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ThomasP.

DiNapoli
StateComptroller

DIVISIONOF
STATEGOVERNMENTACCOUNTABILITY

PRESERVINGANDEXPANDING
AFFORDABLEHOUSINGOPPORTUNITIES
ASummaryofRecentAuditsandaReportonSelected
AffordableHousingProgramsinNewYorkCityandNewYorkState

2014D1

December2014

OfficeoftheStateComptroller

DivisionofStateGovernmentAccountability

ThisPageLeftBlankIntentionally

OfficeoftheStateComptroller

DivisionofStateGovernmentAccountability

ExecutiveSummary
Accesstoahabitableandsecureplacetoliveisabasichumanneed,essentialto
good health and wellbeing. Keeping New Yorkers housed is costly, however.
Governmentspendsbillionsofdollarsannuallytoassistdevelopers,owners,and
renters. New Yorks challenge is to deploy public resources more effectively to
providequality,affordablehousingtoasmanyNewYorkersaspossible.
Towardthatend,in2013,ComptrollerDiNapolibegananauditinitiativefocused
onaffordablehousing.Theaimsoftheauditseriesaretoexaminetheperformance
andoversightofaffordablehousingprogramsinNewYorkStateandNewYorkCity,
toidentifyrisks,andtorecommendmanagementimprovements.Thefirstthree
auditsinthisseriesreviewedtheadministrationofnearly20,000tenantcomplaints
and the awarding of $230 million in governmentfunded lowinterest loans for
affordablehousingrepairanddevelopment.
Enforcingmaintenanceandsafetystandardsinrentregulatedhousingiscriticalto
preserving New Yorks dwindling supply of rentstabilized and rentcontrolled
apartments. However, tenants who file complaints with the Office of Rent
Administration (ORA) in New York State Homes and Community Renewal (HCR)
wait,onaverage,10monthsfortheircomplaintstoberesolved.Auditorsfound
that15percentoftenantcomplaintsreceivedduring2012hadnotbeenassigned
toanexaminertwoyearslater.Just80examinerswhoalsoperformotherduties
handlethe6,500tenantcomplaintsreceivedeachyear.
Credible governance of affordable housing loan programs is also critical for
effectiveuseofscarcehousingresources.Thismeansusingtransparent,uniform,
and written criteria to avoid the appearance of favoritism in awarding loans.
Auditors found that HCRs Housing Trust Fund Corporation could not document
why it approved 19 loans to developers, totaling $34 million, against the
recommendationsofitsprofessionalstaff.Similarly,theNewYorkCityDepartment
ofHousingPreservationandDevelopment(HPD)couldnotdocumentwhyitgave
anotforprofithousingcorporation,ownedprimarilybyaforprofitdeveloper,a
lower loan interest rate than a notforprofit, financially distressed housing
corporationownedbyitslowincomeresidents.

PreservingandExpandingAffordableHousingOpportunities

OfficeoftheStateComptroller

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PreservingAffordableHousing
Afteradecadeofdecliningincomesandrisinghousingcosts,NewYorkfacesacrisis
of affordability in housing. In 2012, more than 3 million households were at or
abovethefederalaffordabilitythresholdmeaningtheirhousingcostsaccounted
for 30 percent or more of household income. More than 1.5 million households
statewide were severely burdened and spent half or more of their income on
housing.Forrenters,thecostburdenwasevenworse.Housingcostsconsumed50
percentormoreoftheincomein28percentofrenterhouseholds,ascompared
with15percentofhomeownerhouseholds.1
Housingaffordabilityisafunctionofbothhousingpricesandhouseholdincomes,
andbothofthesetrendshavebeennegativefortoomanyNewYorkers.InNew
York, housing options become more limited as household income declines,
especiallyforrenters.Forexample,theNewYorkCityComptrollersOfficefound
thatfrom2000to2012,NewYorkCitylost400,000apartmentswithmonthlyrents
of$1,000orless,whilethenumberofhouseholdsearning$40,000orlessincreased
bynearly52,000.2
The preservation of existing affordable housing is integral to maintaining an
adequatesupplyofaffordablehousinginNewYork.Investinginnewconstruction
alonewillnotprovideenoughhousingtosatisfytheneedsofNewYorkers.New
York must promote investment in renovating and repairing existing affordable
housing,includingpublichousing.
NewYorkslargestandmostenduringstockofaffordablerentalhousingisrent
regulatedhousingeitherrentstabilizedorrentcontrolledapartments.NewYork
has1.1millionrentregulatedapartmentsoccupiedby2.4millionresidents,mostly
concentrated in New York City, but also in Nassau, Rockland, and Westchester
counties.Timelyandconsistentenforcementofsafetyandhabitabilitystandards
that prioritizes tenant rights and respects the rights of owners as well, together
withatransparentapproachtoawardingloansforrepairandrenovation,canhelp
preservethisvaluablehousingstock.

