Mitchell-Lama Co-op Advocate DIsputes Value of Conversion Path

Habitat recently posted an opinion article by Toba Potosky, board president at Cadman Towers, a 421-unit, affordable Mitchell-Lama co-op in Brooklyn Heights. In his article, Potosky extolls his co-op’s use of a little-known program called Article 2 to 11, which, he claims, allows Mitchell-Lama co-ops to pay their bills while remaining affordable.

In today’s rebuttal, Adele Niederman, president of Cooperators United for Mitchell-Lama (CU4ML), argues that Article 2 to 11 will adversely affect New Yorkers at the bottom of the economic ladder.

At the center of the debate is the department of Housing Preservation & Development’s (HPD) rule change that creates a shortcut for affordable Mitchell-Lama co-ops (which are governed by Article 2 of the Private Housing Finance Law) to become much more expensive Housing Development Fund Corp. co-ops (which are governed by Article 11 of the Private Housing Finance Law). Hence the name “Article 2 to 11 program.”

In Toba Potosky’s opinion piece, he claims, among other misleading statements, that the Article 2 to 11 program is “radically different” from full privatization. It is not. He uses lots of sunny words about affordability, but in actuality, the Article 2 to 11 program is a “privatization lite” scheme with the capacity to destroy New York City’s remaining 62,000 deeply affordable Mitchell-Lama co-op apartments.

The push to leave the Mitchell-Lama program, either through full privatization or the Article 2 to 11 program, is always about individual profit — shareholders in a Mitchell-Lama co-op who convert through Article 2 to 11 can get as much as a six-figure windfall profit. Bu the Article 2 to 11 program will not bring in enough money to fund capital repairs, and shareholders will still be subject to maintenance increases and assessments, as well as the expanded powers of the board of directors.

And what does the public get out of this? Nothing. Less than nothing, in fact. The 2 to 11 program comes at a high cost to the public: the removal of scarce housing stock at a time when it is needed the most. In area median income (AMI) terms, it cuts out most of the families Mitchell-Lama was created for — those with incomes between about 30% and 90% of AMI, who are, just like in the 1950s, fleeing the city because they can no longer afford it here.

Another flaw in Potosky’s embrace of Article 2 to 11: the plan depends on flip-tax income, which is known to be speculative and cannot be relied upon to fill holes in a co-op’s budget. Furthermore, Potosky’s projection of a $1 million annual income is a rosy estimate of gross rather than net income to the co-op from its flip tax. This figure is misleading because the approximately $500,000 in surcharge and double-equity income that his co-op collects was not subtracted from it. These income streams will be drastically reduced after an Article 2 to 11 conversion.

Potosky portrays Mitchell-Lama co-op debt as an indication of failure. It is not. In fact, these low-cost government loans are the mechanism by which New York finances Mitchell-Lama housing. They may be called loans, but they are designed to act like investments. In the 60 years of the Mitchell-Lama program, not one of these "loans" has ever been called, and they will never be called as long as the co-op continues to honor its end of the Mitchell-Lama deal, which is to serve its public purpose by staying not-for-profit in order to provide truly affordable, safe, and stable housing for the working families of New York.

Finally, there is no need for Article 2 to 11 to act as “a viable alternative to privatization” since Mitchell-Lama advocates and legislators have already essentially killed privatization by passing legislation that requires an 80% affirmative vote to privatize — a vote threshold which the vast majority of Mitchell-Lama co-ops cannot summon.

The Article 2 to 11 program is untested, unsound, destructive and unnecessary. All it achieves is the unjust enrichment of current shareholders at public expense. It should be immediately discontinued. All New Yorkers deserve the vibrant, integrated neighborhoods Mitchell-Lama has helped make possible. By promoting 2 to 11, abandoning the lower-income families that Mitchell-Lama serves, and contravening its Fair Housing mandate, HPD exacerbates the affordable housing crisis for those most in need and does a grave disservice to all New Yorkers.