The federal government limits the amount of bonds a city or state can authorize, because the tax-exemption represents foregone federal revenue. But various cities want more such "volume cap," and Congress may authorize that--but it hasn't.
The issue came up in a report issued last Friday by the Independent Budget Office (IBO), titled The Mayor’s New Housing Marketplace Plan: Progress to Date And Prospects for Completion. While the IBO offered a mostly positive assessment after four years of the Bloomberg administration's ten-year plan to build or preserve 165,000 housing units, it also noted challenges facing the New York City Housing Development Corporation (HDC), the source of bonds:
HDC’s ability to fund all of the expected units remains uncertain at this date, potentially affecting new construction of both low- and middle-income units.
The report offers more details:
The second challenge is the available private-activity bond volume cap available to HDC, which is the primary source of first-mortgage funding for its production programs. HDC issued $2.1 billion of tax-exempt private-activity bonds and $642 million of taxable bonds for primary mortgages for NHMP programs during the first four years of the plan. This is well above HDC’s usual allocation, and included significant prior-year carryover and additional allocations from the city and state at the end of each calendar year. Demand for volume cap has grown at both the state and city levels, however, while supply has grown less quickly. HDC can expect its normal annual allocation of around $190 million from the city, but it is uncertain whether it will continue to receive additional allocations as it has the past four years. If HDC is allocated less volume cap going forward, it will have a limiting effect on its production. Federal legislation is being sought next year to alleviate shortages in volume cap and /or to allow recycling of unused volume cap in subsequent years. Since corporate reserve funds supplement bond funds, without the necessary level of private-activity bond authority, corporate reserves will be insufficient by themselves to support production of the remaining 11,000 units.
At this date, therefore, there remains some uncertainty about the ability of HDC to finance another 11,000 units. Since HDC programs are often blended with HPD capital program funds, HDC funding risk carries over to HPD production programs as well. Since the HPD capital budget can only fund half of the remaining goal for new construction, HDC will be particularly important in reaching that target.
If the housing component of Atlantic Yards were in production today, the crisis might be greater. However, delays in construction might have a silver lining, if Congress acts to increase volume cap.