de Blasio Public Housing Report Reveals The Disastrous State Of NYCHA
/I've written much about the crazy New York policy of forcing the building of "affordable" housing on some of the most expensive real estate in the world. Not far behind that on the crazy list is so-called low-income public housing, exemplified here by the massive and hideous "projects" run by the New York City Housing Authority, or NYCHA. In New York City the grim NYCHA projects contain some 180,000 apartments, warehousing in excess of 400,000 people, most of them in a state of near-permanent poverty.
Toward the end of his tenure in office, former Mayor Mike Bloomberg came out with a proposal to raise money for NYCHA by selling development rights on unused NYCHA land to developers who could then put up some market rate housing and make money. That proposal brought cries of outrage from NYCHA residents (e.g., "It will block our views!"), let alone opposition from incoming "progressive" Mayor de Blasio, and basically de Blasio dropped the proposal when he took office. We didn't hear anything more on the subject until last week, when de Blasio came out with his own plan for dealing with NYCHA, a 117 page Report called NextGeneration NYCHA.
Probably to no one's surprise, de Blasio's main thrust here is to somehow maintain the status quo at all costs. (The projects are "an asset that must be protected" says the Report at page 21.) But the Report actually does provide one valuable service, which is to compile in one place data on NYCHA finances that reveal what a total disaster it is. At page 32 we learn that the federal Department of Housing and Urban Development has been providing two-thirds, or about $2 billion, of NYCHA’s annual $3 billion operating budget. That means that NYCHA’s rent collections provide only about one-third of the operating budget, and, of course, nothing at all toward capital projects or property taxes. But lately HUD has been cutting back on its subsidies to NYCHA, leading to operating shortfalls "in recent years ranging between $53 million and $170 million." (page 22) As a result, NYCHA’s cash operating reserves have plummeted, from a peak of around $800 million in 2007 to just $179 million at the time of the Report. (page 32) That is only enough cash for four weeks’ operations – rather dangerously low for an entity that is hemorrhaging cash.
And that’s only the start of the picture of an accelerating financial collapse. The historical operating deficits pale in comparison with those projected for the immediate future if nothing is done: "Projected operating deficits moving forward surpass $100 million in 2016, $200 million by 2020, and increase to $425 million by 2025." (page 32) The total projected operating deficit for just the next ten years is $2.5 billion (page 8) -- and that's after sucking $2 billion or so per year out of HUD, which in any reasonable world would also be counted as part of the operating deficit. And then there’s the backlog of capital projects, estimated here at an astonishing $16.9 billion (page 6), or around $100,000 per apartment. In the past those have also largely been provided from (yet additional) federal funding, but now that has been cut back significantly, with no indication that the big annual blank check will ever return.
A fair summary is that NYCHA is in the final stages of a socialist death spiral. Billions of dollars of annual losses have up to now been hidden with the annual $2 billion check from the big "free money" account of the federal government. Now that that is diminishing the losses are turning up as an escalating cash hemorrhage on NYCHA's own books. What to do?
As to proposed solutions in this Report, some attention in the press has focused on de Blasio's partial revival of the Bloomberg idea of building market rate buildings on vacant NYCHA sites. But if you read the Report, you learn that the amount of that is so small, and the associated "affordable housing" impositions are so large, that little money can be found there. Instead, the big money to rescue NYCHA -- well in excess of $200 million per year -- is to come from transferring expenses off NYCHA's books and on to the City's taxpayers generally, thus burying and hiding the expenses in larger accounts so that nobody can any longer figure out how desperate NYCHA's situation really is. For example:
- Although NYCHA pays no property taxes, until recently it has paid an annual "PILOT" (payment in lieu of taxes) of $30 million or so to cover specific services like garbage pick-up and senior citizen centers. That will now be waived.
- Prior to 1995 NYCHA provided for security through its own police force. Then that force was merged with the NYPD, and since 1995 NYCHA has made a payment for the specific police services that provide security to its projects. It is estimated here that that would have been about $70 million per year going forward. It will now be waived.
- The Report proposes to "shrink[ NYCHA's] central office workforce by nearly 1,000 through attrition and integrat[e] some operations and positions within NYCHA into other City agencies" -- a naked concealment of expenses properly allocated to NYCHA in bigger accounts in the City budget. This one supposedly "saves" $90 million per year -- big money.
- And then there's another $37 million per year from a new payment that the City will make to NYCHA in return for NYCHA's providing services to formerly "homeless" people. Previously NYCHA was not paid for this.
And the best part is, nobody will ever be able to find a line item in the City budget that reveals how much of these expenses properly should be allocated to NYCHA. They'll just be part of the Sanitation budget, or the Police budget, or the Homeless Services budget, or something else. So we can all pretend that all is well at NYCHA, at least until its losses (as measured by current accounting) exceed the new $200+ million per year worth of slush funds, which is not projected to happen until some time after 2020. Will de Blasio even still be around? We'll worry about it then!
Here's the bad news: socialist death spirals only get worse. Maybe the crash can be put off a long time, but not forever. For an actual solution to the NYCHA crisis that, in addition, offers the benefit of helping to lift many or most of the residents out of poverty, see my proposal to give away the housing to the residents.