MITCHELL-LAMA UNITED

Legislative and Policy Recommendations

for Mitchell-Lama Housing
Mitchell-Lama United is supporting the following bills:
BILL #A09720A / S08132
BILL #A09719A
BILL #A09721A
BILL #A01172
BILL #A0932 / S0197
BILL #A06217 / S02544

Mitchell-Lama was
intended to stay
Table of contents
affordable for Who we are . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
New York’s working
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
families forever:
Policy and legislative recommendations in brief . . . . . . . . . . . . 3
”The Legislature never
Understanding the Mitchell-Lama model of
intended to convert
cooperative housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
the developments to
private ownership. n How Mitchell-Lama cooperatives work . . . . . . . . . . . . . . 4
They were designed n Understanding the privatization and semi-
as something the pub- privatization process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
lic enterprise could n The privatization option: a mistake with
handle and some- damaging consequences . . . . . . . . . . . . . . . . . . . . . . . . . . 8
thing that would con- n Other issues and concerns in ML developments . . . . . . 9
tinue. In hindsight, we Understanding the Mitchell-Lama model of for-limited-
should have looked at profit rental housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
what would happen
Legislative and policy fixes for Mitchell-Lamas . . . . . . . . . . . . 16
in the future. Frankly,
n For co-ops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
we didn’t give it much
thought.” n For both co-ops and rentals . . . . . . . . . . . . . . . . . . . . . . 18
 – MacNeill Mitchell n For rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
to the NY Times / 1986 A brief history of the Mitchell-Lama program . . . . . . . . . . . . . 20

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Who we are
Mitchell-Lama United (MLU) is a coalition of New York’s three pro-Mitchell-Lama (ML) advocacy
groups. The Brooklyn Mitchell-Lama Task Force, Cooperators United for Mitchell-Lama,
and The Mitchell-Lama Residents Coalition have joined together to advocate for legislation and
policies that will protect and preserve current Mitchell-Lama cooperative and rental developments
and for an initiative to build more housing using the Mitchell-Lama model of not-for-profit, shared-
equity cooperative and for-limited-profit rental developments.
As Mitchell-Lama shareholders (co-op owners) and tenants (and former tenants) of ML rental devel-
opments, we know what a precious gift it is to have affordable housing. Mitchell-Lama United is
an all-volunteer, grassroots organization, whose members have developed extensive expertise on what
makes the Mitchell-Lama program an excellent model for affordable housing and on what must be
done to protect it. We have fought very hard, over too many years, to preserve this housing—both
for ourselves and for future generations of low-, moderate-, and middle-income New Yorkers.
We have been frustrated by the lack of legislative response to protect our developments from ‘buy-out’/
privatization. Everyone seems to agree that the Mitchell-Lama program is great — but many don’t
seem to understand why. The Mitchell-Lama not-for-profit model is, in a way, the ‘public option’ of
affordable housing. Mitchell-Lama developments work BECAUSE they are NOT-FOR-PROFIT — 
and by design specifically not real estate entities whose goal is to turn a profit. Understanding how
Mitchell-Lama works will inform the policy and legislative initiatives necessary to protect and preserve
this housing gem. To this end, Mitchell-Lama United has developed this policy ‘white paper’ that
describes the history of the program, the differences and similarities between ML cooperatives and
rentals, and the legislative and policy steps that must be taken to protect all ML developments.

Introduction
We’ve had many successes but too many losses in beating back the efforts to privatize our develop-
ments. Of the original Mitchell-Lama developments (69,673 units of ML rentals and 69,755 units
of ML co-ops), we have lost over 65% of the rentals and slightly less than 10% of the co-ops.
We know that one of the underpinnings of a viable New York is affordable housing, which is an
essential foundation for stable, thriving, diverse neighborhoods. Today, just as when Mitchell-Lama
housing was first conceived in the aftermath of the Great Depression and World War II, there is an
acute shortage of decent, affordable housing. This threatens the very character of New York City and
State as a diverse place of opportunity, as a center of innovation and creativity, and as a destination
city/state founded on a hard-working and talented population and a vibrant middle class.
It is terrible public policy and just plain wrong to permit the destruction of what’s left of the Mitchell-
Lama housing developments so that a lucky few who have already benefited can make a windfall
profit. Those who live in ML cooperative housing — created and supported over decades by tax
dollars —  have no right to deny the benefits they have enjoyed to the next generation of moderate-
income New Yorkers. Owners of ML rental housing have also had huge infusions of taxpayer dollars
to support the public good of having affordable rental housing and do not deserve additional profit.

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As our housing crisis continues to worsen, Mitchell-Lama United advocates for stopping any further
ML rental or ML cooperative from privatizing, and for good governance in all ML developments.
The mechanisms and policies to do this are often different for co-ops than for the rentals. Therefore,
we address ML co-op structure, history, and issues separately from those of ML rentals. Some of our
policy and legislative recommendations will apply to both co-ops and rentals, others only to ML
cooperatives, and some only to ML rentals.

Policy and legislative recommendations in brief

For Mitchell-Lama cooperatives 6 Rescind Section 3-14(i)(15) of the NYC HPD
1 Protect ML cooperative developments from rules that allows ML cooperatives to with-
privatization by passing Assembly BILL draw from the ML program and reconstitute
#A09720A. This bill raises the votes needed as much less affordable Article XI co-ops
for any step in the process of dissolution and (known as ‘2 to 11’ conversions and/or as
reconstitution of a ML co-op to 80%, requires ‘semi-privatization’).
a special assessment for funding privatization
efforts (instead of taking funds allocated to For both co-ops and rentals
the operating budget of the co-op), and 7 Provide low or no interest loans to ML
requires a 5-year moratorium after any no developments and other affordable housing
vote on privatization or semi-privatization. developments for infrastructure maintenance
and capital repairs. Enhance and expand the
2 Assure fair voting procedures by passing
NYC Housing Development Corporation’s
Assembly BILL #A09719A which bans
ML Reinvestment Program and expand the
proxy voting in ML co-ops and establishes
program to cover State Mitchell-Lama
other fair voting procedures.
developments, and/or create a similar
3 Assure good governance in ML cooperative program for State developments. Explore
developments with the passage of Assem- other funding streams for building mainte-
bly BILL #A0921A which mandates cooper- nance and repair which would allow ML
ative board transparency in operations and developments to stay affordable to the
enhances democracy in ML cooperatives. moderate-income New Yorkers for whom
they were intended.
4 Pass Assembly BILL #A01172 that post-
pones privatization of ML cooperatives until 8 Assure that NYS taxpayers’ contribution
they are no longer eligible for their main to ML developments are recaptured by
government subsidy — an exemption from passage of A0932 / S0197 which charges
paying regular property taxes while instead a privatizing ML co-op or rental a 75%
paying ‘Shelter Rent.’ transfer fee on the profits.
5 Assure that mortgage loans are available for 9 Develop 5% vacancy rule similar to rent
the purchase of apartments in ML coopera- stabilization that allows for privatization of
tives by requiring HPD and HCR to implement ML developments only when there is a 5%
Section 31-b of Article II of the PHFL that or greater NYC apartment vacancy rate.
makes such loans available and by requiring
ML cooperatives to allow mortgages.

