Court Upholds DHCR's Rent Increase Surcharge For Wealthier Residents of Roosevelt Island's Rivercross Mitchell-Lama Co-op

Roosevelt Island Rivercross Rent Surcharge Decision by DHCR Upheld by NY Supreme Court

As first reported by RI 360, the NY State Supreme Court has upheld the NY State Division of Housing and Community Renewal's (DHCR) decision to increase the annual rent surcharge imposed upon residents of Roosevelt Island's Mitchell-Lama Rivercross Co-op whose income exceeds the maximum allowed for the building.

The Court provides some background history on the dispute.

... At the time the building opened in the middle 1970's, the initial offering plan of Rivercross specified that income based surcharges would not exceed 10% of carrying charges. In 1999, Rivercross increased the surcharge maximum to 20% upon the recommendation of DHCR. Certain dissenting shareholders sued unsuccessfully to prevent imposition of this increase (see Vink v. DHCR, 285 AD2d 203 [1m Dept. 2001]).
In 2007, the Board of Directors of Rivercross ("Board") approved and submitted to DHCR an application seeking to increase the monthly maintenance charge to shareholders by 4% in order to allow Rivercross to meet its expenses. Rivercross did not seek to change the surcharge schedule applicable to residents with incomes exceeding the maximum income allowed for continued occupancy. Despite an absence of any request to alter the surcharge schedule, the DHCR staff examined the impact of an adjustment of the surcharge schedule on the size of the maintenance charge increase required to enable Rivercross to meet all of its projected expenses. The DHCR staff analysis revealed that the maintenance charge increase could be avoided by increasing the surcharge maximum to 40%. PHFL § 31(3) authorizes maximum surcharges of up to 50% of the carrying charges.
Prior to taking action on the application, DHCR recommended that Rivercross give consideration to an increase of the maximum surcharge. Rivercross considered the request but elected to retain the existing surcharge schedule without modification. Thereafter, the DHCR Commissioner signed an order approving a smaller increase of the maintenance charge than was requested and imposing an increase of the maximum surcharge from 20% to 30% ("Order")... (Page 5, Scribd document)

The Rivercross Co-Op Board asserted in their lawsuit that the DHCR's rent surcharge increase was an illegal order and an abuse of government authority. From an earlier post on subject:

It will be interesting to see how the DHCR seeks to justify overruling the business judgement of the Rivercross Board. After all, as the Main Street WIRE reported in a prior 2001 case involving a Rivercross rent surcharge increase agreed to by both DHCR and the Board, the Appellate Division of the NY State Supreme Court ruled:
DHCR rationally construes the PHFL [Public Housing Finance Law] to allow Mitchell-Lama cooperatives to be responsible for creating their own individual surcharge schedules, in recognition of the business and practical factors unique to each..."

Now, on this issue of a rent increase surcharge the DHCR and Rivercross Board disagree and DHCR is seeking to overturn the business judgement of the Rivercross Board.

The NY State Supreme Court answered the claims of the Rivercross Board by declaring:

... However by affording the Board an opportunity to promulgate the surcharge schedule the court did not thereby endorse Rivercross' assertion that the Rivercross Board has sole authority to set it. Rivercross is not entitled to thwart DHCR's supervisory authority by stubbornly refusing to consider and act on DHCR's recommendations.

In this case, DHCR invited the Board to consider and promulgate carrying charge and surcharge increases that would allow Rivercross to cover its expenses, mindful that the Mitchell-Lama Law is "directed mostly at maintaining a stratum of middle rather than high income people" while not excluding higher income people from these buildings that receive substantial government financial support (id at 20). DHCR exercised its supervisory powers only after it engaged the Board and the Board refused to make any change to the surcharge schedule. Rivercross has not shown that DHCR acted outside the scope of its authority in this instance.... (Page 9-11 of scribd document)

In response, the Rivercross Co-Op Board issued the following memorandum.(Click on image to read.

Commenting on this case, Assembly Member Micah Kellner said:

I'm greatly disappointed in the Judge's decision which I believe ignores the facts and previous decision. The precedent set by this decision will have as yet unknown and possibly negative effects on all Mitchell Lama Coops.

Is DHCR Waging War Against Roosevelt Island's Rivercross Tenants? Tenants Will Fight Back With Lawsuit!

Image of Rivercross Complex Cowl Vents from Brian Patrick

This earlier post described DHCR's plan to increase the surcharge on Mitchell-Lama Rivercross Co-op residents whose income exceeds the maximum allowed for the building. The DHCR is attempting to impose this increase despite opposition by the Rivercross Board of Directors and knowledge by Commissioner Van Amerongen's that any rent surcharge increase will result in a lawsuit. That lawsuit by the Rivercross Tenants Corp. will now be filed according to the memorandum below.

