.

Certificates of Indebtedness

State of New York loaned the NYCHA funds to finance the construction of State-aided developments from proceeds of State Housing Bonds issued. NYCHA has acknowledged its indebtedness for such loans by issuance of Certificates of Indebtedness. Debt service requirements are met by funds provided by the State of New York.

Mortgage Loans

Since March 16, 2010 NYCHA has mixed-finance transactions. HDC issued bonds totaling $477,455,000 and bonds issued by HDC comprised of seven different series. Bond proceeds used to provide financing were in the form of mortgage loans to LLC I and LLC II. Of the seven series of bonds issued, 2009 Series L-1, 2010 Series A-1, and 2010 Series A-2 were outstanding as of December 31, 2015, with 2009 Series L-2, 2010 Series B, 2011 Series A, and 2012 Series A paid in full. During September 2013, all three remaining loans converted from construction to permanent loans, with principal and interest payable monthly.

Equipment Purchase & Lease Agreement

In January 2013, HUD approved a 13 year $18,045,000 Energy Performance Contract (“EPC”) Plan to upgrade or repair boilers, instantaneous hot water heaters, apartment temperature sensors, and upgrade computerized heating automated systems at six (6) developments, and to upgrade an apartment convector at one of these six developments. With this EPC approval, NYCHA entered into an $18,045,000 Equipment Purchase & Lease Agreement with Bank of America, maturing in 2026.

To purchase and finance the equipment necessary to execute the EPC plan, it provides for approximately $15 million in Federal Capital Funds that were previously earmarked for boiler replacement projects at these six developments. It enables NYCHA to use these funds for other capital improvements pursuant to NYCHA’s Five Year Capital Plan.

Table 1 is an information about the change in long term debt over the past year for the Authority and its blended component units ($ in thousands):

Table 1

Combined Debt of the Authority

Table 2 is an information on future principal and interest payments of all the NYCHA’s outstanding long-term debt (excluding amortizable bond premium) at December 31, 2015 are payable as follows ($ in thousands):

Table 2

Interest rates on outstanding debt range from 1.98 percent to 6.3 percent. During 2015, principal repayments totaled $32,942,000 and during 2014, principal repayments totaled $20,563,000.

Interest Rate Risk

Risk that changes in interest rates will adversely affect the fair value of the Authority’s investment portfolio. With NYCHA’s investment policy, interest rate risk is mitigated by an investment program utilizing mostly U.S. Treasury securities, or securities issued by U.S. Government Agencies and their instrumentalities. NYCHA utilizes a detailed, forecasting and reporting mechanism with the objective that securities are held full-term and are not sold prior to maturity. Unless as part of a re-investment strategy or to ensure the safety of invested principal.

Credit Risk

NYCHA’s policy to limit its investments mostly to HUD-authorized investments issued by the U.S. Government, a government agency or by a government-sponsored agency. NYCHA’s policy is to invest mostly in Federal Agency and U.S. Treasury securities which are AA+ and Aaa rated by Standard and Poor’s or Moody’s, or in fully collateralized money market deposit accounts and interest-bearing bank accounts at banks rated A or better by Moody’s, Fitch or S&P. Depository bank accounts maintaining federal funds are fully collateralized by Treasury and/or Federal Agency securities.

Fund Structure

Table 3

Table 3 shows the head count by funding for fiscal year 2017 to fiscal year 2021.

 

 

 

Risk Finance

NYCHA maintains a risk management program to protect its assets and minimize its exposure to potential losses. NYCHA utilizes a combination of self-insurance (workers’ compensation and general liability) and commercial insurance to cover potential liabilities. A third-party administrator provides investigation, processing and loss control services for workers’ compensation.

– Future Plans for Financing NYCHA –

Over the past few decades, funding for public housing in New York has dramatically decreased, yet buildings are continuing to age and are in desperate need of repairs. It has now become even more critical for NYCHA to find new sources of revenue and alter their business strategies to accommodate NYCHA project tenants. With approval from the U.S. Department of Housing and Urban Development (HUD), NYCHA’s Rental Assistance Demonstration (RAD) and Permanent Affordability Commitment Together (PACT) plans commit the organization to long-term affordability of the apartments as well as renovation for the 178 public housing buildings that have fallen into disrepair.

The Rental Assistance Demonstration (RAD) was authorized by Congress under the Obama administration and it shifts the support of housing affordability from federal subsidy (Section 9) to the Housing Choice Voucher program (Section 8). This program will help public housing authorities rehabilitate, modernize, and preservation of their units. Housing across the nation has significant capital needs, which (broadly) cover the costs of infrastructure for the buildings. In 2010 alone, it was estimated that public housing authorities had about $26 billion in unmet capital needs, and there is simply not enough federal funding to distribute amongst the projects in need. Section 8 Vouchers, that are applicable anywhere from between 5-10 or even 20 or 30 years, provides a steady stream of income in contrast to the original HUD funding. Essentially, RAD allows public housing authorities to inject more capital immediately into their units.

Section 8 Housing Application and Requirements

There are two possible downsides to RAD. Firstly, the conversion of a substantial amount of units with these new funds must be undertaken but an equally substantial management force. Secondly, in the financial profile of public housing ratings, is a project issues in return from this modernization a significant amount of debt, that could have some impact of liquidity and other financial ratios. However, if successful in modernizing these units, it may lead to lower future operating costs, which arguably surpasses the fear of the means to reach an end.

The demand for RAD as very high after its execution. In 2014, there was 1.1 million units of low income public housing in the country, 60,000 were approved for RAD and an additional 100,000 were on the waiting list if there were to be an expansion of RAD. New York City’s implementation of RAD type improvements are funded through PACT: Permanent Affordability Commitment Together. PACT intends to raise $300 million for extensive capital repairs including comprehensive mold remediation, roof and façade replacements, new kitchens, bathrooms, and flooring, renovated hallways and stairwells, upgrades to lighting, fencing, doors, windows, and common areas like basketball courts.

Through the long-term stable contracts provided by the 10 year PACT program, which is a Housing Assistance Payment contract, NYCHA can preserve and repair their apartments by partnering with private and non-profit developers. Although the form of this program may appear to be privatization, the structure is assured by NYCHA to be not. NYCHA will maintain the long-term ownership of their units and will not sell any developments participating in PACT. Additionally, NYCHA claims overall veto power to ensure the rights and protections of Section 8 public housing residents. NYCHA additionally promises that residents will not be moved or displaced and rent under PACT will remain at 30% of their adjusted income.

On January 18 of this year, 1,700 additional units were added to the PACT program (left table).NYCHA’s most recent RAD agreement brought the Rockaways’ Ocean Bay development $325 million for repairs after Hurricane Sandy. In late 2014, Section 8 housing at Bronxchester Houses saw the redevelopment of 875 apartments. Because of its status as Section 8 housing, Bronxchester Houses is owned by NYCHA and five other property owners. Updates to appearance, security, and structure made to Bronxchester Houses would not have been possible without private funding.

Since December 10, 2009, NYCHA is no longer accepting new Section 8 applicants.