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10 Support a bill such as A06217 / S02544 For Mitchell-Lama rentals
to create an independent ML ombudsman’s 12 Develop legislation to assure that tenants
office. For both ML co-ops and rentals, in ML rental buildings that privatize are
have mechanisms for tenant or shareholder eligible for rent stabilization regardless of
complaints related to Boards or to the the date that the development was built.
agencies. For rentals, include specific
provisions for this office to provide review 13 Develop legislation that allows tenants in
and oversight of rent increases and an ML rental buildings that are being sold to be
appeal process for overcharges. given the option to purchase, and assistance
in converting to a ML cooperative.
11 Construct more affordable housing using
the successful NOT-FOR-PROFIT Mitchell-
Lama model.

Understanding the Mitchell-Lama model of

cooperative housing
n How Mitchell-Lama cooperatives work
Often called the best of New York State’s affordable housing programs, Mitchell-Lama cooperatives
are NOT-FOR-PROFIT. ML shareholders sell their apartments for what they put into them, with-
out making a profit and without the risk of taking any loss.
Intended as a place to live and not as real estate speculation, the design of ML cooperatives is partic-
ularly brilliant for long-term, sustainable, affordable housing ownership for diverse communities.
Better, we would argue, than even the ‘limited-profit’ models, ML cooperatives maintain affordability
over generations because costs are kept low when no one makes a profit which would increase costs
with each sale. This allows the next family on the waiting list to own an apartment affordable to
moderate-income New Yorkers.
In a ML co-op, an eligible purchaser (based on income and family size) pays:
• the ‘limited-equity’ price (based on the actual cost of paid-in capital) to purchase the apartment’s
shares in the housing corporation
• the amortization (money paid by previous owner each month toward the building mortgages)
• any assessments paid by the previous owner
• ‘double equity’ in some developments — the extra equity is dedicated to funding building repairs
Other benefits that ML cooperators enjoy include the ability to easily move within the development
as their family composition changes — for example, moving from a one-bedroom to a two-bedroom
when a child is born, or to a three-bedroom when more children are born or when an aging parent
moves in — then back to a smaller apartment when the children are off on their own and the cooper-
ator wants to save money by downsizing in their retirement. To assure compliance with the public
purpose of the ML program, oversight of ML co-ops is provided either through supervision by the

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 State HCR or the City HPD and with extensive rules that spell out occupancy standards, income
ranges, succession rights, etc. Depending upon eligibility, ML residents may apply to either the
Senior Citizen Rent Increase Exemption (SCRIE) or the Disability Rent Increase Exemption (DRIE)
program to help them remain in their apartments in an affordable manner.
A lottery process for, and government supervision of the waiting lists assures a level of diversity and
non-discrimination in these developments that make them some of the most integrated in the nation.
These diverse, affordable communities are exceptionally stable, with the vast majority of apartment
turnovers occurring when the shareholder dies. When the owner leaves, they (or their heirs) get their
money back from the next purchaser — no more, no less —  including:
• the original limited-equity they paid
• amortization — the money they have been paying toward the building mortgages
• any assessments they paid
• those who paid double equity also get this back
Initial purchase prices remain well below market rate (a one-bedroom costs about $30,000–$50,000)
and maintenance costs are also kept low by the structure of these not-for-profit cooperatives.
• First, since the initial purchase price is low, most buyers do not need to take a mortgage and,
therefore, have more affordable monthly charges.1
• Second, ML developments are exempted from regular real estate taxes and instead pay Shelter
Rent — about 15–20% of regular taxes. This is the main government subsidy of both ML co-ops
and rentals.
• Third, many developments have far below market rate mortgage and repair loan deals with
government entities.
1
As time has passed the initial cost to purchase an apartment has risen as more and more of the building mortgage(s) have
been  paid. Some City ML co-ops have also initiated a “first sales/double equity” fee — charging incoming shareholders twice
the initial equity and twice the amortization. Today, many called from the waiting lists have a hard time coming up with the
cash needed to purchase, and need to have mortgage loans available to them. For this reason, one of the policy recommenda-
tions of MLU is to make mortgage loans easily assessable.

A note on the flawed 30% of gross income measure for affordable housing
As far as we can tell, there was never (and should) be lower — but not higher. not have enough to cover all their other
any study that resulted in the con- The Reagan administration raised the costs when they pay 30% of gross
clusion that “30% of gross income percentage to 30% — not because income for housing. This policy is even
for housing = affordable.” In fact, all it made any sense in terms defining more damaging to families with children
indications are that this is a flawed affordability — but rather as a govern- who would need much higher incomes
and harmful formula. The first refer- ment cost cutting measure. before they could afford to pay the
ence to a percentage of income for While better than paying, say, 50% of 30% for housing. For this reason,
housing affordability seems to be in income for housing, this “30% of gross Mitchell-Lama co-ops that do not use
the National Housing Act — passed income equals affordable” formula just this flawed formula are more affordable
in 1937 — when a ceiling of 25% was simply does not work for low-, moder- than other so-called affordable housing.
considered the maximum rent for a ate- and middle-income New Yorkers. For a fuller discussion see:
tenant. Again, this percentage was a A single person making under about https://shelterforce.org/2017/04/25/
ceiling and not a floor — so rents could $50,000 or so in NYC simply would math-doesnt-add/

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• Fourth, shareholders who are “over-income” in any given year are not required to leave, but
instead pay a surcharge for that year. This surcharge income goes to operating costs and helps
keep monthly charges low.

The specific not-for-profit design and the government supports of tax exemption and beneficial loans
are the reasons that Mitchell-Lama cooperatives have rightly been called the most affordable of the
affordable housing programs.
Monthly charges to shareholders are based on the operating budget of the cooperative and not, like
many other so-called affordable housing programs, on the flawed formula of paying 30% of gross
income for housing.

nU
 nderstanding the privatization and semi-privatization process
To go private, a Mitchell-Lama cooperative must:
• Pay off any government sponsored mortgages (called the ‘buy-out’) — often taking on much more
expensive debt service costs
• Start paying regular real estate taxes — greatly increasing operating costs
• Give up surcharge income — reducing income
• Pay, often hundreds of thousands of dollars (in one development the cost was in the millions),
to facilitate the votes for, and develop the offering plan for privatization
• Return capital reserve funds to NYC (in City supervised buildings)

The step-by-step process to privatize

• Holding a vote for a ‘feasibility study’ on privatization. Since those who favor privatization push
for these studies, they have consistently been biased toward privatization. In a few instances, the
professionals hired to conduct these studies have been chastised for their pro-privatization bias
and forced to send statements correcting their bias to shareholders. Unfortunately, in these
instances, the damage from the misinformation has already been done and is hard to correct.
• Holding a vote to fund the development of the Offering Plan/Red Herring.
• When drafted, the Offering Plan draft, called the Red Herring, is reviewed by the Attorney
General’s office and, often after many required revisions, ‘accepted for filing’ when it adequately
spells out the risks of privatization. At that point it becomes the Black Book/Final Offering Plan.
• Voting on the Black Book/Final Offering Plan.
• Dissolve the Mitchell-Lama cooperative and reconstitute as a market rate co-op.

