Learn About S6543
From de Blasio's Sponsor MemoFor the complete text and bill status see S6543 on the NYS Senate site.
REASONS FOR SUPPORT :
Article XI was enacted in 1966 to facilitate the rehabilitation and construction of low income housing through two types of non-profit corporations: 1) HDFCs formed pursuant to Article XI and the NPCL for the purpose of operating rental housing ("Rental HDFCs"); and 2) HDFCs formed pursuant to Article XI and Section 402 of the BCL for the purpose of operating cooperative housing ("Cooperative HDFCs").
Both Rental HDFCs and Cooperative HDFCs have the sole corporate purpose of providing housing on a nonprofit basis to persons and families of low income and both are eligible to receive tax exemptions, below market financing, below market property dispositions, as well as other forms of government assistance.
This bill adds a new section 573-a to Article XI of the PHFL to clarify and implement the original intention of the statute to require that all HDFCs operate as non-profit corporations. In keeping with that intent, the bill subjects all HDFCs to the provisions of the NPCL regarding dissolutions, mergers, and the sale of substantially all corporate assets. In order to ensure that HDFCs provide rental or cooperative housing for persons and families of low income as required by Article XI, the bill codifies requirements related to the sale of shares of stock in cooperative HDFCS, clarifies when approval of an HDFC's supervising agency is required for certain acts (including acquiring property and entering into long-term leases), and enhances the supervising agency's enforcement powers (including the right to appoint board members or revoke tax exemptions when an HDFC violates the statute).
This amendment seeks to clarify and implement the original intent of Article XI that all HDFCs, both rental and cooperative, must operate on a non-profit basis to provide affordable housing to persons or families of low income, and that their corporate assets are safeguarded, by explicitly requiring that certain provisions of the NPCL regarding dissolution, mergers, and the sale of all or substantially all of the assets apply to Cooperative and Rental HDFCs. The amendment also ensures that the supervising agency and the New York. State Office of the Attorney General are required to approve certain transactions involving dissolution, mergers and the sale of all or substantially all of the assets of Cooperative and Rental HDFCs.
Article XI was drafted in contemplation that HDFCs receiving tax exemptions or below-market financing would operate pursuant to the terms of agreements with their supervising agencies. Such agreements provide the supervising agencies with the enforcement tools necessary to care for the public investment in these properties, clear guidelines for HDFCs to follow in governing themselves, and restrictions on the subsequent sale or rental of units. Even in the absence of such agreements, every HDFC is subject to substantial statutory restrictions requiring it to provide housing for persons and families of low income and to ensure that none of its assets inure to the benefit of private individuals. Currently, many HDFCs do not have agreements with their supervising agencies. Certain real estate speculators are misrepresenting to HDFCs and to potential purchasers of shares in Cooperative HDFCs that the lack of such an agreement changes the sole corporate purpose of an HDFC -a representation that is contrary to the legislative intent of Article XI and not supported by the plain reading of the statute.
Many HDFCs currently operate with little oversight due to the lack of agreements with their supervising agencies. Some HDFCs have attempted to sell their real property for use as market rate housing, or have allowed their shareholders to sell shares of stock for prices that are not affordable to persons and families of low income. Such actions are in direct contravention of the intent of Article XI.
To date, there are more than 1,000 Cooperative HDFCs that provide over 25,000 units of low income housing to shareholders, the majority in Bronx, Kings and New York Counties. Because of often self-serving misinterpretation of Article XI, such housing may be at risk of loss.
Although legislative history is clear that both Rental and Cooperative HDFCs must operate on a non-profit basis and must maintain the sole corporate purpose of providing low income housing, there is a great need for an amendment to clarify that the corporate purpose of an HDFC - to provide affordable housing to persons and families of low income - is perpetual in duration. Absent the checks and balances provided by the NPCL, there may be a great loss of affordable housing. New section 573-a serves to plainly state the intent of the original drafters of Article XI by making clear that all HDFCs must be operated exclusively on a non-profit basis, and that controlling provisions of the NPCL govern the dissolution, merger, or sale of all or substantially all of the assets of an HDFC.
Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.