Typically, affordable-housing developers pay down part of their construction mortgage once they complete a building. But even though that paid-off portion of the mortgage reduces the amount of tax-exempt debt left outstanding in New York, the state and city housing agencies do not get to increase their volume cap accordingly.
“In the single-family-mortgage bond world, prepayments can be used again and recycled,” Ms. Youssouf said. “What you can’t do that with is multi-family bonds.”
The other proposal would increase the state’s tax-exempt bond allocation based on the population of its “difficult development areas,” an official designation for neighborhoods where construction costs are high and median incomes are low. Currently, states receive $85 in tax-exempt bond cap per capita, regardless of economic conditions.
Senator Charles Schumer, a member of the Senate Finance Committee, and Congressman Charles Rangel, the chairman of the House Ways and Means Committee, are the main targets of the lobbying. They wouldn’t return calls for comment.
Ms. Youssouf said their feedback in meetings has been “fairly encouraging.” Ms. Almodovar said the legislators were “very supportive.”
Investors who buy tax-exempt bonds don’t need to pay taxes on the interest that they earn. By authorizing more tax-exempt bonds, the government collects less tax revenue, which means that both of New York’s proposals would count as tax cuts. As a result, no one is quite sure when—or even if—the proposals will pass.
“The problem with anything is that you have to score the bill, and then, if you have a pay-as-you-go position, you can’t just say where you want to spend the money, but you have to say where the money is coming from,” said Steven Spinola, the president of the Real Estate Board of New York, which has lobbied in favor of both proposals.
While the city does have other resources to subsidize residential development, the tax-exempt bonding authority is one of the central tools that the Bloomberg administration is using to reach its goal of building 165,000 units of affordable housing by 2013. Once the final pieces of the 2007 bond allocation are handed out in June, it is unclear how the city will finance additional projects until it receives its next allocation in early 2008.
The state and the city agencies say that, together, they are facing about $6 billion worth of requests for tax-exempt bonds over the coming years, and normally receive just $560 million to $900 million a year in bond cap. The recycling provision would free up another $500 million for both the city and state in the first year, Ms. Youssouf said, and about $200 million annually after that.
Increasing the bond allocation based on difficult development areas would add another $1 billion a year for the state and city, she said.
“The first step is having an idea that people will accept,” Ms. Youssouf said. “Then the question is does it cost anything, and what does it cost? That is what we are trying to figure out right now.”