Semi-privatization
City supervised ML co-ops have been offered the option of dissolving as a not-for-profit Mitchell-Lama
cooperative and reconstituting as a limited-profit HDFC (Housing Development Fund Corporation)
cooperative. Inserted into an HPD rule change without an opportunity for public comment, Section
3-14(i)(15) allows ML cooperatives to withdraw from the ML program and reconstitute as much more
expensive Article XI co-ops. This is called the ‘2 to 11’ or ‘semi-privatization’ option. Note, once again, that
the not-for-profit model of Mitchell-Lama keeps purchase prices lower as no one makes a profit with each
apartment turn-over. In a ‘2 to 11’ conversion, current ML shareholders would make an undeserved profit
when they sell, and, as limited-profit HDFC co-ops, the prices continue to escalate with every turn-over.

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Originally proposed as a ‘compromise,’ this plan would make this housing unaffordable to many for whom
ML was intended — those workers of moderate income.  For example, a recent ‘2 to 11’ offer to a Man-
hattan co-op (Rosalie Manning) would raise the purchase price of a 3-bedroom from $62,764 to $617,000.
Assuming a good mortgage deal, the maintenance costs would go from $1,120 to about $4,100 per month.
So, who would this apartment now be affordable to? Not the social worker’s family with two children
making $62,000 per year — who would be able to purchase it as a Mitchell-Lama. Under Article XI,
the family would now need an income of about $164,000 — way beyond the reach of the typical
Mitchell-Lama families of nurses, firefighters, bus drivers, teachers, social workers, etc. Adding insult to
injury, at Rosalie Manning, pro-Mitchell-Lama shareholders organized when their Board began talking
about going private. Not only did they defeat efforts to pursue privatization, but they became a strong
majority on the Board — but still, HPD is offering/(pushing?) a ‘2 to 11’ conversion package on them.
Why the City continues to push ‘2 to 11’ conversion in buildings not under threat of privatization
is beyond comprehension. What we have seen, over and over again, is that those who are interested
in privatization are pursuing maximum profits and not at all interested in this ‘compromise’ — 
leaving the pursuit of ‘2 to 11’ only in co-ops that have defeated privatization or in which there is
not sufficient interest in mounting a privatization campaign.
HPD’s lack of ability to admit that this ‘2 to 11’ program for ML co-ops1 was a mistake could leave
the moderate-income New Yorker, once again, without viable housing options. Caught in the middle,
moderate-income families are above income for most ‘affordable’ housing which focuses on those of
lower incomes, but cannot afford HDFC housing or other so-called ‘affordable’ housing aimed at
those of much higher incomes. The Mitchell-Lama program was specifically intended for this ‘caught
in the middle’ group and must be preserved.  
HPD must adhere to the mission of preserving ML co-ops and stop looking to make them less
affordable HDFC co-ops. This unnecessary bad public policy is counter to the original intent of
the Mitchell-Lama program.
The step-by-step process to semi-privatize
• Voting to spend money to develop a Proxy Statement — an abbreviated ‘offering plan.’
• The Proxy Statement is reviewed by the Attorney General’s office.
• Voting on the Proxy Statement to dissolve as a Mitchell-Lama and reconstitute as an HDFC.
All in all, leaving the Mitchell-Lama program and going to market rate usually doubles operating
costs and increases the initial purchase price exponentially. Semi-privatization (2 to 11) also greatly
increases initial purchase price costs.

The myth of the magic ‘flip-tax’

Proponents of privatization mislead moderate-income shareholders, who cannot afford the monthly
charge increases when government subsidies are lost, with the claim that ‘flip-taxes’ — paid by departing
shareholders — will cover these increases. However, it is well known that flip taxes are highly speculative:
• They are dependent on turnover rate and the price of apartments, so they may not materialize,
leaving those who cannot afford dramatic increases, in deep financial trouble.
• They should never be counted on as part of an operating budget.

1
It is especially important to note that we are not talking about ML rentals here. We strongly support efforts to convert Article II
rentals (ML rentals) to Article XI (HDFC co-ops) — see recommendations for ML rentals for more information.

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• Turnover rates are often exaggerated in privatization plans and do not sufficiently address the fact that
if not enough families move out, each and every year, costs for the remaining shareholders will rise.
• Flip tax income will necessarily decrease each year, since the ML privatization plans call for flip
taxes only on the first sale: in a few years, market-rate expenses will likely outpace any income
from flip taxes and those who stay will be out of luck as their costs escalate — especially seniors
and others with limited incomes.

n The privatization option: a mistake with damaging consequences

The mistake
Under current provisions of the PHFL, shareholders in cooperatives organized under Article II, can vote
to withdraw from the Mitchell-Lama program at the expiration of any restrictive covenants or 20 years,
whichever is greater. The effect of such privatization is to withdraw these cooperative units from New
York’s affordable housing supply in order to provide an unjustified windfall profit to current shareholders.
If privatization occurs, current shareholder/residents of modest incomes who want to continue
to live in their homes will not be able to afford the increases to their maintenance charges due to
the development’s loss of its ML tax exemption and other benefits of the program. This will be of
particular concern to seniors living on modest incomes and for disabled shareholders, who would
no longer be eligible for SCRIE or DRIE.
The original Mitchell-Lama legislation did not include a provision for ‘privatization’ (aka ‘buy-out’),
and had the intent to provide affordable housing in perpetuity for generations of moderate-income
New Yorkers. An error was made when the cooperatives were included in amendments to the law
meant to provide additional incentives for ML rental developers.

No risk and no investment expectations in ML co-ops

Current shareholders were neither the developers nor sponsors of these cooperatives, and unlike
the original developers of the co-ops, who long ago sold their interest in the corporations and
received their limited profit, they took no risk by purchasing their shares. Quite the opposite: they
have received decades of benefits. Current shareholders ‘stake’ in ML co-ops is having an affordable
place to live. They voluntarily relinquished any expectation of ‘return on investment’ in exchange for
the extremely low purchase price and the security of an affordable place to live in the community in
which they work. They entered into no contract with the State or City giving them a right to make
windfall profits by depriving other low- and moderate-income New Yorkers of the opportunity for
affordable home ownership. They have never had an unconditional expectation that they could
privatize for two reasons: first, since there is no contractual relationship with the State or City, the
legislature has always had the ability to tighten restrictions on privatization, and, second, privatization
currently requires a supermajority affirmative vote of two-thirds of all dwelling units, which legislators
thought at the time would never occur. The two-third percentage is too low, however, for reasons
explained below, and should be raised on all votes to 80% as is proposed in Assembly Bill A09720A.
Likewise, ML shareholders have no legitimate investment expectations, other than as investors in
a project whose purpose, according to the “Additional policy and purposes” of Article II (§11-A)
of the PHFL, was to improve the quality of urban life by making possible “cooperative action by
tenants who are persons or families of low income to acquire ownership of their dwellings and to
operate them on a nonprofit basis . . . .” (emphasis added). If current shareholders have any third-

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party beneficiary interest, it is an interest in housing that is affordable, not in windfall profits
accruing on privatization.

