William Alatriste for the New York City Council

NYCHA chair Shola Olatoye inspects a NYCHA property in July. Olatoye inherited from her Bloomberg-administration predecessor a huge deficit in federal support and a substantial level of public mistrust.

NYCHA’s decision late last year to sell a stake in six of its buildings to a private company in exchange for desperately needed cash encountered misgivings from elected officials at a hearing at City Hall on Tuesday.

The chief complaint was that so little about the deal was revealed to those officials before it was done—a concern about transparency and process that NYCHA will be even harder pressed to assuage when it releases its Next Generation NYCHA plan in May.

The transaction in the spotlight Tuesday involves six buildings that are funded through project-based Section 8. Most Section 8 vouchers are held by individual tenants, who pay no more than 30 percent of their income toward rent in a private apartment with a federal subsidy paying the rest. Project-based Section 8 works much the same way, but applies to a whole building.

The Section 8 program, however, doesn’t provide money for capital projects and, like most of NYCHA, the six buildings in question each have millions of dollars in repair needs. NYCHA cannot take on debt so its only consistent source for capital money is allocations from Washington, which has been starving public housing for more than a decade. So NYCHA began under the Bloomberg administration to look for private-sector partners to inject money into the buildings, which hold 875 apartments housing 2,041 residents.

After the preferred bidder dropped out, NYCHA chose a partnership between L+M Development and Preservation Development Partners Inc. (itself a partnership of BFC Partners, L.P. and K&R Preservation LLC) to be its partner in a complex transaction inked in December.

In the deal, NYCHA sold the buildings to a new company in which NYCHA and the private firms’ partnership—which is called L&M PDP Triborough Preservation LLC—each hold a 50-percent stake. Using proceeds from city Housing Development Corporation bonds and Low-Income Housing Tax Credits, the deal will provide $80 million for repairs to the buildings. Over the next 15 years, NYCHA also expects the deal to generate $360 million for NYCHA’s own coffers from the purchase price and an ongoing stream of development fees split by the housing authority and the partnership. It has already allowed the authority to close its 2014 deficit.

NYCHA says it will retain “approval rights over major decisions and oversight that affect the Section 8 developments,” though day-to-day management of the site will be handed off to a private firm, C&C Apartment Management. The authority contends that C&C has already made progress reducing a backlog of repair orders at the buildings. As part of the deal, NYCHA residents will be trained and hired at $15 an hour to fill 20 percent of construction jobs and 50 percent of ongoing work at the sites.

‘The only solution’

The deal involves Bronxchester Houses in the Bronx, Saratoga Square in Brooklyn and four Manhattan buildings: Millbank-Frawley and East 120th Street in Harlem and East 4th Street and Campos Plaza I on the Lower East Side.

The six buildings are a quirky part of NYCHA’s inventory, but the financial strain from which they suffered affects the authority’s entire portfolio. The oldest and largest public-housing authority in the country, with responsibility for sheltering a population the size of Boston, NYCHA has since the late 1990s seen the city and state—which created some NYCHA developments—back away from any regular support. Meanwhile, as federal policy emphasized dynamiting rather than preserving public housing in cities like Chicago and Atlanta, NYCHA stood increasingly alone as a large system needing Washington’s support both for daily operations and major repairs. Funding for both retreated.

“We don’t know what the future holds,” Shola Olatoye, NYCHA’s chairwoman, told the Council’s Public Housing Committee. “We know that if you look at the president’s budget and projections going forward, federal funding from HUD is not coming in the way that we need it to. So we have to take advantage of—whether it is this type of transaction or others, we have to fully utilize our diligence to not let these buildings fall into disrepair though indecision and neglect.”

In her prepared testimony, Olatoye described the deal as “the only solution to the underfunding issues experienced at our project-based Section 8 developments for decades.”

Current residents will stay unless repairs necessitate temporary relocation, NYCHA says. The buildings will still be targeted to low-income New Yorkers: Low-Income Housing Tax Credits can only be used to serve households making 60 percent of Area Median Income (which translates to $50,000 for a family of four) or less. NYCHA and the feds have signed Section 8 contracts for the sites effective through 2034.

