Division of Housing and Community Renewal


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NYS Comptroller


Taxpayers' Guide to State and Local Audits

Homes and Community Renewal, Division of Housing and Community Renewal
Enforcement of the Mitchell-Lama Surcharge Provisions

Issued: April 10, 2018
Link to full audit report 2017-S-12
Link to 90-day response

To determine if surcharges are being properly assessed at Mitchell-Lama housing developments supervised by Homes and Community Renewal’s Division of Housing and Community Renewal (DHCR). Our audit focused on the income affidavits submitted for the 2012 calendar year, the most recent year for which DHCR had verified affidavits at the time of our audit in 2017.

The Mitchell-Lama program was created in 1955 to provide affordable rental and cooperative housing to middle-income families. A total of 269 State-supervised Mitchell-Lama developments with over 105,000 apartments were built under the program. In exchange for low-interest mortgage loans and real property tax exemptions, the program required limitations on profit, income limits on tenants, and supervision by DHCR.

Apartments are rented or sold to prospective tenants from waiting lists maintained by DHCR’s Automated Waiting List System. Applicants must meet eligibility requirements related to income limits, family size, and apartment size prior to taking occupancy of the apartment. Residents must also meet DHCR’s income eligibility requirements on an ongoing basis during occupancy. By April 30 of every year, occupants of each apartment are required to submit an income affidavit attesting to their income and certain deductible expenses incurred during the preceding calendar year. Mitchell-Lama housing developments are responsible for distributing and collecting these annual income affidavits. If the reported aggregate annual income of all occupants in an apartment exceeds the development’s maximum income limit for that apartment, building management is required to add a surcharge, up to a maximum of 50 percent, to the monthly rent or carrying charge.

Payment of surcharges is a legal obligation. It is important that surcharges for tenants with incomes exceeding legal thresholds be calculated correctly and collected timely, as surcharge income is applied to meet the operating costs of each development. Tenants who do not pay surcharges are not paying their required share, and this has an impact on other tenants since lost revenue from uncollected surcharges can result in an increase in rent or carrying charges for all tenants. Such an increase weakens the affordability of the State’s Mitchell-Lama housing stock, hurts those tenants who are paying the surcharges, and places an unnecessary financial burden on lower-income tenants living in those developments. Our testing focused on the three developments that were expected to receive the highest surcharge income for 2012: Co-op City (Bronx); Rochdale Village (Queens); and Electchester First through Fifth Houses (Queens).

Key Findings

  • While some exceptions were noted, surcharges were generally properly calculated and assessed for the tested transactions at the sampled developments. However, there were significant deficiencies in the practices used to confirm the accuracy of tenants’ self-reported income at two (Co-op City and Rochdale Village) of the three developments we reviewed.
  • Income verification audits were required for 110 of the selected tenants in our review. However,we found that just 33 (30 percent) of the required audits had been done: 31 at Electchester, two at Co-op City, and none at Rochdale Village. As a result, there is limited assurance that tenants are paying surcharges based on their actual income.
  • Developments are not charging tenants the maximum allowable surcharges when tenants do not provide a certified tax return to substantiate self-reported income.
  • The data file used to identify tenants subject to an income verification audit was incorrect for 17 percent of the transactions we sampled. As a result, certain tenants may have been incorrectly excluded from audit and possibly from additional surcharges.
  • DHCR is several years behind in generating the match between tenants’ self-reported information and their tax records. At the time of our review in 2017, DHCR’s most recent match was for 2012.
  • The Private Housing Finance Law states that tenants whose income exceeds the maximum income limit by 25 percent or more require DHCR’s approval to remain in their units. We identified 29 units at our sampled developments that exceeded the limit. However, we found no evidence that DHCR had approved the residency of these tenants.

Key Recommendations

  • Monitor building managers to ensure that follow-up verification audits are completed properly and timely and surcharges are correctly assessed.
  • Follow up on the occupant-related matters at the three developments we examined, as detailed in the report.
  • Ensure the data file prepared for the Department of Taxation and Finance income match is accurate.
  • Develop formal policies and protocols regarding tenants whose incomes exceed the maximum allowable household income limit. Perform periodic reviews to ensure compliance with those policies and protocols.

Other Related Audit/Report of Interest
Division of Housing and Community Renewal: Administration of Mitchell-Lama Waiting Lists (2016-S-46)

State Government Accountability Contact Information:
Audit Director: Kenrick Sifontes
Phone: (212) 417-5200; Email: StateGovernmentAccountability@osc.state.ny.us
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236