1NewYorkStateComptroller,OfficeofBudgetandPolicyAnalysis.HousingAffordabilityinNewYorkState.March2014
2NewYorkCityComptroller,BureauofFiscal&BudgetStudies.TheGrowingGap.April2014.

PreservingandExpandingAffordableHousingOpportunities

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ProtectingTenantsRightsWillPreserveAffordableHousing
Inatypicalyear,ORAreceives6,500complaintsfromtenantsstatewideaboutthe
cost, condition, and management of their rentregulated housing. Tenant
complaintsincludeallegationsof:rentovercharges,failuretorenewalease,alack
of essential services such as heat or hot water, leaks and mold, nonfunctioning
appliances,elevators,orplumbing,anddangerousconditions,suchascracksand
holesinthewalls,floors,andceilings.ORAemploysjust80examinerstohandle
requestsandcomplaintsfromtenantsandlandlordsinvolving1millionapartments
in43,000buildings.
ORAplaysakeyroleinprotectingtenantsrightsbyensuringthatlandlordsadhere
tosafetyandhabitabilitystandards,buttenantsdonotalwaysfarewellwhenthey
filecomplaints.IntheStateComptrollersfourthhousingaudit,Administrationof
Tenant Complaints (Report 2013S72), ORA exhibited a troubling pattern of
lengthydelaysinrespondingtotenantsandresolvingtheircomplaints.Suchdelays
canalsoimpactlandlordsandowners.
Auditorsanalyzed19,653tenantcomplaintsreceivedbyORAfromJanuary1,2010
throughDecember31,2012.Mostcomplaints(96percent)camefromNewYork
City.Duringthatthreeyearperiod,complaintsthatwereassignedandinvestigated
took10months,onaverage,toresolve.
ComplaintAssignmentIsInconsistentandDelayed

Thedelaysinresolvingtenantcomplaintsstartedwithdelaysinassigningthemto
examiners.Onaverage,caseassignmenttooksevenmonthsin2010,eightmonths
in2011,andfourmonthsin2012.Thedeclinein2012isnotaresultofimproved
performance; instead, it reflects the impact of ORA not assigning 968 cases
receivedduring2012.AsofMarch6,2014,1,937complaints(9.85percent)that
had been received during the threeyear audit period were still unresolved, and
1,101werenotevenassigned.
Inmostinstances,ORAtookmoretimetoassigncomplaintstoexaminersthanit
tooktoinvestigatethecomplaints.Forexample,ORAtookanaverageof207days
toassigncasesconcerningStatenIslandtenants;investigationandorderissuance
tooklessthan125days.Similarly,complaintsfromNassauCountytenantswere
assignedwithin106daysandresolvedinlessthan90days.
ORAs speed in assigning complaints varied, seemingly arbitrarily. Of the 19,653
complaints received over the threeyear period, 575 were assigned on the day

PreservingandExpandingAffordableHousingOpportunities

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received(allofthesewereharassmentcomplaints),while1,634casestookmore
than550daystoassign.Somecaseswerenotassignedintheyearreceived.Asof
March6,2014,68casesfrom2010,65from2011,and968from2012,including
823complaintsofrentovercharges,werestillunassigned.
ComplaintInvestigationsAreBacklogged

