Gimme Shelter – Tax Shelter-Funded Affordable Housing – Affordable Housing Kings

Texans for Public Justice is proud to release its new series investigating abuses and misuses of public assets for private gain.  “Watch Your Assets” will expose ways in which private interests benefit from resources that should be protected for the public good. — Lauren Reinlie – Project Director

Excerpts from article

Although affordable-housing advocates in Texas typically describe the tax-credit program as “the best we’ve got,” it also is virtually all that Texas has got. This inefficient system produces “affordable housing” that is beyond the reach of Texans with the greatest housing needs. Yet this program does have its constituency. It has transferred hundreds of millions of public dollars to a small group of politically connected private developers.

TDHCA’s Ongoing Scandals

TDHCA’s tax-credit program was plagued with corruption scandals in the 1990s. TDHCA’s staff and board awarded tax credits to friends and friendly business associates at times receiving lucrative stock options or business deals in exchange. Florita Bell Griffin, whom then-Governor Bush appointed to the board, was convicted of bribery, theft and money laundering in 2000. Griffin helped secure tax credits for two Bryan developers, who rewarded her with a major interest in a contracting company. During the trial, prosecutors said that Griffin stood to make at least $425,000 from the deal.

Developers formally apply to the TDHCA to obtain federal tax credits. The agency’s staff and governor-appointed board use a scoring system to weed through the applications. Winning developments must meet certain criteria, including a commitment to renting units at 60 percent of the area’s median family income. (With the government setting the bar at 60 percent, few tax-credit recipients rent units at less that half of median family income.)

Developers turn to syndicators to liquidate tax credits quickly. The syndicators sell the credits to corporations at a discount, producing revenue for the syndicators and developers alike. Developers are entitled to use their cut for construction costs as well as developer fees and payments to contractors. In 1999, developers could skim off as much as 15 percent of their tax-credit revenue for developer fees.4 Many developers retain even more of these funds by hiring one of their own companies—or those of a partner—as the project’s general contractor and the property manager.

This report analyzes the $1.3 billion in tax credits that TDHCA awarded from 2004 through 2006. The agency awarded tax credits to many of the same developers year after year, with most of these federal funds going to a small group of politically connected developers. During the period studied, tax-credit recipients contributed $782,685 to Texas political committees and candidates and spent up to $1.9 million more to lobby state officials.

Creating another appearance problem for Texas’ affordable-housing system, some TDHCA staff and board members who left the agency at the height of the 1990’s scandals have gone on to receive TDHCA tax credits of their own. After resigning under fire in 2001, former TDHCA tax-credit manager Cherno Njie received $11.2 million in tax credits in 2006 for the Langwick Senior Residences in Houston.

Affordable Housing Kings

From 2004 through 2006, TDHCA awarded almost $622 million worth of tax credits to the 20 development companies listed in the accompanying table. These developers accounted for almost half of all tax credits that the agency awarded in this period.

Total Value
of Tax Credit
(Over 10 Years)
  Company                   
 Major Company  Representative            

No. of
TDHCA Projects
$52,598,910   CGB Southwest, Inc.  Printice Gary 7
$41,396,280   Lankford Construction  Michael & Claudia Lankford 5
$41,371,710   AIMCO Equity Services  David R. Robertson 5
$38,165,900   Zimmerman Investments  Vaughn Zimmerman & Family 8
$36,834,840   Hettig Construction  John E. & Marianne Hettig 5
$36,357,340   Landmark Affordable Housing  Kent Ronald Hance Family* 4
$35,056,900   Tropicana Building Corp.  R.L. Bobby Bowling & Family 5
$32,669,310   Charter Contractors  R.J. Collins 5
$31,788,540   Three B Ventures, Inc.  Doak & William Brown 4
$30,749,970   Realtex Development Corp.  Rick J. Deyoe 6
$28,370,420   Oak Timbers  Mary Petty & Winfred Myers 3
$28,268,670   Safari Construction  Michael & Ann Parr 6
$28,101,900   Alpha Construction Company  Daniel Allgeier 5
$27,976,430   Galaxy Builders, Ltd.  Arun K. & Karuna Verma 3
$27,129,260   Construction Supervisors, Inc.  Ron W. Mostyn 4
$26,844,120   Investment Builders, Inc.  Ike J. Monty 3
$26,396,450   ICI Construction, Inc.  Russell Cobb 3
$26,396,450   Churchill Residential, Inc.  Bradley Forslund 3
$25,960,430   Kegley, Inc.  Anita M. Kegley 3
$25,936,500   Affordable Housing Construction  Brian & Cheryl Potashnik 3
$621,973,880†  TOTALS   87†

