Purpose

To determine whether surcharges are being appropriately assessed and collected at Mitchell-Lama housing developments supervised by the New York City Department of Housing Preservation and Development (HPD). This audit focused on the income affidavits submitted for the 2012 calendar year and related processes.

Background

HPD is the nation’s largest municipal housing preservation and development agency. Its mission is to make strategic investments that will improve and strengthen neighborhoods while preserving the stability and affordability of New York City’s existing housing stock. The Mitchell-Lama program was created in 1955 to provide affordable rental and cooperative housing to moderate income families. In New York City, there are 97 HPD-supervised Mitchell-Lama rental and limited equity cooperative developments, with more than 45,000 total units. (Note: Included in the 97 developments is Penn South, an Article 5 development with similar attributes to Mitchell-Lama developments.)

Mitchell-Lama apartments are rented or sold through waiting lists kept by each development. Each Mitchell-Lama development has eligibility requirements related to income limits, family size, and apartment size. Residents must also meet HPD income eligibility requirements on an ongoing basis during occupancy, as detailed in Title 28, Chapter 3-03 of the Rules of the City of New York. By April 30 annually, occupants of each unit are required to submit an income affidavit, attesting to their income and certain deductible expenses incurred during the preceding calendar year. If the reported aggregate annual income of all occupants of the unit exceeds the development’s maximum income level, the building management adds a surcharge (ranging from 5 percent to a maximum of 50 percent, depending on the amount of income) to the monthly rent/carrying charge.

Key Findings

• For four of the five sampled developments, surcharges appeared to be properly calculated, assessed, and collected, based on self-reported data on residents’ income affidavits. However, there were significant deficiencies in the processes used to confirm the accuracy of the affidavits, and incomes were sometimes incorrectly reported. Further, the fifth development, Big Six Towers, incorrectly calculated the surcharge for 14 (35 percent) of the 40 sampled tenants, which in some cases resulted in incorrect surcharge assessments.
• The income data used to identify tenants subject to an income verification audit was incorrect for 28 (14.7 percent) of the 191 tenants we sampled. As a result, certain tenants may be incorrectly excluded from audit and possibly from additional surcharges.
• Managing agents did not conduct most of the income verification audits required by HPD. We determined that 117 of the 191 judgmentally sampled tenants required an income verification audit; however, 87 of them were not done. Of the 30 audits that were completed, 14 identified under-reported income by the tenant, four of which resulted in the imposition of surcharges.
• We identified a significant number of households with high incomes, including several households reporting annual earnings of over $500,000.
• The Law states that tenants whose income exceeds the maximum income limit by 25 percent or more require HPD approval to remain in their units. Of the 191 selected tenants, 59 exceeded the maximum limit by at least 25 percent. However, HPD officials informed us they have not enforced this requirement.

Key Recommendations

• Ensure the data file prepared for the Department of Taxation and Finance to verify tenant incomes is accurate.
• Monitor building managers to ensure that self-reported income is verified and surcharges are properly assessed.
• Develop formal policies and protocols related to households that exceed the maximum allowable income limit.

Other Related Audit/Report of Interest

The Mitchell-Lama Program: Awarding Housing Units and Maintaining Waiting Lists (2014-N-3)