ORAsdelayedresponsetocomplaintscouldexposetenantstofinancialhardship
andallowconditionsintheirhomestoworsen.AsofMay15,2014,ORAreported
a backlog of 5,883 unresolved tenant complaints, including 217 that had been
receivedpriorto2010,withsomedatingasfarbackas2003.Itappearsunlikely
thatORAwillreducethisbacklogbecauseittakessolongtoresolvecomplaints.An
analysisofthe19,653complaintsreceivedfromJanuary1,2010throughDecember
31,2012revealedthefollowing:
On average, rent overcharge complaints took 18 months to resolve. ORA
received 5,319 such complaints and resolved 3,958 during the threeyear
audit scope period. ORA granted an order in favor of the tenant in 1,407
cases. Overcharges, interest, and penalties owed to those tenants totaled
$5.5million.
Harassmentofatenantbyalandlordisdefinedasanyactionintendedto
forceatenantoutofanapartmentortocedestatutoryrights.ORAreceived
627 harassment complaints, which, according to policy, are immediately
assignedforinvestigation.Resolutiontookanaverageof11months,largely
because ORA keeps complaints open to watch for continued incidents of
harassment.ORAclosed525caseswithnoaction,afterdetermininginmost
instances that the landlord was not guilty of harassment. Another 102
complaintsremainedopenasofMarch6,2014.
Complaintsregardingalandlordsfailuretorenewaleasetookanaverage
of11monthstoresolve.ORAreceived3,709suchcomplaintsandresolved
1,632infavorofthetenant,directingthelandlordtoprovideasignedlease.
Tenant concerns were not affirmed in 1,716 complaints. In 315 instances,
eitherthetenantdidnotrespondorwithdrewthecomplaint.Fortysixcases
werestillopenasofMarch6,2014.
ORAreceived2,150petitionsforadministrativereview;thesearerequested
when a tenant objects to an order issued by ORA. Of these, 1,822 were

PreservingandExpandingAffordableHousingOpportunities

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resolved,takinganaverageofmorethaneightmonths.Mostoftheresolved
cases(93percent)didnotconfirmtenantconcerns.
InvestigationProceduresLackConsistency

Auditors found that ORA lacks any formal written policies and standards for the
timeliness of complaint assignment and investigation. According to ORA, each
complaint is unique, and imposing timeliness standards could weaken the due
processrightsoftenantsandlandlordsbypressuringexaminerstofocusonspeed
ratherthanaccuracy.
ORA officials explained that due process requirements can also add to the time
neededtoresolveeachcomplaint.Landlords,forexample,mustbeallowed20days
torespondtocertaintenantcomplaints.However,sinceitcanbemanymonths
before a case is assigned to an examiner, landlords have ample time to correct
violationsbeforeORAevenvisitsanapartmentorbuilding.Suchdelayseffectively
preemptrentadjustmentsthatarepotentiallyowedtotenantsforservicesnot
providedbythelandlord.
ORAprioritizescomplaintsbasedontheseverityoftheallegations.CodeRedcases
aretheworstandmustbeassignedfirst.Theseincludecomplaintsregardingvacate
orevictionorders,fires,alackofwaterorelectricity,andcollapsedorcrumbling
walls,ceilings,orfloors.CodeBluecasesareassignedsecondandincludeviolations
suchasalackofcookinggasorrefrigerator,rodents,orscaldingwater.CodeBlue
casestypicallytaketwoweekstobeassignedtoanexaminer.Otherlessdangerous
orlesshealththreateningconditionsarehandledonafirstin,firstoutbasis.
ORA also has other informal procedures for processing tenant complaints. For
example,ORAmightprioritizecasesbasedonavailablestaffingandotherissues,
suchaswhetherabuildinghasmultipletenantcomplaintsorwhetherexaminers
haveexperienceaddressingspecificallegations.
StaffingShortagesAddtoDelaysinResolvingComplaints

State payroll data indicate that as of March 31, 2014, ORA had 287 employees,
downfrom408in2000.Examinerstaffingdecreasedby33percent,from119in
2000to80in2014.ORAofficialstoldauditorsthatthereductioninstaffingwasthe
reasonwhyitnowtookevenlonger27monthsthaninthethreeyearaudit
periodtoassignrentoverchargecases.

