Shadow #12
June/July, 1990

Cross-Subsidy Crossed-Out
By Nashua


New York City’s real estate market is collapsing, according to reports in the Sunday New York Times. The paper reports that the frenzy of construction during the Wall Street boom of the 1980s has caused vacancy rates in commercial buildings to skyrocket. At the same time, demand for luxury housing has fallen off and the market in co-op apartments has evaporated as prospective buyers and sellers wait out the uncertainty over the city’s future.

Huge money center banks like Citicorp and Manufacturers Hanover are facing major losses due to bad loans approved over the last decade when developers and lenders blindly followed ever rising land values. Now the major multinational banks are writing off bad loans at a rate that observers nervously compare, to the possible trillion-dollar bailout of the Savings and Loan industry.

The city government, with Mayor David Dinkins at the helm, is now confronting a crisis that could rival in scope the city’s near default (and its mortgaging to state and corporate regulators) in the mid-1970s. Among the first victims of the city cutbacks are thousands of homeless families. They are now crammed like refugees in unsanitary human warehouses where tuberculosis and other communicable diseases are rampant.

Three years ago, the federal government ordered the city to relocate thousands of families sheltered for years in decrepit welfare hotels where sleazy entrepreneurs charge the city $1,000 a month and more. The city’s response has been to empty some of the hotels and squeeze former residents into the family shelter system.

In yet another emergency program aimed to reduce the subsequent overcrowding in these shelters, The New York Times reports that families are being moved from the shelters into public housing. Amounting to a "divide and conquer" strategy, the city’s actions have sparked bitter protests from public housing residents who are demanding that vacant apartments in the projects be used to alleviate unbearable overcrowding among current residents. Reports of 20 or more people forced to "double-up" or share a small apartment in projects like the Jacob Riis houses on the Lower East Side are common.

While the city’s housing disaster spreads, so-called "non-profit" housing groups on the Lower East Side are positioning themselves to profit from predictions of even greater homelessness, and hardship in years to come.


The handwriting was on the wall at the May 1990 meeting of the Disposition Task Force (DTF) of Community Board Three (CB3). Carol Watson and Frances Goldin, who are both members of CB3 and the Joint Planning Council (JPC), a coalition of local housing groups on the Lower East Side, were hashing out news of the possible demise of the "50-50" Cross-Subsidy Plan.

The "50-50" plan is a crucial facet of the "three part plan" established in 1987 between CB3 and the city’s department of Housing Preservation and Development (HPD). The "three part plan" includes intensified enforcement of HPD housing regulations in Lower East Side buildings and new, zoning regulations that would force luxury developers to build low and moderate income housing.

Some squatters of city-owned abandoned buildings believe that intensified HPD enforcement of the building codes would allow their eviction on the grounds that while the squats are a decent and needed source of housing, they may not meet stringent HPD regulations.

The third part of the plan is the cross-subsidy. It was at the May 1990 Disposition Task Force meeting that JPC members Goldin and Watson were shocked to learn that the cross-subsidy plan they had been negotiating with the city for more than three years was on the rocks.

Since 1987, JPC activists had envisioned the construction of 2,000 new housing units on the Lower East Side. The city was to sell all the vacant land on the Lower East Side to developers who were to build 1,000 units of luxury housing. The money raised by the city from these land sales plus an additional one time grant of $5 million from the city budget would then finance the construction of 1,000 units of low and moderate income housing.

Despite the dreams of neighborhood housing activists, the news at the DTF meeting last May was that the city could not sell land on the Lower East Side at a price high enough to finance future low income development because of the decline in real estate values.

According to Carol Watson, HPD claims that the sale of city-owned vacant land "only made $15,000 per unit" of housing proposed for each lot instead of $49,000 as originally negotiated between C133 and the city. Watson added that at least one developer has pulled out of a cross-subsidy site on Suffolk St.

Philip Van Aver, a former C133 member, says the need for developers has forced the reduction of the first phase of the "50-50" plan from about 155 units of low income housing to 138 units. Van Aver says the "50-50" plan was always rooted in the "expectation of constantly rising property values."


The blockbuster news of the DTF meeting was the announcement that the ailing cross-subsidy plan would have to compete with a proposed $250 minion private investment partnership. The partnership was created by the Local Initiatives Support Corporation (LISC) and the Enterprise Foundation, two national, non-profit organizations. According to Carol Watson, the groups "broker" federal low-income tax credits to raise funds to assist local non-profit groups in building low-income housing.

According to Bill Frey, the director of the Enterprise Foundation, low income tax credits are "the only benefit allowed by the 1968 tax law for investment in low income housing". The tax credits, he explains, are provisions for corporations to get reductions in their "general taxes" in return for investing in low income housing.

According to Frey, the federal government defines low income as 60% of New York City’s median income of $19,000 a year, but he says the Enterprise Foundation has "tried to target 55% of median income", or $10,450 a year for a family of four. Frey says that in New York City, the LISC/Enterprise program has financed 31 projects working through 18 non- profit "sponsors" and has built 1400 units of low income housing.

In an HPD press release dated June 7, 1990, the city promises to "provide $60 million in the form of one percent, 17 year loans… in addition to vacant structures". Bill Frey described the program as a limited partnership between a corporation and a non-profit organization. After 17 years, the private corporation, which has invested in a low income project in return for tax credits, "can get out of the project", says Frey. He adds that the "corporations are not looking toward an increase in value. [The] profits are strictly from credits invested."

The corporate investors in LISC/Enterprise include Continental Corporation, The Dime Savings Bank of New York, Bankers Trust New York Corporation and the East River Savings Bank.

Who will eventually own the developed units? Frey insists that after 15 years the "most likely possibility" is that the corporate investor will sell their interests in a project to the non-profit sponsor to avoid paying a capital gains tax.

The non-profits are also allowed to get out of the project. Frey says the nonprofit must first try "to sell to a viable non- profit before attempting to sell to others". Frey claims that deeds with the city require that the housing be maintained for low-income tenants for at least 30 years.

Frey insists that NYC rent laws will protect tenants in LISC/Enterprise projects from evictions after they are sold. However, one Lower East Side activist notes that the same banks and real estate interests investing in the low income projects have been criticizing those same rent laws for years.

Corporate partnerships have been the subject of bitter complaints by grassroots housing activist's organizations. Organizers from ACORN (Association for Community Organization and Reform Now) say that grassroots groups are quickly muscled out of the picture by powerful banks. The result is that projects are developed in an authoritarian manner without participation by the community.

On the Lower East Side, the first phase of development activity has led to the construction of two small buildings on Eldridge Street and one on Avenue C between 5th and 6th Streets. The projects were sponsored by Asian Americans for Equality, a 16-year-old non-profit housing corporation based in Chinatown.

Richard Wong, a spokesperson for the group, says Asian Americans for Equality is participating in an "upcoming round" of the LISC/Enterprise program. They plan to develop 50 units in six buildings near Rivington and Norfolk Streets.

The Lower East Side Coalition Housing Development (LESCHD), an organization that has developed low income housing where it now has an office on Avenue B near 12th Street, is proposing a development at 2nd Street and Avenue D, says Carol Watson. The director of LESCHD is Antonio Pagan, a founder of the Tompkins Square Park Neighborhood Coalition (TSPNC), an organization of Lower East Side landlords and their supporters trying to reimpose a curfew in the park.

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