Failing the other stakeholders

The current law allocates all the monetary gains of privatization to one very small class of people — 
the current shareholder residents — and fails to take into account other stakeholders’ rights and
interests. While it is true that current shareholders have made an investment in the co-op through
the purchase of their shares, the State and City of New York have made far larger financial contribu-
tions through the provision of cheap land, reduced rate mortgages and tax breaks. These financial
contributions (made possible in the final analysis by all of New York’s taxpayers and citizens) were
made to promote a public purpose: the provision of affordable housing to working families.
The taxpayers’ ‘stake’ in ML co-ops is a vibrant participatory economy made possible by the availability
of affordable housing that allows city/state workers to live in and circulate their tax dollars among
businesses, established and emerging in the neighborhoods where developments are located. ‘Affordable’
means there is money left over after housing costs to promote small business development.
When privatization occurs, the public interest is undermined and the public’s investment is also
‘privatized’ to the economic benefit of those parties who are destroying this valuable program.
This point is most dramatically illustrated by considering those New Yorkers who are already on
the waiting lists for a Mitchell-Lama apartment. They are also stakeholders. They often wait decades
for their chance to purchase one of these apartments. Privatization means their wait was for naught.
New Yorkers who would love to gain a spot on the waiting lists for ML cooperatives are also stake-
holders. Many enter online or send in their postcards every time a waiting list opens, but are not
chosen from the thousands and thousands who apply for the limited number of spots on the list.

Pursuit of privatization breeds corruption and disharmony in ML co-ops

Mitchell-Lama cooperatives become destabilized battlegrounds when privatization is put on the table.
Since ML cooperative developments are governed by an elected Board of Directors, the first step
toward privatization is often when those seeking to privatize take over the majority on the Board.
The problems that arise are many and include dissemination of inaccurate and misleading information
and promises about privatization, hiding of information favorable to staying in the ML program
(like refinancing packages or repair loan offers), warehousing of apartments, and moving forward
on votes about privatization under false pretenses. Many of the battles in these developments have
gotten ugly, turning neighbors against each other.
Residents who oppose privatization find little recourse through the supervising agencies charged with
monitoring these developments. Business Corporation Law gives corporate boards wide latitude in
managing the affairs of the corporation and HPD and HCR routinely ignore resident grievances and
take no or minimal steps to correct Board and management malfeasance. For this reason among
others, MLU strongly supports the creation of an independent Ombudsman’s office for MLs.

nO
 ther issues and concerns in ML cooperative developments
Stopping the privatization and semi-privatization of Mitchell-Lama co-ops is the first priority
of Mitchell-Lama United, but there are other issues that need to be addressed to keep these
developments affordable and well-operated.

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The threat of growing costs to purchase a ML apartment
Initial ML shareholders purchased their apartments for a few thousand dollars. Over the years they
have paid amortization (funds each month toward paying off the building mortgages) and, in some
buildings, assessments for repairs. When a shareholder leaves, they get back the original equity, the
amortization, and the equity assessments from the next incoming shareholder. In some buildings,
a ‘double equity’ assessment is made on the incoming shareholder, with the ‘double’ part going to
building repair funds. This ‘First Sales Capital Assessment’ program was developed and promoted
by HPD and has been implemented in some City ML buildings.
Instead of being able to purchase a ML co-op for about $3,000–$25,000, new shareholders now
pay about $30,000–$80,000 or more in buildings with ‘double equity.’
This initial purchase price will continue to rise as shareholders pay down their building mortgages.
It is increasingly difficult for incoming moderate-income New Yorkers to come up with the funds
needed for the all-cash purchase. Families are stuck when they cannot get a mortgage or secured loan
for these higher purchase prices. The mortgage problem stems from a number of factors. First, banks
are unwilling to offer mortgage loans for amounts they consider to be small, and when they cannot
take ownership of the apartment if there is a default. Second, credit unions at times offer mortgage
loans, but the application process is much longer than the turn-around time demanded by the co-ops
when a family is called from the waiting list. Third, loan programs developed by organizations such
as the Urban Homesteading Assistance Board are getting little traction in ML buildings, seemingly
because Boards/management companies are unwilling to do the work setting up the necessary
procedures for making these loans available to purchasers. Fourth, HPD now has a mechanism in
place to allow for mortgage loans; however, they have not been made widely available and no similar
procedure is in place in HCR buildings. Fifth, personal loans are theoretically available, but in
reality they are often too expensive and/or difficult to obtain. Therefore, many who finally get called
from the waiting list — who do not come from wealthy families or have other economic connections — 
have to decline the apartment because they cannot come up with the cash.
Section 31(b) of Article II (Mitchell-Lama) of the Private Housing Finance Law mandates the City
and State to generate regulations that would allow a purchaser of a ML apartment to get a mortgage
or loan using their apartment as collateral. HPD and HCR must generate these rules so that moderate-
income families being called from the waiting list for an apartment will be able to afford it.

The threat of costs for repair needs in aging buildings

ML cooperative developments were constructed in the 1960’s and 70’s and are now in need of capital
repairs and improvements. These threaten the affordability of the housing. Repair needs and the
resulting capital needs assessments and/or maintenance increases pose a grave threat to the afford-
ability of ML co-ops — not only for the incoming shareholders but also for the current residents.
A way to fund repairs is needed for the survival of the affordability of this housing. One solution
would be to expand low or no costs loans and/or grants programs. Also, there have been discussions
of granting complete tax relief to HDFC coops to help maintain their affordability. If such relief
were available to HDFCs, we might also consider this for MLs by allowing property tax funds to be
diverted to pay for repairs. A concerted effort is needed to study ways to accomplish needed repairs
while maintaining both the affordable initial purchase price and maintenance.