PreservingandExpandingAffordableHousingOpportunities

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CaseStudies
InspectionDelaysWeakenTenantsDueProcessRightsandCompromiseHousingConditions

Atenantat56SeventhAvenueinManhattancomplainedonJanuary19,2010ofa
deteriorationinbuildingwideservices.Elevatorsdidnotwork;lobbydoorswere
unlockedanddidnotopenandcloseproperly;andhallwayswerenotmaintained
andhadholesandexposedelectricalwiring.
ORAnotifiedthebuildingownerofthecomplaintonJanuary29,2010.Fourmonths
later, on May 27, 2010, ORA assigned the case to an examiner. ORA finally
inspectedthebuildingonJanuary19,2011,andvisitedasecondtimeonMarch30,
2011.ORAgavetheownerampletimetocorrecttheviolationsbutprovidedno
redress for the tenant, who had paid rent and endured many months without
mandatedbuildingwideessentialservices.
HousingAgenciesShouldCoordinateforTimelyResponsestoTenantComplaints

ABrooklyntenantcomplainedofbedbugsat1535ShoreParkwayonFebruary2,
2011;thecasewasassignedtoanexamineronMarch31,2011.Thetenantsent
multiple notifications to ORA about the problem through July 2012, but no
inspectionwasconducted.Eventuallythetenantmovedout,andonJuly18,2012,
ORAdismissedthecase.
Whenauditorsquestionedwhynoinspectionhadtakenplace,ORArespondedthat
inspectorsdonothaveexpertisetoaddressproblemswithpests.Also,theowner
documented that he had provided extermination services. However, the tenant
notified ORA that HPD inspected the apartment on April 15, 2011 and issued a
noticeofviolationonApril18,2011,whichwasevidencethatthebedbugproblem
continued unabated. ORA missed an opportunity to coordinate with HPD and
possiblyresolvethisissue.
UrgentComplaintsLeftUnresolvedCanJeopardizeTenantsHealthandSafety

OneCodeBluecomplaint,receivedonMay15,2012fromatenantat533West158
StreetinManhattan,allegedbrokenwindowglass,inoperativesmokeandcarbon
monoxidealarms,crackedwalls,missingfloortiles,abrokensinkpipeandaleaky
sink,abrokenbathtub,nohotwater,andotherseriousallegations.ORAtook72
daysjusttoassignthecomplaint.TheapartmentwasinspectedonNovember16,
2012,andtwoadditionalinspectionstookplacein2013.OnNovember27,2013,
thecasewasultimatelydecidedinfavorofthetenant,whoserentwasreduced.

PreservingandExpandingAffordableHousingOpportunities

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According toORA,therewas ashortageofexaminersatthetimethisparticular


Code Blue complaint was received. ORA also noted that other tenants in that
buildinghadmadeasmanyas40complaints.ORApreferredtoprocessallofthem
together,regardlessofthenatureofthecomplaintsorwhentheywerereceived.

SubsidizingRepairsandRenovationsWillPreserveAffordableHousing
Article8AofNewYorksPrivateHousingFinanceLawallowsmunicipalitiestomake
loans to owners of multifamily housing to remove substandard or unsanitary
conditions.Statelawcapstheloanamountat$35,000perdwellingunit.InNew
YorkCity,theArticle8AprogramisadministeredbyHPD,whichhasestablished
eligibilitycriteriafortheseloans.
The Article 8A program is intended to preserve affordable housing by providing
loansatratesunavailableintheprivatemarketandbyrequiringloanrecipientsto
maintainaffordabilityoftherenovatedproperties.Interestratesontheloansare
3percentorless,subjecttoHPDsdiscretion,withamaximum30yearterm.
EligibilityCriteria

