Unfunded Mandates

The Fairview, in Queens, and Seward Park, in Manhattan, are just two co-ops facing increased costs caused by new city rules.

Unfunded mandates. The expression has a nice Orwellian ring – a little bit vague, a little bit menacing. That’s about right, too: they are vague to most co-op and condo owners, and they are vaguely menacing, Not only that: they’re multiplying and are guaranteed to cost you a little agony, a bit of time, and a lot of money.

Essentially, unfunded mandates are city requirements that must be paid for by co-ops and condos. Two of the newer ones are third-party elevator inspectors and site-safety inspectors for construction and repair jobs – direct results, respectively, of a rash of elevator accidents and construction crane collapses.

The city imposes such mandates without looking at the big picture, primarily because the different mandates come from different departments that apparently do not coordinate with each other – or understand what the effect will be on co-ops and condos.

The problem is that the city is not discriminating. “We’re all for safety, but one or two highly visible incidents happen, then everybody gets stroked with the same paint brush,” argues Greg Carlson, property manager at the Fairview, a 425-unit co-op in Forest Hills, Queens, and also the executive director of the Federation of New York Housing Cooperatives & Condominiums.

“I understand why they changed the elevator inspection rules,” Carlson says. “They did it [following a series of] elevator accidents in 2006. What they failed to note was that the problems were in public housing, not in co-ops and condos. And the problem with the construction cranes was that the crane companies were paying off city officials, and the city wasn’t inspecting the cranes.”

The difficulty, as Carlson sees it, is not that the existing rules are inadequate; it’s that people aren’t enforcing them adequately. “If the city would enforce existing laws instead of making new [unfunded mandates], things would get done at no more expense. Don’t change the rules,” he pleads. “Just make sure people do their jobs.”

Carlson, a keen student of the legislative process and city politics, is able to lay out, chapter and verse, how the new wave of unfunded mandates is increasing the cost of doing business for co-ops and condos. At the Fairview, where he has lived since 1991 and has served as property manager since 1994, a recent project illustrates the process.

In the past, mandated elevator inspections were conducted every two years by a service company. City inspectors would then randomly check to make sure that the work was done properly. Now, thanks to several accidents in public housing complexes caused by poor maintenance, new regulations require co-ops and condos to hire a third party to conduct what’s known as a “witness test” of the elevator company’s work once a year. The cost: almost $30,000.

Seward Park is another property suffering from unfunded mandates. With 1,728 apartments in four 20-story buildings on the border of the Lower East Side and Chinatown, it is the largest free-market co-op in Manhattan. “Back in the mid-1980s, the co-op did an elevator renovation,” says Frank Durant, who has managed the property for Charles Greenthal Management since the summer of 2008. “New elevator regulations went into effect in December of 2009, and we got a violation in March of this year.”

Because of those elevator accidents in public housing complexes, the Seward Park board had to follow a new mandate and install sight-safety guards, which prevent small children from getting trapped between an elevator’s inner and outer doors. Installing the guards on 240 elevator doors will cost the co-op $30,000. The board swallowed hard and tackled the job. “We’re doing the work right now,” Durant says. “The board is very active and they want to comply with the building code.”

The co-op is also tackling an extensive, four-year schedule of Local Law 11 work to the buildings’ exteriors. Once again, a new unfunded mandate is adding to the cost. “Over the next four years, the site safety inspector is an added expense of $1,500 per week during the spring-to-fall outdoor work season,” Durant says. “Since we’re playing catch-up on deferred maintenance, we had to make a small assessment of $8 per room until the work is done.” To ease the sting of that, the board is generating income by adding 112 storage bins and 120 bike spaces.

Durant is getting ready for the added costs that will come with the city’s proposed green initiatives, signed into law this past December. “Right now, we’re interviewing companies that will come in and properly recycle used electronic equipment,” he says. “One company is going through the complex and telling us what to do to become more energy efficient. Another is looking into ways we can use alternative energy – solar, wind, geo-thermal.”

For Durant, two keys to dealing with unfunded mandates are keeping abreast of changing regulations and persuading the board to do the work right. “There are a lot of sources of information,” he says. “You have to take the time to sit down and read through it, and you have to have a board that cares about the safety of the residents and is willing to spend the money.”

Seward Park, according to Durant, has such a board. Michael Tumminia, an accountant, has lived in the building since 2004 and has served as board president since last summer. “Seward Park has a challenging history, in terms of getting work done and then having to get it done again,” Tumminia says. “This board is committed to getting work done right the first time. The board understands the value of having a team of professionals that’s involved from the beginning in assessing work that needs to be done, hiring the contractors, and overseeing the work. You have to have quality, strong professionals, and that’s something we’re lucky to have.”

Carlson believes things are going to get worse before they get better. “The next thing coming is the four new ‘green bills,’” he says. “We’re waiting for the Department of Buildings to draw up rules and regulations. The devil is in the details, and I can tell by the framework of the legislation that it’s going to cost co-ops and condos more. It will require an additional professional or more time from your existing professionals. It will add layers of bureaucracy, inspections, and research time.”

“With all the unfunded mandates that the city has placed on co-op and condominium unit-owners,” observes attorney Stuart Saft, a partner at Dewey LeBouef, “costs are increasing tremendously on co-op and condominium owners. And then when you add to that the way water and sewer bills have escalated and the increases in the real estate taxes themselves, it’s quickly becoming unaffordable. A city that is regularly concerned about the loss of affordable housing, by adding on these unfunded mandates, is primarily responsible for the loss of affordable housing.”