smoothy proposal: AHI: United States ? The unaccountable third party: Part 1, where's ...

By: David A. Smith

A while back, the New York Daily News (March 14, 2012) was in full populist dudgeon:

In a town where landlord-tenant disputes are the stuff of legend, the New York City Housing Authority has now achieved the inconceivable.

The agency?s dysfunctional new $36 million computer system for tracking tenant and landlord records ? better known as NICE ? has created such chaos that it even prompted a small landlord and his tenant to band together in Housing Court.

The two-family Kingsland Ave. home where Bronx resident and?Section 8 tenant Eileen Coello has lived for several years

Now, even the Daily News climbs up on its high horse to fulminate about NYCHA?s inefficiency, we can use the facts to explore what is really one of the thorniest challenges in three-way bargains (and one, b y the way, that has implications for the health-care debate):

Eileen Coello, a Section 8 tenant in the Bronx, and her landlord, Edward Koester, grew so frustrated with nearly two years of agency foulups that they went to court to force NYCHA to abide by the law.

Coello has lived for several years with her young son and sister in an apartment in a two-family house owned by Koester on Kingsland Ave.

In a normal economic transaction, with only two parties involved, pure market dynamics work fine ? either we agree and transact, or we don?t.? No outside party is needed for the adjudication ? and indeed, the classical definition of ?fair market value? is the price, in terms of cash, between:

Independent parties
Dealing at arm?s-length
Both fully informed
Under no undue compulsion to act

For Ms. Coello and Ms. Koester, that is the relationship they think they have:

She is always on time with her share of the federally-subsidized rent, according to her landlord.

Yet there is a third partner, our silent partner the government:

But the bulk of it? $913 ? was being paid by NYCHA, and in July 2010, the agency suddenly suspended those payments without notice.

Adding the government adds a third party to the relationship ? and as everyone knows, the third wheel is a complicating factor, one whose moral authority and rules of engagement turn out to be terribly important.? So before we examine just what NYCHA and NICE did that was so wrong, let?s understand how NYCHA came to be in the middle of this sandwich.

What?s the point of having that in the middle?

Government intervenes in private market transactions only when it perceives an undesirable imbalance between the parties, and usually on behalf of the consumer, when government thinks the customer is impaired by lack of money, lack of knowledge/ intelligence, lack of choice, or lack of bargaining power.?

It?s not fair!

That?s the justification for antitrust laws and consumer protection laws, for instance ? laws that seek to prevent one party from exploiting the other beyond the bounds of normal market trading.? It?s also the justification for subsidies ? where the government provides money to top up the consumer?s impaired buying power.? Now, because the government is standing in for the consumer?s benefactor, government believes that it must act in loco parentis, in effect as a custodian or trustee for a beneficiary who is presumed to be ?not fully adult?.? These situations of stewardship, expressed or implied, include:

Parents with their children.
Adults with their aging and declining parents.
Employers with their employees? pension funds.
Charities with their beneficiaries.
Courts with bankrupt entities.
Government with the tired, the poor, the huddled masses yearning to rent apartments.

?A three-way system is inherently more complex, and it tends to be structured based on the presumption that the custodian or guardian is wise, capable, and above reproach.? Today?s modern guardians are seldom individual patrons, they are increasingly government bodies, usually bureaucracies, made up of the same fallible individuals their organizations are established to serve ? and that leads to systemic or organizational weaknesses:

That April, an NYCHA inspector had discovered two minor violations, a broken light fixture and a broken door hinge.

horrors ? horrors

By itself, there?s nothing wrong with regulations governing minimum property standards for landlords renting to recipients of portable rental assistance.? It?s easy enough to imagine that a landlord might intimidate a resident into not reporting ? nor is the possibility of corruption and intimidation limited to private landlords.? So it?s reasonable to have rules preventing landlords from so profiting:

Federal regulations require a landlord to fix violations within 20 days or payments are automatically suspended.

Now that rule, written by lawmakers who are envisioning incorruptible and supremely efficient law administrators, presupposes that once the violation is identified, the landlord is immediately made aware of it.? But the system can break down:

Time for a new system

Koester did not receive NYCHA?s formal notice of the problem until Dec. 9 ? eight months after the inspection.

Sentence first, verdict afterwards

Unfortunately, this is all-too-typical of Federal housing program administration ? the rules penalize the owner immediately, even as it is the government that is often late or in flagrant breach of its own contracts (such as by being massively late in paying Section 8 reimbursements), such as in this Congressional testimony:

While HUD has been late sporadically in making payments over the past several years, this year [2007] late payments have been widespread over most parts of the country, with nonpayment often persisting for several months.

It is not exactly clear how these payment problems occurred and owners have no assurances that the problem will not recur in the future.

Most owners come to learn that they have no practical choice ? when the government fails its own standards, there is simply no good alternative but to suck it up, because in practice the government is unaccountable:

We support legislation to charge HUD interest on payments not received within 30 days of the due date, a penalty payment available to most contractors doing business with the government, and that might also be an incentive to HUD to make timely payments.

Even worse is when there is nobody home at the authority.

No action may be taken without proper authorization

Try calling HUD headquarters sometime and asking for particular individuals.? Something

Before that, he kept calling the agency to find out why the rent had stopped, and no one could answer him.

Lost in the system, an all-too-common occurrence, and yet one for which lawmakers never design remedies or systems.

Anybody home?

Of any building in Washington DC I?ve been in, including Treasury, HUD Headquarters has the worst visitor experience, a combination of extreme security consciousness and inefficiency.? But then, once you?ve navigated what is normally a twenty-minute delay, and you are inside the building, you are free to roam anywhere you want, and on some floors ? many floors ? you can walk the full length of the building without encountering another individual: just gray floors that echo with your footsteps.

?Where?s the agency? Where?s NYCHA??

As soon as he got the formal notice, however, Koester immediately repaired the problems and hand-delivered to NYCHA the tenant?s signed certification on Dec. 11.

Bear in mind that the two violations found by NYCHA were minor.? They weren?t health-and-safety issues, they were the sort of minor infraction ? a dead light fixture and a broken hinge ? that I dare say are present in nearly every single-family home in America, that most of us fix when we get around to it, or are doing something else at the same time.

Here is where the story takes a turn for the truly bizarre ? or the truly brilliant: