Lower East Side — The New York City Housing Authority is in dire financial straits, facing a yearly deficit of about $40 million in operating costs, as well as a $6.6 billion deficit in capital needs, such as repairs to roofs, elevators, heating and grounds. While residents pay 30 percent of their wages towards rent, the bulk of NYCHA's funding comes from the government, which has radically scaled back its support of public housing: In 2001, capital funding was around $420 million, and 99 percent of NYCHA's operating costs, but in 2011, it was down to only $270 million, and only 89 percent. "That's a 35 percent decrease," NYCHA Chairman John Rhea says emphatically. "Over the last 10 years, they have paid 90 cents on the dollar."

"The government has broken its contract," he continues. "Residents are keeping up their end and paying rent, but the federal government is telegraphing that the cavalry's not coming. All signs point to disinvestment. We are faced with a choice: we can walk away, or we can find creative solutions."

One potential solution has been in the works for over a year now. Since December 2011, NYCHA has signaled it wants to lease some of its "under-used" land to private developers. In Plan NYCHA, the strategic vision the authority published around that time, NYCHA listed 10 priorities. The second was to "explore options for building mixed-income and market-rate housing, and for monetizing land and development rights to fund existing NYCHA capital needs."

Details come slowly

The plan, according to NYCHA officials, is to send out a request for proposals to private developers for eight NYCHA sites in Manhattan that have "under-used" land and are located in prime real estate areas, such as the Upper East and West Sides and the Lower East Side.

The proposal will use the citywide 421a housing subsidy, which means that in exchange for 20-year property tax abatements, developers will set aside 20 percent of the new units for affordable housing. "Affordable" means that the apartments will be made available to families who earn up to 60 percent of the regional Area Median Income (or $49,800 for a family of four), while the other 80 percent will charge market-rate rents. The affordability restrictions will be permanent, according to NYCHA.

NYCHA hopes the lease deal will generate up to $32 million a year by 2016, which would go directly to capital maintenance, according to Rhea. The authority's current five-year operating plan envisioned 10 to 15 sites for the lease initiative, but as of now, only eight sites are under consideration for the first RFP.

"If all sites currently under consideration are offered and attract acceptable bids, 4,000 to 4,500 apartments could be created," Sheila Stainback, NYCHA's spokeswoman, writes in an email. Parking lots will be the most common spot for the new buildings to be erected. "NYCHA will work closely with residents to restore green space in other parts of the developments and to replace parking," Stainback writes.

421a also stipulates that local residents get preference for the apartments, and NYCHA says it will favor bidders who offer more space to local residents. According to Stainback, NYCHA also intends to "use its leverage as the ground lessor to provide residents with job opportunities in the construction and operation of the new buildings."

NYCHA's choice in developer will be determined by the attractiveness of each bid, a large part of which will be the price they are willing to pay to lease the land, though that price will be also determined by the market value of each site.

NYCHA does need approval from the U.S. Department of Housing and Urban Development to move ahead with the plan.*

HUD does require resident involvement and engagement when changes are under consideration, and representatives of NYCHA have begun the process of holding "town hall" meetings in each of the sites likely to be affected by the plan. Published reports indicate that the list includes the Smith, Baruch, La Guardia, Campos Plaza and Meltzer developments.

That, says Rhea, is why NYCHA has been stingy with details of the plan. As soon as stakeholders and residents have been fully informed, NYCHA plans to release the Request for Proposal.

According to the Alfred E. Smith Resident Association, the town-hall meeting there was standing-room only. The Smith Houses meeting was helpful, says a resident of the Lower East Side complex who asked not to be named, because many residents were under the mistaken impression that their own rent was going to go up. But there is also a feeling of resignation among some residents. Dolin Mathis-Kemp, who is 82 and has lived in Smith houses for 30 years, "If they want to do it, they're gonna do it. They are in control. But if it's going to benefit me, I have no problem."

Questions and qualms

Many NYCHA observers agree that the agency has to seek creative solutions to a persistent and worsening fiscal imbalance.

"Federal support for public housing is getting smaller," says Becky Koepnick, Director of the Furman Center's Moelis Institute for Affordable Housing Policy. "NYCHA is not unique in its shortfall or its maintenance backlog." In a climate in which many other cities—Boston, Philadelphia, Chicago—have been opting to tear down their public housing in favor of tax credits or vouchers for Section 8 housing, she adds, "NYCHA is unique in being steadfast in maintaining almost the same amount of apartments every year, despite its funding shortfall."

And according to Julia Vitullo-Martin, a senior fellow at the Regional Plan Association and director of RPA's Center for Urban Innovation, the situation is not likely to get any better. "It's been clear for a very long time that federal subsidies are not going to happen. NYCHA must seek out additional revenue from its own resources," she says. "It must look to itself."

However, some advocates and experts think the arrangement NYCHA has described is not a good enough deal for land in such high demand, especially given the tax break that's involved. "That is the tax deal given to developers on private land," says Eliot Sclar, Director of the Center for Sustainable Urban Development (CSUD) at Columbia University's Earth Institute. "In this case, they are privatizing public resources; they should leverage it much more," Sclar adds.

Others are worried not about the financials as much as the initiative's impact on public housing. Judith Goldiner, attorney-in-charge at the Legal Aid Society's Civil Law Reform Unit, says that public housing was built to be dense, with vacant space to compensate. Building on that vacant land would mean a compromise in quality of life. She also fears that the federal government might adjust its funding to reflect NYCHA's new lease income.