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MOOREHEAD v. HARRIS

April 10, 1978

VIOLA MOOREHEAD, MAUDE OWENS, Individually and on behalf of all others similarly situated, Plaintiffs,
v.
PATRICIA R. HARRIS, Secretary of the United States Department of Housing and Urban Development, JOSEPH B. GOLDMAN, Acting Commissioner of Housing and Community Renewal of the State of New York, and HARRISON HOUSE ASSOCIATES, a New York Limited Partnership, Defendants. AURELE LaBONTE, MARY T. SMITH, Individually and on behalf of all others similarly situated, Plaintiffs, v. PATRICIA R. HARRIS, Secretary of the United States Department of Housing and Urban Development, JOSEPH B. GOLDMAN, Acting Commissioner of Housing and Community Renewal of the State of New York, and TOWNSEND TOWER ASSOCIATES, a New York Limited Partnership, Defendants



The opinion of the court was delivered by: MUNSON

MEMORANDUM-DECISION

 Plaintiffs are low income tenants in Harrison House and Townsend Tower, which are federally assisted housing projects under § 236 of the National Housing Act. 12 U.S.C. § 1715z-1.

 Plaintiffs seek to compel the Secretary of the United States Department of Housing and Urban Development ("HUD") to implement the operating subsidy program under § 212 of the Housing and Community Development Act of 1974 ("1974 Act") and § 206 of the Housing and Community Development Act of 1977 ("1977 Act"). 12 U.S.C. § 1715z-1(f)(3), (g). They also seek to rescind a rent increase approved by HUD and by the Acting Commissioner of Housing and Community Renewal of the State of New York ("State Commissioner").

 Jurisdiction is conferred upon this Court pursuant to 28 U.S.C. §§ 1331, 1337, 1361.

 Plaintiffs have moved for a preliminary injunction, summary judgment, and class certification. The federal and state defendants have moved to dismiss, or, in the alternative, for summary judgment. A hearing was held in these matters on March 30, 1978. An Order was issued by this Court on March 31, 1978, setting forth its rulings on the various motions. This Memorandum-Decision is being issued in connection with that Order.

 I.

 The purpose of the National Housing Act is to provide adequate housing for low income families. Section 236 of the Act is designed to further this goal by providing mortgage insurance and interest reduction payments to mortgagees on behalf of project owners of newly constructed or rehabilitated housing. The payment of interest subsidies makes it possible for the landlords to charge lower rentals.

 In 1974, Congress amended § 236 to provide an additional subsidy, known as an operating subsidy, to cover increased utility costs and local property taxes. Pub. L. 93-383, 88 Stat. 672. The subsidy was intended to assist project owners to maintain rentals at a level not greater than 30% of the tenants' incomes. HUD refused to implement the operating subsidy program under the 1974 Act, contending that it was entirely within its discretion to decide whether this provision should be put into effect. Numerous courts rejected this position, holding that HUD was required to implement this program. See, e.g., Abrams v. Hills, 547 F.2d 1062 (9th Cir. 1976), cert. granted sub nom., Harris v. Abrams, 431 U.S. 928, 53 L. Ed. 2d 243, 97 S. Ct. 2630 (1977); Underwood v. Hills, 414 F. Supp. 526 (D.D.C.), appeal pending, (D.C. Cir.), order stayed, 429 U.S. 892, 50 L. Ed. 2d 175, 97 S. Ct. 250 (1976); Gertsch v. Hill, 414 F. Supp. 15 (D. Utah 1976); Dubose v. Hills, 405 F. Supp. 1277 (D. Conn. 1975), modified, 420 F. Supp. 399 (D. Conn. 1976); Ross v. Community Services, Inc., 396 F. Supp. 278, subsequent opinion, 405 F. Supp. 831 (D. Md. 1975), aff'd, 544 F.2d 514 (4th Cir. 1976), cert. granted sub nom., Harris v. Ross, 431 U.S. 928, 53 L. Ed. 2d 243, 97 S. Ct. 2630 (1977). In Underwood v. Hills, supra, the district court certified a national class action and ordered HUD to make operating subsidy payments immediately on a nationwide basis. This Order has been stayed by the Supreme Court.

 In 1977, Congress amended § 236 to make it clear that HUD is required to make operating subsidy payments to qualifying project owners to the extent that money is available either in the reserve fund or in appropriation acts enacted by Congress. Pub. L. 95-128, 91 Stat. 1130. Payments are to be made up to the amount by which the cost of utilities and local property taxes exceeds the initial operating expense level. Under the 1977 Act, HUD is required to establish the initial operating expense levels for § 236 projects not later than 180 days after the date of enactment (October 12, 1977).

 II.

 Harrison House and Townsend Tower were constructed and financed under the New York State Urban Development Corporation Act and the New York State Private Housing Finance Law. Both projects receive interest reduction payments on their mortgages under § 236 of the National Housing Act.

 On October 26, 1977, the State Commissioner approved a rent increase for each project. In approving the rent increase, the State Commissioner found that there was a substantial increase in the cost of operating each project and that the present rental rates were insufficient to enable the project owners to meet all payments which the Private Housing Finance Law required them to make. The rent increase was approved by HUD on November 21, 1977.

 For Harrison House, the increase in the maximum average room rental is $5.26 per month, effective December 1, 1977, and an additional $5.26 per month, effective December 1, 1978. For Townsend Tower, the increase in the maximum average room rental is $4.20 per month, effective December 1, 1977, and an additional $4.20 per month, effective December 1, 1978.

 Harrison House and Townsend Tower each contain approximately 200 tenants, about 80 of whom would not have to pay the rent increase since they are on either the leased housing or rent supplement programs of the National Housing Act.

 As of September 30, 1977, the reserve fund established under § 236(g) contained almost $60 million, but this money has been committed by HUD to the settlement of litigation under the 1974 Act. As of December 31, 1977, an additional amount of approximately $2.39 million had accumulated in the reserve fund. The reserve fund accumulates at a rate of more than $750,000 per month. Congress, as of this time, has not authorized any additional appropriations for this program, and President Carter has not requested any additional funds in the budget he submitted to Congress.

 It is estimated that the total demand throughout the country for operating subsidy payments under the 1977 Act greatly exceeds the amount ...


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