Legislative History of the Mitchell-Lama Buy-Out Provision
In 1955 Governor Averell Harriman signed into law a bill sponsored by Senator MacNeill Mitchell and Assemblyman Alfred Lama to encourage the building of moderate income housing. Four features made possible such housing:
(1) The State or municipalities loaned 90 to 95% of project cost to specially created Mitchell-Lama housing companies (mutual cooperative companies in the case of co-ops and corporations or, beginning in 1968, limited partnerships in the case of rentals). Loans were financed by the sale of 40 or 50-year City and State bonds whose low interest rates made possible reduced rents or carrying charges.
(2)Municipalities granted tax abatements ranging between 40 and 100%.
(3)Mitchell-Lama housing companies were originally limited to a 6% profit on dividends (increased to 7 ½% in 1969) and were subject to close supervision by either the City (now by the NYC Department of Housing Preservation and Development) or by the State (now the NYS Division of Housing and Community Renewal).
(4)In addition, many projects were built on federally subsidized urban renewal land, further reducing the costs to the owner.
The original Mitchell-Lama program had no provision for the owner to buy out of the program (referred to as "dissolving the housing company"). To the contrary, one of eight limitations explicitly specified that the housing company could not voluntarily dissolve.
In 1957 a provision appeared allowing buy-out after 35 years, but only if the owner paid not only all mortgage, interest and dissolution expenses, but also all taxes that had been previously abated by the municipality. Moreover, the owner had to return all surplus cash from sale of the project to the governmental agency which issued the mortgage.
In 1958 a bill sponsored by MacNeil Mitchell amended the 1957 provision to allow owners to return "surplus property" to the mortgaging agency, rather than requiring the sale of the project and the return of surplus cash.
1959 - Reduction of Buy-Out to 15 Years, Major Modification of Restrictions
(Chapter 675 of Laws of 1959)
Four years after creation of the Mitchell-Lama program, Nelson Rockefeller was elected governor on a platform that included a strong housing plank. Officials were concerned about the slow pace of building under the Mitchell-Lama program, as well as the fact that projects that had been built were overwhelmingly co-ops and not rentals.
As an inducement to developers to build rental housing, the minimum period after which an owner could buy out and be free and clear of Mitchell-Lama restrictions was reduced to 15 years. The previous requirement that the owner pay taxes or return surplus cash or property was eliminated, as was consent by the supervising agency. These modifications were viewed as beneficial to municipalities as well, since owners could repay mortgage expenses and begin paying full taxes. Officials did not concern themselves with the problems this would create for tenants, since the housing crisis was believed to be temporary.
In 1960 the minimum period for buy-out was increased from 15 to 20 years for projects occupied after May 1959.
In 1961 all provisions relating to governmentally aided housing for middle-income residents was consolidated into the Private Housing Finance Law (McKinney's Laws of New York, Book 41). There the buy-out provision is set forth in three paragraphs in Article 2, Section 35, where it has remained unchanged to the present day.
The Senate in 1984 passed the omnibus Co-op Resale Bill to "rescue the Mitchell-Lama program" by allowing cooperators to sell their co-ops at a profit, with the proceeds to be distributed among: a project loan fund to help other distressed buildings, the City or State and the co-operator. A provision would reduce the buy-out period to 15 years, although consent of the City or State Housing Commissioner would be required. The 15-year buy-out is the only provision pertaining to renewals in a bill which otherwise concerned only co-ops.
Vocal opposition during the Spring of 1984 caused Governor Cuomo to seemingly back away from support of the buy-out provision. The bill is currently stalled in the Assembly due to opposition in the Assembly Housing Committee chaired by Alexander (Pete) Grannis.
In 1984 Assemblyman Ed Sullivan introduced a bill (Assembly Bill A.11631) to extend the minimum period for buy-out to 35 years and to place projects under rent stabilization after they had been bought out. An interim measure, simply extending the minimum buy-out period to 25 years, passed the Assembly in June, 1984.
In September, 1984 the first Mitchell-Lama buy-out took place at the 240-unit Ridgemont Park in Rochester, which is inhabited largely by senior citizens. Rents were immediately increased an average of 40%; capital grant recipients were cut off; tenants either moved or are paying higher rents. The State brought suit over certain lease approvals, but at best this could only postpone the effective date of rent increases. It cannot reverse the buy-out.