Then what?

Many of the Councilmembers’ concerns on Tuesday were about what happens after that.

NYCHA anticipates that HUD will renew the Section 8 contracts in 2035, but if that does not occur, the only restriction on rents in the buildings is that they be rent stabilized—which, while better than nothing, would lead to higher rents than under Section 8. What’s more, the NYCHA-Triborough deal is only good for 30 years. After that, NYCHA would have a right of first refusal on any sale of the property, but whether the authority could actually buy it would depend on its financial condition.

Councilmembers were also concerned that some of the private companies involved in the deal have been accused in the past of shoddy work or failing to pay prevailing wages. While other NYCHA projects fall under a project-labor agreement that mandates the use of union labor, this deal does not. Tenant protections were also an area of worry: Residents of the buildings will no longer enjoy the same enhanced level of tenant protections that people in regular public housing get, and in a year’s time, the tenant associations in the buildings will no longer be part of NYCHA’s Resident Advisory Board or get funding from the authority.

The predominant reaction, though, was one of shock that the Council was only being briefed on the deal two months after its signing, which was publicized first by the Wall Street Journal, not NYCHA.

“So this is done?” Brooklyn Councilmember Laurie Cumbo asked at one point.

“This is done?” Olatoye answered.

Manhattan Borough President Gale Brewer testified later that, “NYCHA’s unwillingness to consult with all stakeholders in advance to consider an exit strategy was an important lapse.” The overall lack of transparency in the steps leading up to the December deal, Brewer said, “should never, never be repeated.”

Tenants and advocates raised concerns about transparency and what happens beyond the 30-year mark.

“There is no doubt these sales come with substantial potential benefits. NYCHA will be able to secure $100 million in funds for capital repairs at the six developments and will receive $150 million upfront to assist with reducing its operating deficit,” said the Community Service Society’s Victor Bach and Legal Aid’s Lucy Newman in joint testimony submitted to the panel. “However, we have serious concerns about the process under which NYCHA pressed these sales forward in late 2014, particularly in an authority that has pledged to increase its transparency and strengthen its faulty past record in resident engagement in community planning.”

They also noted the risk that “the Section 8 developments may be lost to the affordable housing inventory” at the end of the 30-year period or earlier, if any of the parties to the deal defaulted.

A bigger hurdle looms

Public Housing Committee chairman Ritchie Torres, while echoing the concerns over transparency, defended NYCHA’s intentions. “I do believe that NYCHA is committed to preserving all of its properties,” he said.

The tension between NYCHA’s need to survive and its obligation to involve stakeholders could be tested even more as the authority moves toward releasing its Next Generation NYCHA plan in May. That plan is the authority’s reset of the infill development scheme shouted down in the waning days of the Bloomberg administration.

NYCHA has said the new de Blasio plan will not focus on infill, and part of the Next Generation process has been an overt public engagement effort aimed at addressing residents’ hopes and worries as well as the authority’s fiscal crunch.

Still, the plan’s goal to “harness NYCHA real estate assets” means there will likely be strong feelings about whatever course the authority charts for assets that residents and elected officials have a stake in protecting.

“Our fear is that we’re making decisions that are going to have long-term effects on the fabric of life in New York,” Cumbo told Olatoye on Tuesday. “We ultimately, as elected officials, receive the blame for it. My greatest fear is that other discussions are happening and other solutions in this same way are happening and I don’t know about it. And I would just suggest, moving forward, that for these types of plans to be made we have to brought in at inception. I don’t want to be in the situation where I am just telling the tenants: ‘This is how it is.’ I don’t want it to be 30 years from now that, ‘Councilmember Cumbo sold off NYCHA developments.'”

“This is an incredibly difficult situation you’re in,” she said to the NYCHA chair. “Moving forward, we need to be at ground level in these types of situations.”