New York City's Landlord Loan Program Is a Mess, According to This Damning Audit

Some landlords receiving government loans haven't been holding up their end of the bargain.
Some landlords receiving government loans haven't been holding up their end of the bargain.
Credit: State Comptroller Report

While the branding needs a little work, the "Article 8-A" loan program, run by New York City's Department of Housing Preservation and Development (HPD), is the kind of government program that seems like a pretty sensible idea.

Every year, the city gives out millions of dollars in low-interest loans to landlords of rent-controlled buildings; the money is supposed to be used for needed repairs and improvements. In the short term, the theory goes, the cheap money makes it easier for landlords to afford the necessary sprucing-up. That helps the repairs get done more quickly, keeping tenants happy. In the long term, the idea is to make sure property owners don't take a bath on affordable housing, which, hopefully, helps ensure a steady supply of good apartments at good prices. (Or un-outrageous prices, at least. This is New York, after all.)

Sounds like a good plan, right? It's the kind of market-friendly program for lower-income residents that might find enthusiastic support from both sides of the aisle, innit?

But an audit from the New York State Comptroller has found some significant troubles in the 8-A program over the past few years. While landlords were perfectly happy to take the cash -- multimillion-dollar loans, with interest rates of as little as 1 percent -- some of them have been neglecting agreed-upon repairs. For years, in fact.

Agreeing to take care of things like faulty fire escapes and heat problems is supposed to be a prerequisite for receiving the loans in the first place. Nevertheless, 415 violations weren't addressed in the contractually mandated time frame. That figure includes 93 "Class C" violations -- the most serious category -- defined as those that present an "immediate hazardous condition."

When the audit was performed in late 2013, one building had a lead paint violation that had been outstanding since 2008, and another had mold problems dating all the way back to 2006. Another building was nearly two years late installing child-safety guards on windows, and only corrected the problem after auditors asked about it. (See image at top of page.)

The landlords seem to have been abetted by an almost complete lack of oversight by the HPD. City inspectors admitted to auditors that they had monitored code violations in just three of 34 buildings examined in the audit. "In summary," the audit says, "HPD officials do not actively follow up on the violations and repairs that building owners agree to address and are an integral part of their Article 8-A loan contracts."

The generally sloppy administration of the loans is also going to cost the city some serious cash. About $3.7 million in interest payments will vaporize, for example, because the HPD offered some landlords lending rates that were lower than they should have been. The rules of the program allow interest rates from 1 to 3 percent, depending on how profitable the building is. But 3 percent is the default, and lower rates have to be justified. The audit cites several cases where lower interest rates were given out with no apparent reason.

It seems like a good idea, and it probably is. But as with anything, when it comes to 8-A, the devil, apparently, is in the details.

Read the full audit on the following page.

 

HPD Audit


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