One highlight in Mayor Rudy Guiliani’s State of the City message in January was a substantial new commitment to affordable housing–$1.2 billion over four years, half in city funds, to create or preserve more than 10,100 units. Although it focused on a narrow set of housing programs and will be contingent on a number of ambituous reforms, the initiative is the mayor’s first serious attempt to reverse his own sharp cuts in housing funds.

The mayor did not say, however, how he intends to fund the construction boom. We can only hope that he will do something he has refused to do throughout his years as mayor: finally spend revenues from the Battery Park City Authority (BPCA) to develop affordable housing.

A few days before the speech, the New York Times confirmed the charge we at City Project made a few months earlier: that the mayor has flagrantly violated a 1989 agreement between the city and the state-run authority requiring the city to spend the BPCA’s surplus on housing for low- and moderate-income New Yorkers.

The deal completed a $1 billion commitment by the authority for affordable housing, $400 million in bonds and $600 from its cash surplus. But just $143 million in bond financing has gone to affordable housing. The authority has sent $277 million cash to the city so far, but none of it has been dedicated to housing. Instead, the mayor simply put the money into the city’s general fund, increasing the city’s already huge budget surpluses.

The mayor needs to finally acknowledge the 1989 agreement exists, and to make it a centerpiece of any new housing plan. But that’s not enough. The authority predicts that it will send $3 billion in surplus to the city over the next 30 years. The city also needs to come up with a blueprint to make sure that it maximizes the amount of money it gets from Battery Park City, and spends it all for affordable housing.

The 1989 agreement was essentially a way for the BPCA to pay the city back for huge public subsidies to the development project. City Project estimates that those subsidies amounted to at least $600 million over the past 10 years.

As originally conceived by Gov. Nelson Rockefeller and Mayor John Lindsay in 1969, Battery Park City was to contain a mix of low-, middle- and high-income housing. But it wasn’t until the first World Financial Center corporate towers and luxury buildings neared completion in the late 1980s that an actual plan to fund affordable housing was put in place. The $400 million in bonds was supposed to pay for 24,000 units of lower-income housing elsewhere in the city. But they have built just 893 apartments in the Bronx and 664 public housing units in Harlem.

Now, after several years of expansion, Battery Park City is fast approaching full build-out, and authority surpluses are rising steadily. (Its president and CEO, Timothy Carey, calls the authority “a cash cow.”) In November 2000, for instance, the authority announced it would send the city $108 million in its next payment. Yet not only has none of that cash been used for housing; city commitments to build and rehabilitate housing have declined dramatically, from $506 million in 1992 to $116 million in 1998, according to the Independent Budget Office.

The mayor’s arrogance in refusing to spend the surplus stems in large part from the cozy, largely unaccountable relationship between the authority and the city. BPCA is exempt from city property taxes; owners instead pay an equivalent levy directly to the authority. The authority currently takes in over $150 million a year from its property owners. From those revenues, BPCA services its debts and funds its own operations and its own Parks Conservancy. Anything left over, it sends to the city. In 1999, BPCA paid the city $57.1 million, or 39 percent of its revenues.

But there’s reason to believe it could be paying more. BPCA is controlled by the governor, who appoints the chair and two other members, and its chief operating officer has tremendous independence in defining budget priorities. Although approved by the mayor and city comptroller, the bond issues don’t go through the city’s budget process. One consequence is that there is no authority incentive to save money. This is significant, since every additional dollar spent on authority priorities is arguably a dollar denied to affordable housing. Thus any decisions about the use of surplus authority revenues for affordable housing must be accompanied by a commitment to closely monitor the authority’s budget and spending decisions.

Many questions remain about how to most effectively spend the Battery Park City money. For example, those revenues could be used to pay debt on new city housing bond issues. Or the city could commit to spending the money as it comes in; for instance, the authority’s $108 million payment for this year includes a one-shot $41 million from the sale of an authority-financed building in Battery Park City, a solid lump sum that could be dedicated to building or rehabbing housing. Yet another option is restoring and expanding the authority’s own power to issue bonds and using authority revenues to pay off the debt, which could help the city borrow significant money for housing without hitting its debt cap.

This is a good time for both celebration and vigilance. Mayor Giuliani has had the courage to re-open the door to affordable housing. But securing and dedicating long-term revenue sources is crucial–and delivering what’s due from Battery Park City is a vital first step that cannot wait any longer.

Lynne Weikart is executive director, and Glenn Pasanen associate director, of City Project.