Vista Terrace Hills

704 DECISIONS OF NATIONAL LABOR RELATIONS BOARD Vista Terrace Hills, a California Partnership) and Service Employees International Union, Local 102, AFL-CIO, Petitioner. Case 21-RC-13165 January 25, 1974 DECISION AND ORDER BY CHAIRMAN MILLER AND MEMBERS JENKINS AND KENNEDY Upon a petition duly filed under Section 9(c) of the National Labor Relations Act, as amended, a hearing was held before Hearing Officer Burton Litvack of the National Labor Relations Board. Thereafter, the Employer filed a brief. Pursuant to the provisions of Section 3(b) of the National Labor Relations Act, as amended, the National Labor Relations Board has delegated its authority in this proceeding to a three-member panel. The Board has reviewed the Hearing Officer's rulings made at the hearing and finds that they are free from prejudicial error. They are hereby affirmed. Upon the entire record in the case, the National Labor Relations Board finds: The Employer is a limited partnership engaged in the ownership and rental of a 262-unit apartment complex in San Ysidro, California, built at a cost of approximately $5,603,866. It provides rental housing for low-income families. The Employer moved to dismiss the petition on the ground that the Employer does not meet the Board's discretionary standards for the assertion of jurisdic- tion over such retail enterprises as set forth in Parkview Gardens, 166 NLRB 697. In this regard it argues that the 1972 interest payment made by the Federal Housing Administration (FHA), a Federal agency, in the amount of $248,100 directly to the Employer's creditor, the United California Bank, from whom the Employer borrowed funds for the construction of the project, should not be treated as income for the purpose of meeting the Board's $500,000 gross revenue standard. We agree for the reasons set forth hereafter. Testimony was adduced that Gersten Realty Co., the general partner of the Employer, determined that the only type of financially viable apartment com- plex which could be built in San Ysidro would be a low-income housing project. Because interest rates are quite high, the United States Department of Housing and Urban Development (HUD), through FHA, provides on a national basis interest subsidy loans to developers of such buildings. While under a prior Housing Act, FHA made direct low interest loans to those undertaking Federal housing projects, present practice is for banks to make loans at going rates, but for FHA to pay a portion of the interest to the bank. Essentially, FHA and the developer agree that in return for providing low-rental housing and meeting other specified criteria FHA agrees to subsidize a certain percentage of the developer's interest payments on his mortgage. This is known as an interest subsidy. In the instant case, the Employer is the mortgagor on a $5,043,400 loan from the United California Bank. The terms of the loan require an annual interest payment of 7 percent of principal or $350,000. Pursuant to its agreement with the Em- ployer, FHA contracted with United California Bank to pick up about 6 percent or $248,100 of the Employer's annual interest payment until the princi- pal has been paid off by the Employer. The interest subsidy is never directly received by the Employer but instead goes directly from FHA to the mortga- gee-bank. The Employer reported the $248.100 as gross income on its 1972 Federal partnership income tax form and on its profit and loss statement, which, under law, must be submitted to FHA, but on its tax return expressed the full 7-percent interest cost. In these circumstances, we conclude that the interest subsidy which is paid directly by FHA to the United California Bank should not be considered as income of the Employer for determining genuine gross revenue for jurisdictional purposes under this Act. In our view, the only party to whom this money is true income is the bank itself. The real effect of the subsidy is simply to provide the Employer here with a low-interest loan, and the "subsidy" may be a fair measure of the volume of business done by the bank, but is no measure of the genuine volume of business done by the apartment owner. We do not regard as controlling Vista Terrace Hills' manner of income reporting on its Federal partnership income tax return and on forms provided by FHA as this was clearly done in this fashion merely as a matter of bookkeeping. Thus, the explicit full disclosure provisions of the United States Revenue Code require the Employer to report this item as gross income as a method of presentation to enable the Employer to be eligible for an accelerated interest deduction schedule. The same is basically true as to the FHA form, but, as FHA has no published accounting standards governing the man- ner of presentation, the subsidy could have been omitted from the gross income and only the net interest paid shown as interest expense. On both forms, it is clearly a "wash item" and the manner of reporting is dictated by tax and accounting practices I Name of Employer appears as amended at the heanng 208 NLRB No. 93 VISTA TERRACE HILLS 705 which, in our view, do not bear on the issue which we ORDER are called on to decide ; i.e., the extent of this concern's involvement in commerce. It is hereby ordered that the petition filed herein Accordingly, we shall dismiss the petition. be, and it hereby is, dismissed.