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Concerns about the cost of repairs in the aging ML developments have sometimes been the impetus
for talk of privatization or conversion to Article XI co-ops. Funding big repair jobs can be a challenge
to the budgets of the lower income shareholders, and those interested in privatizing use this to sell
people on the idea that flip taxes can be used to pay for repairs so that current residents do not have to
pay anything. Of course, the numbers don’t add up when, upon privatization, any collected flip taxes
will be needed to offset higher taxes and debt service costs and to replace the lost surcharge income.
These plans also give more than half of the increased prices/profit to the departing shareholder or their
heirs — destroying this affordable housing to give a windfall profit to those who do not deserve it.
A better plan was implemented in 2004 when the Mayor announced an incentive program to en-
courage both ML rentals and co-ops to stay in the ML program. Refinancing with highly favorable
terms and grants for capital repairs were offered if the development agreed to stay in the program for
a minimum of 15 years. Repair loans were also made available for those who stayed in the program
for the life of the loan. In 2019, the City offered a second round of refinancing and loans. The State
supervised Mitchell-Lama developments need a similar incentive program to stay in Michell-Lama.
One problem that arises is when a privatizing-favoring Board of Directors does not share the infor-
mation and option of refinancing with the shareholders. Legislation to assure that these offers directly
reach the shareholders is proposed in Bill A09721a.

Problems with supervising agencies: NYC HPD and NYS HCR

Mitchell-Lama developments are supervised by either the City or State housing agencies. Too often,
when shareholders (or tenants in ML rentals) bring concerns about corruption or malfeasance in
their developments to the agencies, the issues go unaddressed or inadequately addressed. Some of
the issues include:
• Board financial mismanagement or malfeasance
• Failure by Boards to follow by-laws of the development
• Undemocratic voting practices including insufficient notice of voting, ending voting earlier than
stated, or holding votes offsite
• Threats and intimidation related to voting, especially related to collection of proxies for voting
• Warehousing of apartments
• Lack of primary residence enforcement
• Waitlist corruption — both external and internal lists
• Denial of use of community rooms and other common areas to pro-Mitchell-Lama shareholders
• Harassment of shareholders who speak out against privatization

Understanding the Mitchell-Lama model of

for-limited-profit rental housing
Sadly, we have lost more than half (65%) of our Mitchell-Lama rental stock. Mitchell-Lama United’s
legislative and policy recommendations work to address three areas related to Mitchell-Lama rental
housing. First, we must protect the remaining ML rentals from ‘buy-out.’ Second, we must protect

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current ML rental tenants from threats of rising costs and from problems with supervision of the
developments by HPD and HCR. Finally, we must continue to look for ways to help tenants in
former Mitchell-Lama rentals.
The issues facing Mitchell-Lama rental tenants differ from ML co-op shareholders in one obvious
way. The rentals are owned by an investor/developer who has the power to determine the future
of the building without reference to the needs or wants of the residents. If an owner decides to leave
the ML program, the residents are not part of that decision. Mitchell-Lama tenants, fearing for the
loss of their homes, must step up and organize and expend time and money to gain as much protec-
tion as possible when their homes are being sold out from underneath them. When organized they
can try to get a seat at the table with those who will determine their future — they can raise money
to hire legal teams to determine if the owner is following the rules or even if the owner is entitled to
leave the program.
The 1955 Mitchell-Lama legislation created both not-for-profit cooperative housing and for-limited-
profit rental housing for low-, moderate-, and middle-income New Yorkers. Developers/owners of
ML rental housing got:
• Extremely low-cost, and in some cases no-cost, land on which to build
• Mortgages with extremely favorable terms and low interest
• Ownership of a rental development with investment of only, at first, 10% of TDC (total
development costs). Most rental buildings were developed after amendments to the rules
that allowed for investment of only 5% of TDC
• Guaranteed return of 6% on their investment (later increased to 7½ %)
• An exemption from paying regular property taxes, instead paying Shelter Rent
In addition, a number of ML rentals (and some co-ops) subsidize their mortgage through the HUD
236 Program which reduces the mortgage rate and debt service costs and assists lower income ten-
ants/families by lowering rents. Under this program, in some developments, some of the apartments
are set aside for those below the poverty rate — specifically for fixed/very low-income seniors, dis-
abled, unemployed or severely under-employed.
As with ML co-ops, ML rentals are supervised by either the City (HPD) or State (HCR). Rents
under ML are limited, based on the landlord’s ability to cover their expenses — including costs for
repairs and maintenance of the property. Under good government supervision that assures accuracy
in the landlord’s report of costs, this provision protects the tenants from unconscionable rent increases.
All such increases must be approved by the supervising agency. The tenants have the right to review
the increase request and to obtain the back-up financial detail. Upon request, the supervising agency
will pay up to $5000 for the tenants’ accountant to review the books.
While this government oversight and regulation may look good on paper, it has, too often, not
worked out in practice. Good government oversight involves adequately staffed and funded govern-
ment agencies whose interest is in protecting tenant’s rights. Mitchell-Lama tenants have, unfortu-
nately, often found a pro-landlord bias — leading to problems with rent increases and problems when
landlords seek to go private/buy-out of Mitchell-Lama. An independent Mitchell-Lama Ombudsman’s
Office or other form of agency oversight is recommended to correct these problems.

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The ‘buy-out’ problem
The problem for ML tenants and shareholders occurred in 1957 when the rules were changed to
lower the TDCs contribution and a provision to ‘buy-out’ of the ML program was enacted. Under
this amendment, leaving the ML program and going to market-rate was allowed in a minimum of
20 years — sometimes more depending on other provisions in the original development contracts.
Apparently, the claim back then was that only ML cooperatives were being built and that the ‘buy-out’
provision would spur on the development of rentals. Looking back, the validity of this claim seems
dubious, particularly since there is some evidence that Governor Rockefeller pushed the ‘buy-out’
option as an ideological change from a non-profit to a for-profit model.
We believe that the option to ‘buy-out’ was a mistake that needs to be fixed to protect any further
privatization of Mitchell-Lama rentals and cooperatives. Certainly, as mentioned in the discussion
of the co-ops, even if there was a need to sweeten an already great deal for ML rental developers,
the co-ops should never have been included in this buy-out provision.
An additional factor affecting Mitchell-Lama rental developments occurred in the mid-1980’s when
Reagan’s tax “reforms” negatively impacted ML rental owners who lost some benefits for maintaining
this housing as affordable. Some analysts believe that losing these federal protections around the same
time that some of the buildings became eligible for “buy-out” substantially fueled the desire of some
landlords to go private.
To go private (go to market rate) both rentals and co-ops needed to ‘buy-out’ of the ML program by
paying off any government sponsored mortgages and, then, by paying regular property taxes.
In the category of ‘no good deed goes unpunished’ the value that the moderate-income ML tenants
added to the communities in which they lived exponentially increased the real estate value for the
owner. Mitchell-Lama buildings were often built in ‘marginal’ areas. The presence of these substantial
buildings and their stable, diverse, working populations enhanced their neighborhoods and encouraged
market rate housing development in the surrounding community. Thus, the community that ML
tenants created led to increased property values for their neighbors and an increased tax base for the
government — making ‘buy-out’ more attractive to the owners. This only adds to the frustration and
injustice when ML developments privatize and force out those who made the community desirable.
In addition, the Mitchell-Lama rental portfolio was of enormous value to the City in the financial
crisis of the mid-1970’s. When NYC was on the brink of bankruptcy, the City sold $500 million plus
of its ML mortgages to the federal government. HUD became the holder of these mortgages and
NYC got a badly needed infusion of cash.
The first Mitchell-Lama rental ‘buy-out’ occurred in September 1984 when the 240-unit Ridgemont
Park in Rochester left the ML program. Others followed, with the large percentage of losses occur-
ring in the late 1990’s and early 2000’s. Many different factors went into how much protection a ML
tenant had when the building left the ML program.
In buildings that were ‘substantially completed’ by January 1, 1974, the former ML tenants were put
into the rent stabilization system when their building privatized — offering some protections against
unconscionable increases in rent.
In buildings completed after that date, the tenants were out of luck, and did not have such protection.
Owners of those buildings were free to go directly to market rate rents. Tenants and their community