* Includes Hance’s children (Ron Hance, Jr. & Susan Sorrells).
†Total adjusted to avoid double-counting credits to joint ventures of ICI Construction and Churchill Residential.

Affordable Housing Politics

During the same period 88 TDHCA tax-credit recipients contributed $782,685 to Texas political committees and candidates. Top donor Kent Hance accounted for 43 percent of this total ($334,939). The 11 developers who donated $10,000 or more were associated with $2.4 million in TDHCA tax credits.

State Political Contributions From TDHCA Tax-Credit Recipients, 2003-2006

Contributor/Tax Credit Recipient  Business Interest
Sum of
Contributions
Value of
Tax Credits
 Kent R. Hance  Lankford Interests
$334,939
$1,478,222
 G. Granger & T. Justin MacDonald  G.G. MacDonald, Inc.
$58,615
$190,800
 James “Bill” Fisher II & III  Odyssey Residential
$36,850
$7,500
 P. Rowan Smith  Texas Regional Construction
$27,000
$165,000
 Royce Faulkner  FCI Operating Co.
$24,850
$202,000
 Chris Richardson  Blazer Residential
$16,375
$55,000
 Patrick Barbolla  Fountainhead Construction
$15,500
$55,000
 Randall J. & Gregory Bowling  Tropicana Building
$27,842
$105,320
 Albert E. Magill  Magill Development Co.
$12,625
$40,000
 Willie J. Alexander  Scott Street Group
$11,500
$62,500
 Vernon R. Young, Jr.  Artisan/American Corp.
$10,000
$80,000
 
TOTALS:
$576,096
$2,441,342

 

Governor Rick Perry, who appoints TDHCA board members, received the largest share of this money: $119,750.  Lieutenant Governor David Dewhurst received $90,157, followed by former Comptroller Carole Keeton Strayhorn, who received $73,500.

In addition to their campaign financing activities, TDHCA tax-credit recipients spent up to almost $2 million to lobby Texas officials from 2004 through 2006. With the aid of Rep. Talton, this lobby almost repealed a host of TDHCA reforms in 2005.

A handful of politically connected individuals are raking in substantial profit off the low-income housing tax credit system. While this program is successful at helping to foster a lucrative industry with incentives for building more affordable housing, the program has failed to serve the Texans with the greatest housing needs.

On June 28, 2007 members of Congress introduced—for the third session in a row–a bill to create a National Housing Trust Fund as an alternative to this system. The trust fund would dedicate money to produce and rehabilitate 1.5 million affordable homes over 10 years. At least 75 percent of these funds would be reserved for those who make less than 30 percent of their area’s median income. While the low-income housing tax credit program has helped to serve people making 60 percent of median family income, the program does nothing for needier families earning even less. Earmarking part of the federal housing budget strictly for serving the needs of the lowest income families could be a more direct, efficient use of taxpayer dollars to help serve the needs of those facing substantial housing hardships.

“Some will rob you with a fountain pen” – Woody Guthrie

Watch Your Assets is a Texans for Public Justice project.
Lauren Reinlie – Project Director

Thanks to TPJ Intern Omair Khan who assisted with this report.

Full Article – “Watch Your Assets”

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