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Local Government Should Decide How Housing Money is Spent

March 25, 2016

New York City residents know that housing development decisions are best made at the local level of government. But the recent New York State Executive Budget proposed two changes that would have the unintended effect of undermining effective affordable housing production by creating a new level of decision-making oversight for one of the main tools used to finance affordable housing development.

New York City residents know that housing development decisions are best made at the local level of government. But the recent New York State Executive Budget proposed two changes that would have the unintended effect of undermining effective affordable housing production by creating a new level of decision-making oversight for one of the main tools used to finance affordable housing development.
 
The question of how the State should allocate private activity bonds to local municipalities sounds arcane, but the issue is important, both for the principals of good government, and for the actual impact on New York City's affordable housing policy. The federal government authorizes states to issue tax-exempt bonds (known as "bond cap") to finance certain types of activities that benefit the public. The state then re-allocates a percentage of the bond cap to local municipal agencies. Much of the affordable housing created in New York City is built with the City's allocation of bond cap, which is distributed through the City's own housing bond agency, the Housing Development Corp (HDC). The first change proposed by the State Executive Budget would insert a new decision-making role for the Empire State Development Corporation (ESDC), allowing ESDC to override decisions by local municipalities about which mechanisms they use to distribute their bond cap allocation. The second change would create a new role for the Public Authorities Control Board (PACB), putting every individual housing development deal up for review by the PACB. This would give any of the 3 branches of government in Albany veto power over any local development deal. Adding this decision-making and veto power at a new level of government would introduce a significant new element of uncertainty into the affordable housing development process. The development process generally requires up to two years of pre-development planning and investment by the affordable housing developer before the financing is finalized. Creating a new and unpredictable hurdle at the end of the pre-development process would unnecessarily add to the risk and cost of affordable housing development.
 
These two new provisions would also undermine the ability of local governments to plan effectively with any expectation of control over critical housing resources, and would be detrimental to good housing and community development policy. Community development is not just about financing individual affordable housing projects in a vacuum. -Done well, it takes into account the other infrastructure needs of a growing neighborhood, such as schools and parks. But, if local government does not have effective control over capital resources, it cannot plan in partnership with the local neighborhood for the full range of community development needs. The unintended effects of these two changes would most strongly impact New York City, which has historically demonstrated both the greatest affordable housing construction need, and the ability to make effective use of bond cap. New York State and New York City have long worked effectively together to support affordable housing development, with the agreement over how to allocate federal tax-exempt private activity bonds forming the basis of this relationship. ANHD believes that, in the case of bond cap allocation authority, local decision making is better governance, and better housing policy.
 

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