A reader sends the following memo announcing that the Rivercross Tenants Corp. will bring a lawsuit against DHCR alleging an illegal order by DHCR increasing the surcharge and abuse of governmental power.

rivercrosssurchargememo - Upload a Document to Scribd

Read this document on Scribd: rivercrosssurchargememo

It will be interesting to see how the DHCR seeks to justify overruling the business judgement of the Rivercross Board. After all, as the Main Street WIRE reported in a prior 2001 case involving a Rivercross rent surcharge increase agreed to by both DHCR and the Board, the Appellate Division of the NY State Supreme Court ruled:

DHCR rationally construes the PHFL [Public Housing Finance Law] to allow Mitchell-Lama cooperatives to be responsible for creating their own individual surcharge schedules, in recognition of the business and practical factors unique to each..."

Now, on this issue of a rent increase surcharge the DHCR and Rivercross Board disagree and DHCR is seeking to overturn the business judgement of the Rivercross Board. A reader comments:

Seems like DHCR might be in an interesting position, having at one time argued that it could leave decisions to the cooperative board(and won!) and now ordering that same cooperative board to impose a higher surcharge?

Another reader comments:

DHCR is waging war against Rivercross. I didn't see any righteous indignation when they let Eastwood (with deep subsidies and truly poor people) out of the Mitchell Lama program. Now DHCR is "saving" Rivercross for who? The vast majority of the building has voted to explore leaving the program 3 or 4 times now. Apparently DHCR knows better...

I don't know if the rent surcharge increase is justified or not but the issue is who decides? Is it the buildings shareholders and Board of Directors or is it Commissioner Van Amerongen , DHCR and the State of New York?

Here is January 2008 interview with DHCR Commissioner Van Amerongen conducted by the Main Street WIRE and January 2008 statement by Assemblymember Micah Kellner on Tax Equivalency bill for WIRE buildings including Rivercross.

DHCR Plans Increased Surcharges for Roosevelt Island's Rivercross Building

Image of Rivercross from Adventures of a Goodman

Dick Lutz of the Main Street WIRE sends the following bulletin:

DHCR Plans Hike in Rivercross Surcharge

DHCR plans to order an increase in the Rivercross surcharge, levied on residents whose income exceeds the maximum allowed in a building, from 20% to 30%, according to an e-mail from DHCR Commissioner Deborah van Amerongen to Assemblymember Micah Kellner.

Van Amerongen said that DHCR staff called the building's managing agent today with the news. In addition, DHCR has approved an increase in maintenance charges which, if levied in one step, would be $7.45 per room (about 2.5%) per month (or $4.97/room/month if levied in two steps).

With regard to the surcharge increase, van Amerongen wrote, "...the [Rivercross] Board will be informed of our decision sometime today. If they decide to challenge this that is of course their right, we will argue the case in court."

I don't know if this is a fair and reasonable action by the DHCR or not. Nobody likes to have additional surcharges imposed or maintenance fees increased. Sometimes it is necessary, other times it may be not. I do know that it is very difficult to wage a successful legal challenge to decisions made by administrative agencies. Here's a 2001 Main Street WIRE article on same issue:

"These rulings are correct."

With that one-sentence paragraph, the Appellate Division of the State Supreme Court backed a lower-level decision holding that the Rivercross Board and DHCR acted properly last year when it increased the surcharge for over-income residents.

And:

In agreeing with the Court's decision finding no fault with DHCR's handling of the matter, the Court wrote that it "is well established that an agency is to be accorded wide deference in its interpretation of its own regulations... DHCR rationally construes the PHFL [Public Housing Finance Law] to allow Mitchell-Lama cooperatives to be responsible for creating their own individual surcharge schedules, in recognition of the business and practical factors unique to each..."

Also, a 2005 NY Times article on the changing housing dynamic on Roosevelt Island that may still hold true.

It is not the prospect of more affluent residents in their midst that rankles, but rather the fear that projects like Riverwalk and the Octagon will spur the proliferation of upscale buildings and tip the balance away from the middle-income interests.

"Millionaires' Row is O.K., but don't push us out," Maxine Siegel, an events planner at the City University of New York, said at a tenant get-together in Westview, one of the buildings scheduled to be taken out of the Mitchell- Lama program. "We are open to growth, to people with different economic backgrounds, and we are more concerned with maintaining our homes than keeping out the rich."

Here's an excellent resource for issues regarding affordable housing and Mitchell-Lama privatizations - Saving Mitchell Lama.

UPDATE - 5 PM: A reader makes this excellent comment regarding a legal challenge to the DHCR on this matter:

Seems like DHCR might be in an interesting position, having at one time argued that it could leave decisions to the cooperative board(and won!) and now ordering that same cooperative board to impose a higher surcharge?