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leaders mobilized to try to protect those tenants/households from the devastation of massive rent
increases resulting from the buyout/privatization. In some buildings, the income-qualified tenants
were able to secure Section 8 Enhanced Vouchers. Tenants in buildings which were not eligible for
Section 8 Enhanced Vouchers could negotiate for Landlord Assistance Program (LAP) agreements.
Each of these agreements were individualized, depending on circumstances unique to each build-
ing — making the tenant protections better for some than for others. All in all, those in post-1974
buildings had a much harder time when their affordable housing was destroyed.
One crucial piece of legislation Mitchell-Lama United supports is to assure that rent stabilization
is automatic for all tenants in ML rental building that privatize — regardless of construction date.
Another piece of legislation that Mitchell-Lama United would like to see developed is to give tenants
the option to purchase their development when an owner is looking to sell. Under this type of
legislation, tenants would be given the option to purchase the building and change it into a Mitchell-
Lama not-for-profit cooperative or to an HDFC/for limited-profit co-op. At least one rental building
did this by changing to an HDFC. Assistance with appropriate financing would be needed for this
recommended legislation.
Special problems related to federally subsidized mortgages
in the HUD 236 program.
There is a general misconception that ML buildings that buy out of the program, are the only buildings
that need to be protected from market rents. Some ML rental buildings with HUD-subsidized
mortgages that are still in the program were converted to market rate rents through a problem with
‘decoupling’ of mortgages.
Although all of the intricacies of this issue are beyond the scope of this White Paper, many ML
rental developments have problems related to ‘decoupling’ from HUD when the owner is refinancing
the development’s mortgages. Some ML rental owners took advantage of the 2004 Mitchell-Lama
Mortgage Restructuring Program (now called the ML Reinvestment Program) offered to City super-
vised ML developments by the HDC (NYC Housing Development Corporation). This offer allowed
ML rentals and co-ops to refinance their mortgages at very favorable terms and get a grant for repairs
when they committed to remain in the ML program for at least 15 years. A second round of refi-
nancing was offered in 2019. Problems arose in rental buildings that took this offer and also decided
to ‘decouple’ the HUD mortgage subsidy to a new mortgage. A series of loopholes with the HUD
decoupling rent structure led ML owners to believe they could now charge market rate rents. When
they did, the tenants were devastated and subject to huge rent increases when they were not eligible
for Section 8 Enhanced Vouchers (like those offered to privatized building tenants). Ironically, from
the tenants’ perspective, they would have been better off if their pre-1974 owner came out of the ML
program so that they would have been protected by rent stabilization.
One problem faced by the rentals was that the Mitchell-Lama Program did not provide a method
to recapitalize the buildings. When the 236 ‘decoupling’ was used as a solution, the ‘higher-income’
(higher in comparison to others in the building but not ‘higher-income’ in reality) tenants in the
developments saw significantly increased rents. Unlike tenants in developments under buy-out, these
tenants had increased rents without any avenue for input or redress. This type of solution should not
be used in the future. Mitchell-Lama United supports retaining ML residents in place under all
circumstances. Better solutions could be leaving the program and converting to either ML or HDFC
co-ops with protections build in for current tenants and income restrictions for any incoming residents.

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We are also open to other solutions which both protect current residents and maintain affordability
in ML complexes.

Problems with supervising agencies and ML rentals

One of the problems for tenants in ML rentals is that the supervising agencies are supposed to assure
tenants’ rights but too often do not respond adequately. Additionally, some tenant’s rights that apply
to tenants in non-ML buildings do not apply to ML tenants. Many tenants believe that the agencies
favor the landlords and have been frustrated when the only recourse is to take the agency to court
with an Article 78 hearing that seems to inevitably favor the agency.
An example of this is the ability of non-ML tenants to go to the Rent Administrator to verify if their
rents and/or rent increases are legal. The Rent Administrator can find that the tenant is due a rent
reversal and/or refund without the tenant having to go to court. ML tenants often receive an increase
that was ‘calculated’ and, in our experience, often inflated by the owner — and then not verified
and often’ rubber stamped’ by the agency. The only option for the ML tenant to challenge this is
to spend the time and money to go to court. This creates the need for a more accessible process to
provide oversight of the agencies and the landlords.
There is a need for a third party/independent entity to become part of the rent increase process in
ML rental developments — before the increases are approved by the supervising agency and by HUD
for final approval in those developments insured by HUD or that have a HUD mortgage subsidy.
There is also a need for a rent increase opposition hearing/conference/mediation process apart from
the agencies so that tenants/Tenants Associations can challenge agency-approved rent increases.
Another problem in both ML rentals and cooperatives has been mismanagement by the develop-
ments hired management agencies. Mismanagement in co-ops often occurs in collaboration with
corrupt Board with some ability of the shareholders to move to get a better Board and hire a better
management company. ML tenants, however, can be frustrated when the property is being neglected
and mismanaged and their only option is to get the often-uninterested supervising agency involved.
Recommendations for ML rentals
Some of Mitchell-Lama United’s legislative and policy recommendations affect both co-ops and
rentals. These include support for A0932/S0197 that charges a transfer fee when a development
privatizes, a bill in development that would not allow privatization until there is a 5 % vacancy
rate in NYC, and efforts to build more ML developments. A bill that would affect both co-ops
and rentals that could significantly correct the many problems outlined, above, is to develop an
independent Mitchell-Lama Ombudsman’s Office. Problems with lack of supervising agency over-
sight of rental properties, lack of appropriate mechanisms to challenge unfair rent increases, lack of
transparency of operation and budgets, lack of appropriate responses to complaints could all come
under the purview of the Ombudsman’s Office. If such an office is not created soon, then other
mechanisms — perhaps through the City or State Comptroller’s, or the Attorney General’s Office
must be put in place to ensure that ML tenants are not subject to unfair and exorbitant rent increases.
Legislative and policy recommendations that affect only ML rentals include developing legislation
that assures that rent stabilization protections are available to all tenants in ML rentals upon the
landlord’s decision to leave the ML program — instead of only in pre-1974 buildings. Also, we would
like to see legislation developed that gives ML tenants the option to purchase their building when a
landlord decides to leave the program — and that gives the tenants assistance in converting to either
a ML co-op or HDFC building.

