Pataki Plots 32% Rent Hikes for Elderly Tenants

by William Rowen

On August 8, 100 tenants protested as Governor George Pataki’s Division of Housing and Community Renewal discussed its plans to let landlords raise rents for rent-controlled tenants under the Maximum Base Rent system (MBR) by 32.4 percent, instead of the current 3 percent. Part of the increase would be retroactive to Jan. 1, 1996.

Over two dozen tenant leaders and elected officials testified against the plan at the 5 Penn Plaza hearing, conducted by MBR Unit director Eddie Blanco and DHCR Deputy Commissioner Paul Roldan. (See sidebar for list.) During the hearing, the crowd was told that DHCR staff would not answer any questions or comments. About a half-dozen plainclothes state troopers sat in the back of the room, looking like the Jets’ offensive line in cheap business suits, ostensibly in case the mostly elderly tenants in attendance tried the rush the DHCR staffers and take them hostage.

The increases would affect the about 71,000 rent-controlled apartments in New York City--down from 1.2 million units when vacancy decontrol was imposed on them in July 1971. The about 145,000 remaining rent-controlled tenants have lived in their apartments at least since then. Their average age is 70 and their median household income is only $12,000 a year. "By definition, they are extremely vulnerable, even when not faced with huge rent hikes," says Met Council chairperson Scott Sommer.

Under the MBR system, DHCR applies a formula that establishes an "economic target rent" based on the cost of running the building containing the rent-controlled tenant’s unit, plus a profit. The actual rent the tenant pays, the maximum collectible rent (MCR), is increased up to 7.5 percent annually until it reaches the MBR. The MBR is adjusted based on a city-wide study every even- numbered year. In general, the difference between the new MBR and the MCR is large enough to allow for two full 7.5 percent increases for tenants who were close or near to their MBR ceiling rent.

The current controversy began in December 1995, when the DHCR set the MBR increase for 1996-97 at 3 percent--the smallest in the history of the MBR system. This brought relief to many rent- controlled tenants because the low factor meant many of them reached MBR and were shielded from much of the 7.5 percent annual increases.

Angry landlords--including the Rent Stabilization Association, and th Community Housing Improvement Program, two of the leading landlord groups in the city--sued DHCR. The landlords claimed that DHCR had applied the wrong section of the tax law in calculating the MBR adjustment, and asked the court to set aside the agency’s finding and employ numbers that would have increased the 3 percent factor to about 6 or 7 percent.

In reply, DHCR calculated that under the landlords’ claims the MBR increase would be 32.4 percent. The agency also contended that the intent of the rent-control law was to protect tenants from sudden and steep rent increases, and that using the tax-law section that resulted in the 3 percent factor achieved that goal.

An Albany County Supreme Court judge upheld the 3 percent factor, but the Appellate Division for the Third Department reversed his finding in March 1997, applying a strict interpretation of the law’s language.

"Pataki could have appealed the MBR case to the Court of Appeals, or he could have inserted a change in the rent control law to allow the 3 percent factor, but he didn’t," says Sommer. "Instead, he seemed hell-bent on driving the elderly out of their homes by raising their rent to levels they cannot afford."

During last spring’s battle over renewing the rent-control laws, the governor promised repeatedly that his plan would include measures to protect the elderly. In March, the Assembly passed a bill that would have eliminated the MBR system and replace it with the same system that sets allowable increases for rent- stabilized apartments; it never went anywhere in the Republican- controlled State Senate.

The Purpose is Profit

The city adopted the MBR system in the early 1970s to both encourage and reward landlords for accepting higher tax rates and assessments. The tax-law section used to set the MBR increase at 32.4 percent calculates rent increases based on the value of each building. When the value of the buildings go up, the tenants’ rents also rise. By getting about $3.50 in rent increases for every dollar of higher taxes, landlords are guaranteed a profit. No other rent-regulation law contains a profit component in its rent-increase formula. The MBR also compensates landlords for increased operating and maintenance costs, but those have been flat for much of the 1990s.

A DHCR decision is expected in a few weeks. If the agency adopts the 32.4 percent MBR factor, the change will cause rents to skyrocket overnight. Controlled tenants who were sheltered from some or all the annual 7.5 percent increases because of the 3 percent factor would immediately have to pay two full 7.5 percent increases retroactive to January 1, 1996--or 15.5 percent.

On January 1, 1998, their rents would go up another 7.5 percent as the 1998/99 MBR cycle rent hikes are imposed, a cumulative increase of as much as 24.2 percent. In 16 months, the 1999 MCR increase would raise their rents yet again. By then, their rents would have gone up 33.5 percent in less than 18 months. All controlled tenants in the long run would have to pay the annual 7.5 percent MCR hikes even though landlords’ operating costs have not risen, giving landlords a windfall at the expense of a largely low-income population in their later years.

Met Council and other groups are urging all tenants, but especially rent-controlled tenants, to write to Pataki in opposition to the hikes and to organize against the Governor’s alliance with rich real-estate developers and landlords. We are also exploring the possibility of a lawsuit against DHCR if they promulgate the 32.4 percent MBR increase. Tenants interested in the lawsuit and general political action to fight the MBR increase should call Deborah at Met Council, (212) 693-0553, and leave a message in Mailbox 6.

The following gave testimony on behalf of rent controlled tenants at the DHCR hearing on August 8.

Elected Officials

Councilmember Tom Duane
Councilmember C. Virginia Fields
Councilmember Stanley Michels
Councilmember A. Gifford Miller
Assemblymember Scott Stringer
State Senator Catherine Abate, Councilmember Sal Albanese, Councilmember Ronnie Eldridge, Assemblymember Deborah Glick, Assemblymember Dick Gottfried, State Senator Franz Leichter, Manhattan Borough President Ruth Messinger, Assemblymember Steve Sanders, Assemblymember Ed Sullivan sent representatives.

Tenant Advocates

Belnorp Tenants Association
Richard Barr

Met Council
Jane Benedict and Scott Sommer

NYS Tenants & Neighbors
Chuck Delaney

West Side Tenants Coalition
Beverly Feingold & Tom Siracuse

QLOUT
Bob Katz

Community Training & Resource Center
Stanley Panesoff

Park Terrace Gardens Tenants Assoc.
Jesse Smith

Chelsea Housing Group
Meryl Stein

East Side Tenants Coalition
Dawn Sullivan

London Terrace Towers Tenants Association
Helene Zarember