HPD makes these loans available to rentregulated buildings, MitchellLama


developments, and housing development fund corporation (HDFC) buildings.
Averagerentscannotexceed$244perroomforrentals.ForcooperativesorHDFCs,
rentormaintenancechargesarelimitedto55percentofareamedianincome.
New York Citys Article 8A rules require borrowers to bring their buildings into
substantial compliance with the Multiple Dwelling Law and the Housing
MaintenanceCodewithinayearofstartingloanrepayment.Therulesalsopermit
HPDtorequirethecompletionofadditionalrepairsandrenovationstobepaidfor
bytheborrowerasaconditionofreceivingtheloan.
ViolationsAddressedintheArticle8ALoanProgram

HPDgroupsviolationsinthreecategories:
ClassAconsistsofnonhazardousviolations,suchasminorleaksorlackof
requiredsignage.Anownerhas90daystocorrectaClassAviolation.
ClassBarehazardousviolations,suchaspublicdoorsthatdonotcloseor
inadequate lighting in public areas. These violations must be corrected
within30days.

PreservingandExpandingAffordableHousingOpportunities

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Class C violations, the most severe, present an immediate hazardous


conditionandmustgenerallybecorrectedwithin24hours.Examplesinclude
inadequate fire exits, rodents, leadbased paint, and no heat, hot water,
electricity,orgas.
DeficientConditionsinRentRegulatedHousing

NewYorkCitysrentregulatedhousingstockisinneedofinvestmentforcapital
repairandrenovation.AsshowninTable1below,89percentofNewYorkCitys
999,244occupiedrentregulatedapartmentshadoneormoredeficienciesin2011.
Atleast30percentofrentregulatedapartmentshadoneormoredeficienciesthat
couldbecategorizedasClassCviolationsorthatincreasedtheriskofsignificant
health hazards, such as asthma and learning disabilities. These deficiencies
includedthepresenceofroaches,rats,andmice;cracks,holes,ormissingbricksin
interiorsandexteriors;brokenormissingwindows;andtoiletorheatingfailures.
Still,mostofNewYorkCitysrentregulatedbuildingslikelydonotqualifyforan
Article 8A loan, as the rent per room for about 80 percent of rentregulated
apartments exceeds the $244 maximum. Typically, HPD receives just 40 loan
applicationsannuallyandgenerallyapprovesjust30.
Article8Aaloneisnotasufficientfinancialincentivetopreservethequalityand
affordability of properties, even for owners of qualifying buildings. Since 1994,
8,537 rentstabilized units were deregulated because their owners chose to
substantiallyrehabilitatetheirpropertiesbyreplacing75percentofbuildingwide
andapartmentsystems.Another24,394affordableunitswerelostbecausethose
buildingswereuninhabitableordemolished.
Table1
PrevalenceofDeficienciesinNewYorkCitysOccupiedRentRegulatedApartments
DeficientConditionsReportedin2011
BrokenPlasterorPeelingPaint
CracksorHolesinInteriorWallsorCeiling
ExternalWallsDamagedorDilapidated
HeatingEquipmentBreakdown
HeatingEquipmentBreakdownFourTimesorMore
MiceandRats
Roaches
ToiletBreakdowns
WaterLeakageInsideApartment
OneorMoreDeficiencies

Percentageof
Apartments
21
18
3
17
7
29
30
10
25
89

Sources:2011NewYorkCityHousingandVacancySurvey;analysisbyStateGovernmentAccountability

PreservingandExpandingAffordableHousingOpportunities

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PoorHousingConditionsAffecttheHealthandSafetyofNewYorkers

AsshowninTable1above,21percentofrentregulatedapartmentshavebroken
plasterorpeelingpaint,and27,166ofthosehouseholdsincludechildrenunderage
six,whoareatparticularriskofhealthhazardsfromleadpaint.NewYorkCitys
Lead Paint Hazard Reduction Law (Local Law 1 of 2004) requires remediation of
thesehazardsinordertopreventchildhoodleadpoisoning.
Cracksorholesininteriorwallsandceilingscanbefoundin18percentofrent
regulatedapartments.Similarly,3percenthaveexternalwallswithoneormoreof
these dangerous conditions: missing bricks or siding; sloping or bulging; major
cracks;andlooseorhangingcornices,roofing,orothermaterial.NewYorkCitys
LocalLaw11of1998requiresownersofbuildingswithsixormorestoriestoinspect
their exterior walls and all building accessories that could jeopardize pedestrian
safety,suchascellularserviceequipment,satellitedishes,andfireescapes.
WeakMonitoringLeadstoUncorrectedViolationsandAdverseBuildingConditions

