Policy Brief September 2019 NYCHA 2.0: Progress at Risk By Sean Campion ast December the New York City Housing Authority L(NYCHA) released NYCHA 2.0, a strategic plan to preserve its deeply affordable housing and address its $32 billion five-year capital need. The plan identified strategies to fund $24 billion in capital repairs over 10 years, clear the lengthy maintenance backlog, and prioritize repairs to ameliorate conditions that cause health and safety problems. While it will not address all of NYCHA’s capital and operating needs, NYCHA 2.0 provided a roadmap to a better future for NYCHA and its residents. 1 This report reviews NYCHA’s progress implementingNYCHA 2.0. The report has four key findings: 1. NYCHA is on pace to meet its short-term target for increasing public-private partnerships to fix and manage NYCHA housing; however, it will not be able to meet its long-term goal of converting 62,000 units without shifts in the allocation of state and local housing funding, federal regulatory relief, and additional federal funding; 2. NYCHA’s efforts to increase the number of mixed-income “infill” development projects and tap into the value of transferrable development rights have largely stalled due to resistance from some public officials and community organizations; 3. NYCHA’s efforts to close the repair backlog have failed thus far to stem the growth in work orders, and efforts to modernize work rules and schedules have yielded some successes but have been accompanied by increased labor costs; and 4. Long-promised state funding and federal regulatory relief have yet to materialize. In sum, NYCHA has made some progress, but its prospects remain tenuous without the cooperation and support of local, state, and federal officials, labor unions, and the private sector. While some of these partners have stepped up, others have resisted much-needed reforms—and the costs of these delays are stark. Holding up revenue-raising projects negatively affects the quality of life for tenants already living in poor conditions, perpetuates or accelerates NYCHA’s physical deterioration, and increases rehabilitation costs. Without the funding anticipated fromNYCHA 2.0 initiatives, more than 4,000 units each year could go without repairs; many will reach the point at which they are at risk of being no longer cost-effective to repair. These challenges highlight the importance of successful implementation of NYCHA 2.0 and the potential impact of failure. NYCHA 2.0 Initiatives NYCHA 2.0 includes two strategies. (See Table 1.) The first, “Invest to Preserve,” is comprised of plans to raise funding for capital repairs through public-private partnerships and the sale of unused development rights. The second, “Fix to Preserve,” encompasses initiatives to address long-standing health and safety issues and basic maintenance needs by promoting a culture of accountability, improving coordination of repair work, and boosting inspection and compliance units. The plan relies on $23.8 billion in funding over 10 years to address NYCHA’s five-year capital needs totaling $31.8 billion. Invest to Preserve initiatives generate most of the funding, including $12.8 billion from accelerating the pace of public-private partnerships under the Permanent Affordability Commitment Together (PACT) program, $2 billion from additional infill development with a higher share of market-rate housing than previously proposed, and $1 billion from the sale of transferrable development rights. (See Table 1.) The plan also assumes the receipt of $7.9 billion in existing funding, including: $3.6 billion in federal funding; $2.2 billion in City funding over 10 2 Table 1: Description of NYCHA 2.0 Strategies and Initiative Revenue Impact Initiative Description (2018-2027) Accelerate pace of Rental Assistance Demonstration/ PACT to Preserve Section 8 conversions from 20,000 units by 2026 to $12.8 Billion 62,000 units by 2028. Increase pace of “infill” development projects and Build to Preserve increase share of market-rate units to 70% to fund $2 Billion repairs at 10,000 NYCHA units. Transfer some of NYCHA's 80 million square feet of Transfer to Preserve unused development rights to adjacent privately-owned $1 Billion sites. Create new divisions to oversee inspections, Organizational and remediation, and compliance; invest in NYCHA-Stat n/a Operational Initiatives improvements to hold managers accountable for key performance indicators; and invest in staff training. Addressing Health and Prioritize issues raised by federal prosecutors for n/a Safety Issues investment (elevators, heating, pests, lead, and mold). Create rapid response teams to close 75,000 Improving Services, Maintaining backlogged work orders for repairs by 2021; and n/a a State of Good Repair schedule bi-monthly Saturday maintenance blitzes. Sourc New York City Housing Authority, NYCHA 2.0: Part 1: Invest to Preserve (December 12, 2018), https://www1.nyc.gov/assets/ny- cha/downloads/pdf/NYCHA-2.0-Part1.pdf; and