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Legislative and policy fixes for Mitchell-Lamas
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 or co-ops
1) Assembly Bill A09720a
This bill has three provisions to make privatization of ML cooperatives harder under the theory that
legislators might be reluctant to vote for an all-out ban on privatization. Privatization would still be
possible, but only in cases where an overwhelming supermajority supported it — and was willing to
pay for it. The three provisions are:
• It raises the vote needed for every step of the privatization or semi-privatization (‘2 to 11’) process
from 2/3rd to 80%.
• It requires that any money spent in pursuit of privatization not be taken from the operating revenue
of the co-op, but rather from a special assessment approved by at least 80% of the apartments.
• It requires a 5-year moratorium on the pursuit of privatization or semi-privatization after there
has been a ‘no’ vote.

Justification
This bill recognizes that the ML shareholders who seek an undeserved windfall profit are not the only
stakeholders in ML developments. New York State taxpayers, those on the developments waiting lists,
and those who want to try to get on a waiting list should also have their interests considered as well.
Raising the votes to 80% brings them in line with all other similar votes on cooperative conversion — 
for example for the conversion of City-owned and/or privately owned and City-assisted rental proper-
ties to limited-equity HDFCs.
Requiring a special assessment for any monies spent pursuing privatization acknowledges that
Mitchell-Lama funds intended for the operation and maintenance of cooperatives should not be
used to systematically destroy the Mitchell-Lama program.
Finally, requiring a 5-year moratorium after a no vote assures that those intent on privatizing can’t
keep disrupting the life of the community, year after year. It gives some time for peace and healing
in the community before it can be disrupted again by efforts to destroy the affordability of the
development for profit.

2) Assembly Bill A09719a

This bill seeks to correct problems with fair and confidential voting procedures in ML cooperatives.
The voting problems in co-ops have arisen because when Article II of PHFL is silent on an issue, the
Business Corporation Law (BCL) governs. However the BCL is often not a good fit for a housing
corporation in which the shareholders all live in the development. This bill will specify provisions for
fair and confidential voting procedures for ML co-ops. It:
• eliminates proxy voting, which has been particularly problematic in developments considering
privatization, and has also contributed to entrenched Boards who manifest other corrupt practices.
Unlike in a standard corporation where shareholders are scattered and voting by proxy is necessary,
every ML shareholder is required to have their apartment be their primary residence, and voting
is often only a few floors away by elevator.

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• places a ceiling on any restrictions for Board candidacy so candidates are not kept off the Board
by unduly restrictive eligibility requirements.

3) Assembly Bill A09721a

The BCL also gives Boards broad powers and wide latitude in carrying out the management of their
corporations. But in a cooperative housing development, shareholders — who are also cooperators
and neighbors —  deserve adequate information and transparency of Board operations to ensure their
developments — their homes — are protected and well-run. Therefore, this bill will:
• provide for a minimum number of Board meetings per year
• require that Board meetings be open to residents except for specific triggers for confidential matters
• require a record of Board member votes to be publicly disclosed so that shareholders may deter-
mine whether that Board member represents their interests and merits their vote and support in
an election for the Board of Directors
• provide that important communications from agencies such as refinancing packages be made
available to all shareholders
• insert the language of Real Property Law 230 into the Mitchell-Lama Law to ensure cooperators
have the right to organize and are protected against retaliation for doing so

4) Assembly Bill A01172

This bill recognizes that the affordable housing crisis has only gotten worse and that there is a need
to protect the remaining Mitchell-Lama co-ops. It is not an outright ban on privatization but rather
postpones this option until the co-op is no longer eligible for its main subsidy — the exemption from
paying regular property tax.
This bill only covers ML co-ops — but a similar bill could be introduced to cover the remaining ML
rentals.

5) Require the availability of mortgage loans for ML cooperatives

While Section 31-b of Article II of the PHFL allows purchasers of ML co-ops to get low-interest
mortgage/secured loans, HPD and HCR have not generated the procedures/rules necessary to make
this a standard operating practice. Individual co-ops seem to also be reluctant to work with lenders
to make mortgage loans available . Policy and procedures need to be put into place that mandate that
mortgage loans are an option for purchasers.

6) Plan for affordable ways to accomplish repairs to aging ML buildings

A concerted effort needs to be made to study all options to keep the developments affordable while
accomplishing repair needs. Costs go up for the current shareholders each time there is an assessment
and/or maintenance increase to cover capital projects, and, of course, this also can dramatically
increase the costs for new purchasers of the apartments. With each escalation in cost, more and more
of the families for whom Mitchell-Lama was intended — those of low- or moderate incomes- are
excluded. Some ideas are to create more low- or no-cost loan programs, grants for repairs, reduction
of taxes, and raising of the cap on surcharges.
One very helpful program in this regard was the 2004 NYC Housing Development Corporation (HDC)
Mitchell-Lama Refunding Program. HDC offered packages to restructure and refinance the buildings

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mortgages keeping debt service costs down, gave a grant for repairs, and often wrapped a repair loan into
the package. It also included a 15 year ‘lock-in’ to the ML program (could not go private). In 2019, when
the 15 years expired for some of the buildings, HDC began a second round of packages to help with
debt service costs and repairs. Many co-ops and rentals took advantage of these advantageous packages.
Two problems related to these refinancing offers are that no comparable package was offered to State
supervised developments and that Boards intent on privatizing often rejected these highly advantageous
packages in order to continue their pursuit of privatization — sometimes hiding the offers from
shareholders.

7) Rescind the HPD Rule that allows conversion of ML co-ops to less

affordable HDFC co-ops
Section 3-14(i)(15) of NYC HPD rules allows ML cooperatives to withdraw from the program and
reconstitute as much less affordable HDFC co-ops — giving an undeserved profit to the departing
shareholders or their heirs. Mitchell-Lama cooperatives should remain not-for-profit.
This rule was intended as a compromise on privatization but it is time to admit that it has not worked
for that purpose. Unfortunately, it is being repurposed as a way to pay for building repairs with the
idea that the higher costs would be split between the departing shareholder and the building. The
much higher costs to the incoming shareholder will make the costs unaffordable to those for whom
Mitchell-Lama was intended and will increase and increase with each sale.

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 or both co-ops and rentals
8) Pass A0932/S0197
This bill would recapture some of the taxpayer’s expenses for the Mitchell-Lama program by charging
a 75% transfer fee on the profits from the sale when a development goes to market rate. The money
raised would go toward affordable housing.

9) Bill to delay privatization until there is a 5% apartment vacancy rate

This bill is currently in development. Similar to rules related to rent stabilization, we are proposing
the development of a bill that recognizes the lack of available housing. Privatization would be prohib-
ited unless there was at least a citywide 5% apartment vacancy rate.