The State Comptrollers audit, Administration of the Article 8A Loan Program


(Report 2013N4), examined nine projects, featuring 34 buildings with 942
apartments,whichwereawardednearly$20millioninArticle8Aloans.Toexecute
these loans,HPDmayrequire borrowerstosignthreeagreements.TheBuilding
LoanContractspecifiesthescopeofworkandthecostofrepairscoveredbythe
Article8Aloan.Theothertwo,theVoluntaryRepairAgreementandtheHousing
RepairandMaintenanceAgreement,mayrequireviolationremovalandrepairsto
be paid for by borrowers. Despite these agreements, violations and adverse
conditions persist after the loans have been closed because HPD does not
adequatelymonitoritsagreements.
InareviewofVoluntaryRepairAgreements,auditorsfoundthatthe34buildings
hadatotalof1,806violationstocorrectasaconditionofreceivingloans.Yet,HPD
didnotinspectallbuildingstodeterminewhetherownershad,infact,corrected
the violations. According to HPDs housing code violations database, which is
maintainedbyHPDandupdatedbybuildingowners,415violationshadnotbeen
corrected. Of these, 93 were Class C violations. HPD acknowledged monitoring
compliance with Voluntary Repair Agreements for just 3 of the 34 buildings
reviewed by auditors. The HPD staff members assigned to monitor those
agreementswereunawareofsuchagreementsforthe31otherbuildings.

PreservingandExpandingAffordableHousingOpportunities

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HPDwasevenmorelaxwiththeHousingRepairandMaintenanceAgreements.The
required improvements and repairs specified in those agreements such as
asbestos removal, repairs to a fire escape, lead paint remediation, and the
installationofwindoworchildguardsdirectlyaffectedthehealthandsafetyof
buildingoccupants.HPDtoldauditorsthatitstoppedmonitoringHousingRepair
andMaintenanceAgreementsabouteighttotenyearsago.
CaseStudy

InMay2010,aHarlemHDFCconsistingoftwobuildingsbuiltin1910wasapproved
foranArticle8Aloantotaling$924,177forroof,masonry,electrical,andelevator
repairs.Onecontractorwastodoallrepairsexcepttheelevatorwork,whichwas
tobehandledbyasecondcontractor.
When the Article 8A loan was approved, the two buildings had a total of 286
violations: 42 Class C violations, including 15 leadrelated violations; 135 Class B
violations;and109ClassAviolations.TheHDFCwasalsofinanciallydistressed;two
bankshadrejecteditsrequestforaloan.Inaddition,theHDFCtookoutanother
loan from a credit union to pay overdue real estate taxes and water and sewer
arrears.Clearly,thisHDFCsabilitytoseekfinancingfromcommercialbankswas
limited,andthebuildingsneededmuchrepairandupgradingwork.
HPDfailedtoadequatelymonitorprogressontheHDFCswork.OnDecember10,
2012,theHDFCPresidentsentalettertoHPDexpressingsatisfactionwiththework
completed. Yet, one year later, when auditors visited the HDFC, residents
complainedofshoddyandincompleteconstructionwork.
WeakHPDOversightDeprivesResidentsofComfortandSafety

