Good afternoon.

Welcome to the Committee on Finance and Housing joint with excuse me, welcome to the Committee on Finance, joint with housing and building.

At this time, we ask that you please silence all electronics and at no point.

Please do not approach today's chair.

You may begin.

Great, thank you.

To technically do that.

Um, good afternoon.

I'm Councilmember Linda Lee, Chair of the Finance Committee, and welcome to today's hearing, um, oversight hearing concerning financial tools for maintaining the affordability of Michelama Housing.

I'm pleased to be joined.

Uh, I know the speaker is going to be joining us soon, um, and my colleague chair of the committee on housing and buildings, Councilmember Pirina Sanchez.

And we've also been joined by Councilmember Narcis, Councilmember Maloney, Councilmember Aldabal, Councilmember Dinowitz, and I believe Councilmember Joseph is on Zoom.

Um, welcome also to our partners from the Department of Housing Preservation and Development and the Department of Finance.

Um, thank you all for joining us today to answer our questions.

And before I go any further, oh wait, no, we're gonna have her do her statements later.

Um we are here today as the housing affordability crisis continues to challenge New York City, even as we in city government continue to work to ease the burden of New Yorkers.

The hearing is not intended to litigate the value of the Michelama program.

Um, this council has long supported and continues to support the feasibility and longevity of the program.

Um, as was highlighted during our last oversight hearing on Michelama affordability last October, the City Council has taken multiple steps to preserve Michelama housing, extending property tax exemptions for developments that had paid off their mortgages, incentivizing them to remain in the program, enacting laws expanding benefits previously unavailable if improvements were financed through government loans or grants to Michelama buildings that commit to stay in the program.

Further, uh the fiscal year 2025 New York State budget, with support from Governor Hokel and the state legislature, uh further reduced the local tax burden on these developments through the New York shelter rent tax law.

This law caps local and school taxes at 5% of a development's annual shelter rent down from the previous minimum of 10%.

Some properties may qualify for greater exemptions depending on prior board of estimate resolutions.

Even with these actions, it is essential that this oversight continues with our agencies and the administration as we look forward to exploring existing and potential new tools to support the long-term viability of Michelama developments from our counterparts at the Development of Housing, Department of Housing, Preservation and Development, and the Department of Finance, and not passing the burden to tenants in Mitchell Lama Developments, rentals and co-ops.

Um I now want to turn it over to my co-chair for this hearing, Councilmember uh and Chair Uh Sanchez for her opening statement.

All right, thank you so much, Chair Lee, and good afternoon, everyone.

I'm Councilmember Pierina Sanchez, Chair of the Committee on Housing and Buildings, and I'm pleased to co-chair today's joint oversight hearing with Councilmember Lee, as well as I'm calling him the honorary co-chair uh Councilmember Dinowitz, uh, who brought us together regarding Tracy Towers.

For more than 70 years, the Michelama program has provided an essential source of stable, affordable housing for middle and moderate income New Yorkers.

But today, that promise seems to be in jeopardy.

Too many Michelama developments uh are deteriorating physically, financially, or both.

Residents are living with hazardous conditions, deteriorating building systems, rising rents and carrying charges, and growing uncertainty about whether they will be able to remain in their homes.

This is not a minor problem at a handful of isolated buildings.

It is a deeply troubling trend across a critical affordable housing portfolio.

And it demands more than just descriptions that our buildings are aging, costs are increasing.

We need our agencies, we need HPD to come to the table with solutions that stabilize developments that are already in distress, protect residents from displacement, and fundamentally strengthen the city's oversight so that we prevent the next crisis instead of merely reacting after a development has reached a breaking point.

Creating it created in 1955, Michelama encouraged private developers to build rental and cooperative housing by offering low interest mortgages and property tax exemptions.

In exchange, owners accepted limits on their profits, resident income, uh resident incomes, rent levels, purchasing prices, and carrying charges.

Since the program began, 269 developments containing more than 105,000 apartments have been built statewide.

An estimated 170 of those are in New York City, and about 60% of those are supervised by HPD.

These developments were made possible through public subsidies, and public oversight was intended to preserve their affordability, financial stability, and physical condition.

For city supervised developments, HPD approves budgets and rent or carrying charge increases, monitors finances, oversees tenant eligibility and waiting lists, and conducts inspections.

The city and state have also invested significant public resources in preservation.

HPD testified just earlier this year that its 10-year capital plan includes 1.1 billion dollars for Michelama housing, some of which was secured through this council through the City of Yes negotiations.

While the state's fiscal year 2027 budget, as Chair Lee mentioned, includes 80 million in new appropriations accessible to developments in the city.

And yet, despite decades of public oversight and substantial public investment, too many Michelama residents are living with both deteriorating English, okay, deteriorating conditions and rapidly rising housing costs.

At least 10% is our understanding of the city's remaining Michelamas are exp experiencing financial distress.

And in 2025 alone, 30 to 37 developments received rent increases averaging approximately 29%.

Compare that to this year's 0% increase for rent stabilized apartments.

A March 2026 audit by the state controller found hazardous or unsafe conditions, as well as structural issues at 12 of 15 developments examined statewide, including every single one of the 10 New York City developments that were sampled.

The audit also identified approximately 2.3 million dollars in misspent or inadequately documented funds.

Those findings should set off alarm bells.

They demand basic and urgent questions like how can housing that has been continuously supervised by the government fall into such severe financial and physical distress.

Wasn't this oversight intended to prevent precisely this outcome?

And if HPD has been monitored monitoring these developments all along, when did it first see warning signs?

What did it do in response?

Were inadequate reserves, mounting debt, deferred maintenance, and deteriorating building systems allowed to reach crisis levels, and most importantly, what is HPD going to do differently moving forward?

In addition to the situation at Tracy Towers, which we'll talk about at length, I highlight Kingsbridge Arms in my neighborhood, 2865 Kingsbridge Terrace presents another deeply troubling example.

The development has over $1 million in debt.

Its physical and financial conditions have become so dire that management actually relies on additional debt to cover even basic operating expenses, including something as simple as trash bags for the garbage room, while major renovations and essential repairs remain unaddressed.

Residents call us, they email our offices, they stop at us, stop us at community events because they need help.

In closing, HPD oversight should mean more than simply monitoring a building's decline and then presenting residents with enormous rent or carrying charge increases as the only available solution.