New York Creates New York City Public Housing Preservation Trust
On June 16, 2022, New York Governor Hochul signed New York City Housing Authority (NYCHA) Public Housing Preservation Trust Act A7805D/S9409A into law (Trust Act). The Trust Act creates the New York City Housing Authority Public Housing Preservation Trust (Trust), a new public benefit corporation with the power to issue bonds and borrow money to fund the rehabilitation of up to 25,000 NYCHA apartments through the transfer of a leasehold interest in NYCHA housing facilities and related property from NYCHA to the Trust.
NYCHA and the Trust are to review the cap on the number of units annually and make recommendations to the legislature if they believe it should be increased.
The Trust joins other tools in New York City’s toolkit, including increased capital funding and the Permanent Affordability Commitment Together (PACT) Program to help address decades of historically underfunded capital improvements in NYCHA housing which NYCHA estimates will require approximately $40 billion in major repairs to address. While City capital funds now represent approximately one-third of all planned City commitments for housing through 2025, alone, it is not nearly enough to address the decades of disinvestment in NYCHA housing stock. Since 2019, that City capital funding has been supplemented by PACT.
The goal of PACT is to convert at least 62,000 public housing units to Section 8 assisted housing by the end of 2028 to address approximately $12.8 billion of NYCHA’s approximate $40 billion capital needs. Under PACT, NYCHA enters into long-term leases with public-private partnerships (PPPs), often non-profits and experienced for-profit developers who are responsible for rehabilitating and managing the housing. To date, NYCHA has converted nearly 15,000 units across 55 developments under PACT.
The Trust and PACT share certain important similarities. Both involve converting public housing properties from the traditional federal Section 9 public housing capital and operating subsidy program to the Section 8 Housing Choice Voucher program, providing greater federal subsidies for qualified housing to low-income families. This is accomplished by the federal government, through the Department of Housing and Urban Development (HUD) entering into annual contributions contracts with public housing agencies (PHAs), such as NYCHA, to provide subsidy payments (Housing Assistance Payments) which can be applied by the PHA to make payment under Project-Based Voucher Housing Assistance Payment Contracts (PBV HAP Contracts) between the PHA and housing facility owners with respect to specified units in such owner’s housing facilities occupied (or to be occupied) by eligible tenants. The PBV HAP Contracts are permitted to have initial terms of up to 20 years and are renewable upon expiration, providing a reliable source of revenue (subject to appropriation) that, together with other funds, is applied towards repayment of financing (bonds and/or loans) for rehabilitating the applicable housing.
Under PACT, conversions have been accomplished using HUD’s Rental Assistance Demonstration (RAD) Program, Section 18 (which provides a greater subsidy and may be blended with RAD) and other federal programs. ArentFox Schiff has represented Fannie Mae in connection with certain financings involving Section 9 public housing conversions to RAD and RAD/Section 18 blended assistance, including the “PACT Manhattan Bundle,” involving the substantial rehabilitation of 1,713 housing units in 41 buildings in Manhattan, New York.
The Trust was created in part, to address inefficiencies in the way that NYCHA must undertake capital improvements. “Restrictions relating to the New York city housing authority's construction process, and its inability to utilize innovative project delivery methods, have exacerbated its capital needs. A new public entity with greater flexibility to leverage capital investment and to manage the rehabilitation of these properties must be established.” These inefficiencies are addressed under the PACT Program, as development partners bring private sector design, construction, and property management expertise to their facilities. The Trust Act addresses these inefficiencies by authorizing the Trust to enter into “alternative project delivery contracts” providing for selection of contractors through a two-step process, first, through a request for the qualification process to determine qualified bidders, and second, requesting proposals from the list of qualified bidders and selecting the team that provides the “best value” to the Trust. The Trust is authorized to award contracts utilizing (i) cost plus, not to exceed a guaranteed maximum price; (ii) lump sum; (iii) incentive-based payments; and (iv) combinations of the above. The Trust is required to comply with City and federal objectives, goals, and requirements for disadvantaged, minority, and women-owned businesses, non-displacement of NYCHA employees, prevailing wage requirements, project labor agreement compliance, and monitoring and enforcement requirements, among other requirements.
Improvements for PACT housing facilities have been financed through bonds issued by New York City Housing Development Corporation (HDC), lender loans, mortgage-backed securities, and credit support provided by Fannie Mae and Freddie Mac. The Trust is authorized to tap into some of the same sources of financing. The Trust Act authorizes the Trust to issue up to $10 billion of bonds, and if applicable, obtain credit enhancement. The Trust Act also authorizes HDC to make loans to the Trust and to issue its bonds for such purposes.
One challenge that PACT housing facilities frequently confront is tenant suspicion that having a PPP take control of their housing facility will lead to privatization of public housing and eventual tenant displacement, despite tenant protections embedded in the PACT Program preserving tenant rights and permanent affordability requirements. To try to address these concerns, the Trust Act requires the residents of a housing facility to be provided with a choice of modernization strategies to choose from before a plan is implemented for that facility. NYCHA housing facilities will not be converted under PACT or be transferred to the Trust unless the residents of those facilities have voted to do so. Residents of NYCHA housing facilities that are transferred to the Trust will retain the same rights and protections they have as NYCHA residents to the maximum extent permitted by law. Residents of the Trust’s housing facilities will be eligible for automatic lease renewals and succession rights, with monthly rent capped at 30% of a tenant’s income. These protections are intended to ensure that NYCHA apartments transferred to the Trust will remain affordable and publicly managed.
Both the PACT Program and the Trust are intended to provide important tools for upgrading NYCHA housing. Through PPPs, the PACT Program is able to take advantage of market efficiencies available to the private sector that NYCHA is not able to access on its own. The Trust provides an alternative public option, one that is intended to mimic some of the private sector efficiencies available under the PACT Program, while retaining ultimate public control. The success of each option will be judged by the willingness of residents to opt into that approach, the ability to deliver on time, on budget improvements, and then to manage, maintain, repair, and replace those improvements, all while maintaining tenant protections, and providing a place that residents are proud to call, “home.”
The need is great. Having options is good. Success will be measured over time. Ultimately, the proof will be in the pudding…
Additional research and writing from Matt Jackson, a 2022 summer associate in ArentFox Schiff’s New York office and a law student at Fordham University School of Law.
 Trust Act, Article XV of the Public Housing Law (PBG) §630.
 See, NYCHA Fact Sheet, Release Date March 2020.
 See, Testimony of Sean Campion, Senior Research Associate, Citizens Budget Committee, submitted to New York City Council Committee on Public Housing and Subcommittee on Capital Budget, November 18, 2021.
 See, New York City Housing Development Corporation $104,250,000 Housing Impact Bonds, 2022 Series A (Sustainable Development Bonds) Official Statement dated February 10, 2022 (HDC 2022 High Impact Bonds OS) at page 29.
 See, HDC 2022 High Impact OS, supra, at 30.
 See, The Rental Assistance Demonstration (RAD) An Overview.
 See, Section 18 of the U.S. Housing Act of 1937, as amended.
 See, RAD/Section 18 Blends.
 See, e.g., New York City Housing Development Corporation $289,065,000 Housing Impact Bonds, 2020 Series C (Sustainable Development Bonds) and Series D (Federally Taxable) (Sustainable Development Bonds) Official Statement dated November 20, 2020, “PLAN OF FINANCING—Supplemental Security for the 2020 Mortgage Loan” at page 8.
 Trust Act, PBC §626.
 Trust Act, PBG §634.
 Trust Act, PBG §637.
 Trust Act PBG §630.
 See, e.g., id.