The major contractor began work on the Harlem HDFC in 2011, and work was
deemed91percentcompletebyanHPDinspectorinJanuary2013.HPDconducted
awalkthroughinJune2013andfoundthatthecontractorsworkwascompleted,
butreportedthatacourtyarddraininstalledbythecontractorwasnotfunctioning
properly. HPD took no followup action to correct this problem for six months.
Instead, another HPD inspector approved the contractors final payment on
December5,2013withoutperformingasitevisittoverifythatthecompletedwork
wasconsistentwiththeloanagreement.
Oneweeklater,onDecember12,2013,auditorsvisitedthepropertyandspoketo
residents, who noted that that the new courtyard drain was nonfunctioning,
causing water to flood the electrical and meter room in the basement and the

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elevator pit. The residents also complained about the quality of the electrical
upgradework,notingthatuseofthedishwashercausedthepowertoshutdown;
therewerenocircuitbreakers;andsomeoftheoutletsdidnotfunction.Residents
alsosaidthatnewdoorshadnotbeeninstalledinthebasement,asspecifiedinthe
BuildingLoanContract.

GovernanceinAffordableHousingPrograms
Affordablehousingdevelopmentreliesheavilyongovernmentsubsidiesandother
assistance.Governmentagencieshaveadutytotaxpayersandresidentstoensure
that public resources for affordable housing are used effectively and fairly. This
should mean, in part, uniformly applying transparent and publicly defensible
criteria when awarding loans, to avoid the public perception of favoritism,
patronage,orpreferentialtreatment.

UniformlyApplyingTransparentCriteriaStrengthensIntegrity
The State Comptrollers audit, LowIncome Housing Trust Fund Program (Report
2013S32), examined awards of lowinterest, Statefunded loans for affordable
housing development and rehabilitation, totaling $209 million, over a fiveyear
periodendingDecember11,2013.Theloansfunded111projectsstatewide,with
5,850unitsofaffordablehousing.
TheLowIncomeHousingTrustFundProgram(HTF)isadministeredbytheBoard
ofDirectorsoftheNewYorkStateHousingTrustFundCorporation.Boardmembers
includetheCommissionerofHousingandCommunityRenewalasBoardChairand
theChairoftheNewYorkStateHousingFinanceAgency.TheBoardreliesonthe
staffoftheDivisionofHousingandCommunityRenewal(Division)torecommend
projectsforHTFloans.
AvoidingtheAppearanceofFavoritisminAwardingHTFProjects

TheDivisionusesacomprehensiveevaluationsystemtoscoreloanapplicants.The
scoringstaffevaluatestheprojectsfeasibilityfromthelegal,design,financial,and
development perspectives. The evaluation process involves project managers,
directors,andexecutivemanagement.
Auditors found that the highestscoring projects do not always receive a loan.
Instead, the Divisions executive management ultimately decides which projects
willbefunded.AuditorsfoundinstancesinwhichDivisionstaffhadrecommended

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thataprojectnotbeawardedandtheBoardhadoverruledthem.TheBoardalso
made questionable project awards, which were not supported with
documentation, to developers whose projects had been deemed infeasible by
Division staff. Nineteen projects not recommended for loans by Division staff
received$34million,or28percentofthefundsawarded.
Division officials acknowledged that projects will be awarded loans against the
recommendations of the Divisions professional staff in order to achieve State
policyobjectives.Theycautionedthatapprovingaffordablehousingprojectssolely
onthebasisofscoreswouldimpedetheDivisionsabilitytoimplementtheStates
housingpolicyobjectives.
However,Divisionofficialscouldnotdocumenttheirdecisionstoawardprojects
againsttherecommendationsoftheirprofessionalstaff.Asaresultoftheaudit,
Divisionsupervisorsarenowrequiredtoreconcilestaffevaluationswithexecutive
managementsdecisionstoensurethattheyareconsistentandthattheysupport
decisionstoawardloans.
AppearanceofPreferentialTreatmentintheArticle8AProgram

