GREAT NECK, N.Y. - The people who live at Spinney Hill Homes here need some help. Their 50-year-old apartments are falling apart around them. “Windows are broken, and the heat is sporadic,” said David Gallo, vice president of affordable housing developer Whitney Capital Co., LLC.

It’s no wonder: The property is a New York state public housing project. State governments from Hawaii and Alaska to Massachusetts and Connecticut built thousands of apartments like these from the 1940s to the 1970s. Since then, many state legislatures, like New York’s, have cut operating funding. The North Hempstead Housing Authority has been struggling for more than a decade to operate Spinney Hill on nothing but the rents paid by its very low income tenants.

Help is on the way. Developers have partnered with housing authorities and state housing officials to bring many of these properties back to life. Already nearly half of the remaining 49 New York state public housing properties outside New York City have been or are being rehabbed and recapitalized with federal low-income housing tax credits (LIHTCs), tax-exempt bond mortgages, and state public housing modernization grants, among other funding sources.

That includes Spinney Hill, where Whitney, an affordable housing developer based in Lake Success, N.Y., plans to begin rehabilitating the property in the second half of 2008.

Starved for funds

Between the 1940s and the early 1970s, local housing authorities in New York built 143 properties under the state public housing program, totaling 66,123 apartments. The federal government paid no operating or rental subsidy to these projects. Also, New York state stopped writing checks for operating subsidy to these properties in 1998.

With little or no money coming in, more than half of the state public housing properties have left the program and have started to receive federal public housing subsidy from the Department of Housing and Urban Development.

Another big piece of the portfolio, with more than 12,000 apartments, is in New York City, where the New York City Housing Authority has supported some of the operating cost by sucking money out of other parts of its budget.

However, the properties that haven’t had access to any operating subsidy and have not yet been recapitalized have been starved for funds.

“Given the incomes of the people that reside in these projects and the cost of operating these projects, it’s very difficult,” said Rich McCurnin, assistant commissioner for the New York State Division of Housing and Community Renewal (DHCR).

For example, Old Mill Court in Rockville Centre, N.Y., racked up more than $500,000 in unpaid utility and property tax bills and has suffered problems including flooding that swamped the boiler rooms of its nine garden apartment buildings.

In August, Omni Housing Development, LLC, based in Albany, N.Y., began a $30.2 million rehabilitation that will stop the flooding, remove asbestos, add insulation, replace windows, and upgrade the heating system.

“We are gutting them out right to the brick,” said Duncan Barrett, chief operating officer for Omni. The renovated apartments are expected to be able to sustain themselves for the next 30 years on income from rents affordable to tenants earning up to 60 percent of the area median income, plus new federal project-based Sec. 8 rental subsidy that will cover 120 of the 153 rehabbed apartments.

In Rockville Centre, the cost of land is far too high to build much new affordable housing, especially on sites like the land occupied by Old Mill Court, three blocks from a commuter train station and surrounded by amenities like shops, banks, churches, and the local public library.

As a result of strong locations and low rents, many state public housing properties are fully occupied—with waiting lists—despite their tattered physical condition. That can make renovation difficult. At Old Mill Court, also known as Rockville Centre, Omni has let more than a fifth of the apartments become vacant by attrition, then moved residents around within the community as Omni began renovations.

While they do this work, developers should be sensitive to residents’ fears that they will be evicted, experts said. “Talk to the residents up front and let them know what you have in mind,” said DHCR’s McCurnin.

The developers will also need the support of a wide range of parties beyond the local housing authority. For example, to use LIHTCs, a tax credit investor must buy a 99 percent ownership stake in the development. However, any sale of a New York state public housing property needs to be approved by both the state assembly and senate in legislation and then signed by the governor. “It just takes time to get their attention,” said Barrett.

Equity from the sale of 4 percent LIHTCs to tax credit investor WNC & Associates, Inc., provided $12.1 million to Old Mill Court. The redevelopment also received $8.2 million in permanent tax-exempt bond financing, $5.7 million in financing from the Rockville Centre Housing Authority, $1 million in Nassau County HOME funds, and a $1.3 million Affordable Housing Program grant from the Federal Home Loan Bank of New York.

Projects like these can also apply to New York’s DHCR for some of its $13 million a year in state public housing modernization funds. Old Mill Court expects to receive $4.1 million.

These properties can also compete for 9 percent LIHTCs. Spinney Hill has won a reservation, and Whitney expects to close the rest of its financing in the first half of 2008. The whole renovation should be finished in 2009, and Whitney is already looking for other state public housing properties to work on.

“I’ve made it my business to reach out to other housing authorities,” said Gallo.