10) Create an Ombudsman’s Office for Mitchell-Lama developments

Create an independent Ombudsman Office for Mitchell-Lama developments to correct some of the
problems related to the supervising agencies (HPD and HCR) and to assure the best operations in these
developments. The office would be charged with providing information and training for ML co-op
Boards, shareholders, and renters, and would establish and operate a mechanism for the receipt and
adjudication of ML residents’ grievances against landlords, co-op Boards, and the supervising agencies.

11) Construct more affordable housing using the successful not-for-profit

Mitchell-Lama model
Generally speaking, and a bit over-simplified, there are basically two approaches to providing basic
services to citizens — the FDR/New Deal model and the Reagan model. The FDR model — some-

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times referred to as the ‘public option’ — posits that taxes should pay for robust government services
to assure a basic standard of living for all citizens. The Reagan model posits that government is the
problem and should get out of the way of business and the market.
The Mitchell-Lama program — especially Mitchell-Lama cooperative housing — is the public option
of affordable housing programs. We would argue that it is the more cost effective and desirable
model in that it does not subsidize the profits of real estate developers, but, instead, gives the benefit
directly to the moderate-income citizen.
It is past time to go back to using this model for developing needed affordable housing in New York,
although this time perhaps the focus should be on not-for-profit models, without the for-limited-
profit component. More discussion is needed about what would work best for future development.

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 or rentals
Two important pieces of legislation that need to be developed to protect the Mitchell-Lama rentals
are outlined below.

12) Legislation to assure that tenants in ML buildings that leave the

program are given protections of rent stabilization.
One of the problems that arose when ML rentals were leaving the program in droves is that rent
stabilization was only offered to tenants in buildings that were substantially constructed by January
1, 1974. Tenants in buildings constructed in 1974 and after were often left unprotected. We would
like to generate legislation that protects post 1974 building tenants.

13) Allow ML tenants the option to purchase their buildings

The idea of finding ways for ML tenants to purchase their buildings and become ML or HDFC
cooperatives is a good one. Legislation and policy needs to be generated to make this option available.

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A brief history of the Mitchell-Lama program
Inspired by the successful union-built cooperative housing and the limited dividend co-ops pioneered
by the United Housing Foundation and with the work of Abraham Kazan, Robert Moses, The
Rockefeller Foundation, I.D. Robbins, Citizens Housing and Planning Council, City Club of New
York, Mayor Wagner, and Warren Moscow — the Mitchell-Lama program was signed into law in 1955.
Based on and influenced by the Rochdale
Principles of Cooperation, Mitchell-Lama The Rochdale Principles
housing came about during a time when
Open Membership. A co-op does not discriminate. Anyone
government — city, state and federal — believed
can join.
government had a responsibility to invest in its
cities and its citizens. Legislators recognized that Democratic Control. The co-op is owned and operated by
substandard housing with crowded, unsafe, its members. Each member gets one vote (unlike publicly-
unsanitary conditions, and the shortage of traded companies in which those who buy the most shares
decent housing contributed to the breakdown get the most votes).
of communities and the deterioration of urban Limited Return on Capital. A co-op is not intended to be
living, making urban areas undesirable places a money-making enterprise for its members. Members may
to live, work, and raise families. Unwilling to thus be paid only a “limited” amount of interest on any
let this happen in New York, they enacted money they invest.
this Limited Profit Housing Companies Law,
Surplus Belongs to Members. Since the members are the
(which later became Article II of the Private
owners, they receive any profit the co-op makes. In many
Housing Finance Law), to encourage develop-
co-ops the profits are reinvested into the business rather
ers to construct housing for people of low,
than being returned to the members.
moderate, and middle income, understanding
that such an investment would allow commu- Honest Business Practices. Cooperatives deal openly,
nities to grow and flourish, thereby expanding honestly, and honorably with their members and the
social and economic opportunity. general public.
Ultimate aim is to advance the Common Good. The ultimate
The Limited Profit Housing Companies Law
aim of all cooperatives should be to aid in the participatory
had, among many others, three features that
definition and the advancement of the common good.
made possible such housing:
• State/municipality loans were issued at very Education. Co-ops are expected to educate their members,
low interest rates for very long terms. In the officers, and employees and of the general public in the
principles and techniques of cooperation, both economic and
economics of housing, one of the biggest
democratic.
costs is the mortgage. Rates, sometimes as
low as 1%, and terms, sometimes as long as Cooperation among Cooperatives. Co-ops should actively
35 or 40 years, can result in greatly reduced cooperate in every practical way with other cooperatives.
charges to shareholders.
• Municipalities granted tax abatements which originally ranged from 40% to 100%. Abatements
later became standardized across the State in the form of the “Shelter Rent” tax formula, which
sets real estate taxes at 10% of the co-op’s operating expenses (less heat and utilities). This saves
the co-op anywhere between and 75% and 85% on their tax bill.
• Many projects were built on federally subsidized urban renewal land, further reducing the costs to
the owner.

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Mitchell-Lama was intended to last forever as affordable housing — there was NO BUY-OUT
PROVISION IN THE ORIGINAL LAW.
From 1955 to 1962 the ML program developed 74 buildings with 11,906 units. All these buildings
were cooperatives and most had union or not-for-profit sponsors. All in all, the ML program created
69,673 units of rental housing and 69,755 units of cooperative housing.
The big mistake happened when Nelson Rockefeller replaced Governor Averell Harriman and pushed
through an amendment to the ML program designed to further incentivize private developers to
build more ML rentals. These changes included:
• Lowering the amount of equity a developer needed to put into a project from 10% to 5% of the
total development costs.
• Allowing the option to ‘buy-out’ of the program/‘go private’ after a number of years.

Perhaps, at that time, there might have been a valid argument to offer further incentives for the
development of ML limited-profit rentals — although the incentives were already good. But co-ops
were being built without a problem and there was no need for further incentives for the development
of cooperatives. THIS ‘BUY-OUT’ PROVISION SHOULD NEVER HAVE INCLUDED
MITCHELL-LAMA co-ops!
In 1986, MacNeill Mitchell told the New York Times that the:
“Legislature never intended to convert the developments to private ownership. They were
designed as something the public enterprise could handle and something that would continue.
In hindsight, we should have looked at what would happen in the future. Frankly, we didn’t
give it much thought.”
This legislative error to allow for the option to ‘buy-out’ of the program has led to the loss of:
• 45,841 Mitchell-Lama rental units — over 65%
• 6,479 Mitchell-Lama cooperative units — less than 10%

Mitchell-Lama United has come together to work with legislators and policy makers to correct the
legislative error that led to the loss of Mitchell-Lama housing. Our policy and legislative objectives
are to prevent any further loss of this housing, to make sure developments are well-run and main-
tained, and to work to build more developments using the non-profit Mitchell-Lama model.

MitchellLamaUnited@gmail.com n Legislative and Policy Recommendations for Mitchell-Lama Housing n Page 21 of 21

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