AnotherexampleofpotentialfavoritismwasfoundintheArticle8ALoanProgram:
threeprojectsconsistentlyreceivedgenerousprovisionswhencomparedwithfive
other projects selected for audit. The three projects were owned by the same
company,Quadrant,anHDFCwhosemajorityownerisaforprofitcompanythat
manages and rehabilitates affordable housing. The preferences were made
possiblebyHPDslackofformal,writtenpolicies.Thedifferenttreatmentofloan
applicantsandtheabsenceofwrittenpoliciesraisequestionsaboutthefairness
andintegrityofHPDsprocess.
Quadrantprojectsreceivedinterestratesof1percent,whiletheotherfiveprojects
wereassessedateither2or3percent.HPDsetsratesatthediscretionofagency
management, according to agency officials. Quadrant also received a more
generousprogrambudgetthantheotherprojects.Quadrantreceivedconstruction
management allowances of nearly 5 percent of the project loan, but no other
projectreviewedbyauditorsreceivedsuchanallowance.Quadrantprojectsalso
received larger contingency allowances. One Quadrant project received an
allowance of nearly 10 percent of the loan to pay for lead and asbestos
remediation,coststhatHPDhasrequiredotherborrowerstocoveroutsideoftheir
Article 8A loans. Other projects received contingency allowances of zero to 3.5
percent.

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TowardsMoreAccountabilityinAffordableHousingPrograms
TheComptrollersaffordablehousingauditshighlighttheimportanceofdeveloping
anduniformlyapplyingwrittenpoliciesandproceduresthataretransparentand
publiclydefensible.TheComptrollerrecommendsthatagenciesassessprograms
andoutcomeswithregardtothefollowingprinciples,towardthegoalofensuring
continuedaffordablehousingopportunitiesfortenants,owners,anddevelopers.
1. Assessprocedurestoensurethathousinggrantsandloansareprovidedonly
to responsible landlords and developers who maintain buildings in good
conditionandrespecttherightsoftenants.
2. Fundprojectsfairlybyusingcriteriathatreflectsananalysisoftheneedsand
resourcesofdevelopers,owners,andbuildings.Establishandusestandards
for key funding decisions, such as setting interest rates, to ensure that
projectawardsarejustifiedandconsistent.
3. Establish controls to prevent preferential treatment of applicants, such as
requiring independent verification of key documents and establishing
standardsforprojectbudgetsthatincludeconstructionandotherloanfees
andallowances.
4. Establish and adhere to written standards for assigning, investigating, and
documenting tenant complaints in a timely fashion. Place a priority on
violations that affect tenants health and safety and require immediate
attention.Developprotocolsforresolvinglongtermopencomplaintsmore
quickly.Coordinatewithmunicipalandcountyhousingagenciestoimprove
thespeedandaccuracyofresponsestotenantcomplaints.
5. Strengthen monitoring of housing developments by establishing written
policies and procedures for building inspections that randomize inspector
site visit schedules and ensure that owners of funded projects correct
violationsinatimelymanner,withapriorityplacedonhazardousconditions.

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PreservingandExpandingAffordableHousingOpportunities

OfficeoftheStateComptroller

DivisionofStateGovernmentAccountability

RecentAffordableHousingAuditsandReports
March2014

HousingAffordabilityinNewYorkState

2013S31

HCR:AffordableHomeOwnershipDevelopmentProgram

2013S32

HCR:LowIncomeHousingTrustFundProgram

2013S72

HCR:AdministrationofTenantComplaints

2013N4

HPD:AdministrationoftheArticle8ALoanProgram

MajorContributorstoThisReport
PreservingandExpandingAffordableHousingOpportunities
CherylPahaham

AidaSolomon

MaryRoylance

TeeranMahtooDhanraj
HilaryPapineau

NoreenPerrotta

AndrewA.SanFilippo
TinaKim

BrianMason

DirectorofPlanningandProductDevelopment
PlanningandProductDevelopmentSupervisor
AuditPlannerandProjectCoordinator
AuditPlanner
ResearchAnalyst
SeniorEditor

ExecutiveDeputyComptroller
DeputyComptroller
AssistantComptroller

Audit reports can be found on the Comptrollers website at www.osc.state.ny.us. To obtain hard copies, please
contacttheComptrollersPressOfficeat:
AlbanyPhone:5184744015
NewYorkCityPhone:2126814840
Email:press@osc.state.ny.us

14

PreservingandExpandingAffordableHousingOpportunities