Ravitch had a unique vantage point on the program's financial state.
In 1976, on the heels of New York City’s bankruptcy crisis, New York Governor Hugh Carey asked Richard Ravitch for his recommendations for the financially troubled Mitchell-Lama program. Ravitch had a unique vantage point on this set of questions — he had served on President Johnson’s Commission on Urban Problems in the 1960s (and had been president of CHPC at the end of the decade), he had more recently played a critical role in stabilizing the finances of the NY Urban Development Corporation, and he had developed a Mitchell-Lama complex at Waterside Plaza. Ravitch would later go on to lead the recapitalization and stabilization of the Metropolitan Transportation Authority in the 1980s. This report, however, focused on the financial challenges facing the City and State’s largest affordable housing program at the time.
To our knowledge, this report has never been formally released. A copy has been on file in CHPC’s Marian Sameth and Ruth Dickler Archives and Library, and we are publishing it here in its entirety.
The Ravitch report identified several challenges rooted in the structure of the Mitchell-Lama program.
From its inception in 1955 through the 1970s, the Mitchell-Lama program created 125,000 units of affordable rental and ownership housing. Financed using subsidized mortgages and a real estate tax exemption, these apartments were initially targeted to residents with earnings too high to qualify for public housing but too low to secure housing in the open market. Over time, the program remained an important resource for low- and moderate-income households. But rapidly in the inflationary environment of the 1970s – when, according to the report, operating costs rose 64 percent in just the first half of the decade – increases in operating costs far outpaced the limited increases in rents and maintenance charges allowed under the program. The result was distress both financial, in the form of delinquent mortgages and defaults, and physical, in the form of deteriorating buildings and services.
Ravitch’s report provides a sober perspective on the troubled state of the program, identifying a number of structural problems:
The original goals of the program – economic self-sufficiency (no need for ongoing subsidy) and guaranteeing housing with limited rent increases – had proven incompatible. The pace at which operating costs increased exceeded the pace at which many residents’ incomes grew. This was particularly pronounced where developments served lower-income residents and had significant elderly populations. Maximizing operating savings or other sources of revenue, Ravitch found, could not bring costs down to a level at which rents affordable to residents would cover them. This left a choice between increasing rents and pumping additional public funds into buildings – and while public subsidy decisions always entail tradeoffs among priorities, New York in 1977 was in a uniquely poor position to contemplate taxpayer funding.
The financial challenges of matching revenues to costs was exacerbated by a politicized rent-setting process that impeded sound financial decision making. Review and increase of rents was not automatically triggered but rather required action from administrative agency staff. In addition, increases were inevitably met with political opposition that often rendered them inadequate to their purpose. As a Bar Association report noted, “constant political pressure was brought to bear against both the City and State supervising agencies by local elected officials to prevent the issuance of the required administrative orders establishing the necessary self-sustaining economic rent.”
While lower-income residents truly could not afford rent increases, a substantial number of higher-income residents could — though the program struggled to collect more rent from higher earners. In 1975, the State housing commissioner ordered a 25 percent increase in rents at Co-Op City, to cover rising expenses. (These increases ultimately did not go into effect.) A Comptroller’s analysis found that, on the one hand, this increase would have forced a quarter of residents to pay over 40 percent of their income toward rent, but on the other, one-sixth of residents would still be paying less than 15 percent of their income toward rent. Efforts to protect low-income residents also benefited higher earners. The Bar Association observed that “those tenants who cannot afford increases have become the shield of tenants who can afford but resist the imposition of increases.” In addition, City laws made it more difficult to verify resident incomes for the purpose of collecting rent surcharges. Similar treatment of increases for residents of all incomes had the effect of both underfunding buildings and effectively asking lower-income residents to subsidize higher-income residents.
The program’s rent-setting process resulted in infrequent but large rent increases, which were more disruptive to household finances than smaller, more frequent increases. The optional and discretionary nature of the rent increase process encouraged postponement of increases to rents or maintenance charges. By the time an increase could be advanced, the size of the increase necessary was more disruptive for a low-income household. In addition, postponed increases led to deferred maintenance and accrued capital needs that would not have existed in an environment in which building finances were addressed on a more regular basis.
How can buildings support not only operating expenses but the costs of capital needs?
The Ravitch report’s recommendations were stark, calling for not just procedural reforms but also sustained rent and maintenance increases based on residents’ ability to pay and market pricing of vacant units until building finances stabilized at levels that supported costs. In the years that followed, numerous proposals from Governor Carey and others to enact some version of these recommendations failed to secure support in the State Legislature, and distress continued to grow in Mitchell-Lama buildings.
In the nearly 50 years since this report was issued, much has changed in New York City’s housing and finance landscape and in the Mitchell-Lama program. Yet the report’s findings still resonate in many ways today. There is increasing distress in many of the buildings that remain in the Mitchell-Lama program, a growing chasm between revenues and expenses that can only be bridged with a growing array of programs, and the rent-setting process remains cumbersome and inadequate to surmount financial challenges or reconcile the capacities and needs of higher- and lower-earning residents.
The recommendations of the Ravitch plan were perceived by many as draconian in economically struggling 1977 New York. But the report’s candid evaluation of the program provides a useful lens for policymaking based on the long-term viability of affordable housing. Unless residents can predictably pay more over time, the report suggests, or unless costs can be managed more effectively, the only way to sustain affordable housing of this sort may be to direct increasing amounts of public subsidy toward sustaining it – a choice that in the best of times requires consideration of tradeoffs with other affordable housing objectives, and at other times is fiscally imponderable, as it was then.
Today, there is again a need to bridge the gap between revenues and expenses, to address the growing capital needs of buildings, and to attend to the needs of low-income residents. But today these buildings are nearly 50 years older today than at the time of the Ravitch report.
We may aspire to permanent affordability in our housing, but this will remain aspirational unless we find a permanent way to pay the bills. Today’s policymakers and legislators must give serious consideration to programmatic changes or other strategies that can address these challenges without compromising broader housing affordability objectives.
CHPC's Marian Sameth and Ruth Dickler Archives and Library
Since 1937, CHPC has been at the forefront of every debate regarding legislation and policy that has shaped the physical environment of New York City and the housing market for New Yorkers. Due to this esteemed history, the Marian Sameth and Ruth Dickler Archives and Library offers invaluable, first-hand insight into the policy, legislation, and design decisions that created New York City today.