NYCHA 2.0 Part 2: Fix to Preserve (December 12, 2018), https://www1.nyc.gov/assets/ny- cha/downloads/pdf/NYCHA-2.0-Part2.pdf. years required under the City’s agreement with federal prosecutors and the U.S. Department of Housing and Urban Development (HUD); $1.4 billion in City capital funding over five years for Mayor’s Initiative programs to repair roofs, boilers, and other essential equipment; and the receipt of $450 million that has been appropriated but not yet released by the State.1 Invest to Preserve Initiatives PACT to Preserve The Citizens Budget Commission’s (CBC's) 2018 report Stabilizing the Foundation recommended NYCHA transition from being a landlord to being an affordable housing steward that directly manages fewer buildings. Public-private partnerships are essential to accomplishing this. NYCHA’s plan to take significantly greater advantage of public-private partnerships through the Permanent Affordability Commitment Together (PACT) program—comprised of Rental Assistance Demonstration (RAD) projects and project-based Section 8 conversions—is the best option to preserve NYCHA’s housing. 3 ABOUT RAD The Rental Assistance Demonstration (RAD) program is a federal program that allows public housing authorities to apply to HUD to convert the funding stream for units from federal public housing subsidies, established under Section 9 of the Housing Act of 1937, to an equivalent amount in rental housing voucher funding, established under Section 8 of the Housing Act. Section 8 permits housing authorities to take out loans or issue bonds backed by the subsidies to pay for repairs; in contrast, Section 9 largely prohibits housing authorities from issuing debt on their buildings. Housing authorities can also enter into partnerships with private property managers to renovate and operate properties that convert to Section 8 through the RAD program. NYCHA 2.0 anticipates addressing $12.8 billion in capital needs by 2028 by converting 62,000 units through PACT, with an estimated pipeline of projects that ramps up from approximately 4,000 annually in the years between 2019 and 2023 to more than 7,000 units annually by 2026. While NYCHA is making reasonable progress on the PACT to Preserve initiative, it will not meet the 62,000-unit goal without additional federal and city legislative actions, as well as funding—all of which are uncertain. NYCHA has focused first on converting small, scatter-site developments and on properties built by the City and State that currently do not receive federal aid. Prioritizing these properties for RAD conversions makes sense. Scatter-site developments, with about 10,000 total units, are inefficient to operate and have the highest per-unit capital needs in NYCHA’s portfolio.2 There are also eight remaining developments with a total of 5,694 units that were built by the City or the State and are not subsidized by federal funds. In 2018 NYCHA diverted $23 million in federal funds from other properties to subsidize these properties’ operating costs. NYCHA slowly has been converting these units to Section 8 funding streams; accelerating their conversions through PACT will free up funding to be used at other developments.3 NYCHA is almost on track to achieve the first phase of its PACT conversion goal. NYCHA expects to close RAD contracts on 17,994 units with $3.4 billion in five-year capital needs by 2022, a pace slightly below what is needed to meet the NYCHA 2.0 goal. In addition to the 1,395-unit Ocean Bay development, which entered the RAD program in 2017, 3,779 units are now under renovation through the PACT program. Developers have been selected for deals covering another 4,343 units, with closings likely to occur in late 2019 or early 2020. NYCHA has begun resident engagement on 5,908 units and given notice to HUD of its intent to convert an additional 2,569 units.4 Sustaining this momentum and further accelerating the pace of conversions from 4,000 to 7,000 units annually will be hard for two reasons: federal law caps the number of RAD conversions; and NYCHA’s financing model is not replicable across the entire portfolio. 4 T N U NYCHA PACT P S S Units Completed (cean ay) , ,000,000 22, Under Renovation , ,, 0,0 Developer Selected , ,, 0,2 esident ngagement ,0 ,2,2,200 0, Letters of Intent 2, ,,00 , TOTA 17,994 $3,396,329,779 $188,748 Sourc New York City Housing Authority, Draft PHA Agency Plan: Annual Agency Plan for Fiscal Year 2020 2017 Physical Needs Assessment and Development Data Book 2017. RAD Conversions are Capped Congressional authorization of the RAD program caps the number of conversions nationally at 455,000 units, even though there are more than 1 million public housing units nationwide. As of September 2019, 259,713 units have closed or have HUD-approved letters of intent, representing 57 percent of the RAD cap.5 NYCHA will have to compete with other housing authorities for the remaining 43 percent.