ROBERT SIEGEL, HOST:
There's a lot of money to be made in affordable housing. Banks and developers are making millions of dollars by building housing for the poor under a federal incentive program. And at the same time, each year, fewer poor people are getting the housing they need. This is one of the revelations of an investigation by NPR and the PBS program "Frontline."
KELLY MCEVERS, HOST:
It documents a crisis in this country. Two and a half million people in the U.S. will be evicted from their homes this year, and millions of others struggle each month to make rent. NPR and "Frontline" wanted to know why. Why is this happening when taxpayers spend billions of dollars each year on government programs designed to help poor Americans afford housing?
SIEGEL: The full investigation with NPR airs on "Frontline" tonight on PBS. Now we're going to dig into that incentive program. The Low-Income Housing Tax Credit Program costs about $8 billion a year. And our teams found that it's not only serving fewer people in need. It is costing more money to make fewer units of housing. And it's all happening with little oversight from the government. NPR correspondent Laura Sullivan reports.
LAURA SULLIVAN, BYLINE: Nena Eldridge lives in a small, wooden house just south of Dallas.
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SULLIVAN: Are you Nina?
NENA ELDRIDGE: Yes.
SULLIVAN: I'm Laura Sullivan. This is your spot, huh?
ELDRIDGE: Yes, Ma'am.
SULLIVAN: She lives here alone, paying $550 a month in rent. That may not sound like a lot, but her total income is $780 a month. She gets a disability check from when she was injured at her job cleaning hospital rooms. This house was the cheapest she could find, and yet with so little money left, choosing which bills to pay is difficult. On the kitchen floor is a stack of water bottles.
Why do you have all these water bottles?
Eldridge pauses, and it's suddenly clear. She doesn't have running water. She got behind on her payments, and the water company shut it off.
So where are you getting your water?
ELDRIDGE: Actually from a lady down the street.
SULLIVAN: She uses buckets of water for dishes and showering.
ELDRIDGE: And this how I do my commode.
SULLIVAN: She pours one of the buckets into the toilet.
ELDRIDGE: But I take this, and I do it like this.
SULLIVAN: That's what you do when you have to flush the toilet.
ELDRIDGE: Yeah, to make it not be stinky in here, yes.
SULLIVAN: She sets the bucket down on the sink, and her eyes fill with tears.
ELDRIDGE: Now, I'm tired. I am tired. I been crying; I'm tired. But I don't have nowhere to go, and I don't have enough money to do it. So I get water to keep my house from being stinky. It's bad, but I pray every day God make a way 'cause I know he ain't want me live like this.
SULLIVAN: Eldridge wants to find a decent place where the rent is lower so she can afford food, electricity and water. And 30 years ago, that's exactly what Congress had in mind when it came up with a new way to provide housing for the poor. It's called the Low-Income Housing Tax Credit Program. Basically it gives private developers and investors billions in tax breaks to build nice apartments with low rent.
One of these buildings is just two and a half miles from Eldridge's house, a place where she might pay as little as $200 or $300 a month based on her income. But she can't get in. Like so many other tax credit projects nationwide, there's no room for her, and the waiting list is up to four years long. She tries to stay hopeful.
ELDRIDGE: I didn't know what way to go, but I've been praying for something new. And I know if I stay praying, I won't lose.
SULLIVAN: The tax credit program is often described as a win-win. Developers and investors, usually the nation's biggest banks, make hundreds of millions of dollars, and taxpayers and the poor get decent affordable housing. That's how it was set up. But NPR and "Frontline" spent almost a year investigating the program and found it's no longer clear just how much the poor are actually winning. Banks, brokers and developers are still making millions, but an analysis of government data shows the program is producing significantly less housing than it used to while costing taxpayers more all at a time when more Americans than ever are living a step away from homelessness.
MARY TINGERTHAL: It is a program that has now a 30-year proven track record.
SULLIVAN: Mary Tingerthal is on the board of the National Council of State Housing Agencies which represents the state agencies running the program. She says it's an incentive program that's been good for taxpayers.
TINGERTHAL: It's been a very enduring public-private partnership that has produced good housing that's very well-run.
SULLIVAN: To understand it, though, you have to start at the beginning, the 1970s. Congress and the public had had enough of the large, concrete public housing projects like Chicago's Cabrini-Green or St. Louis' Pruitt-Igoe and began demolishing buildings like them across the country.
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SULLIVAN: In 1986, Congress turned to the private sector to see if they could do it better. The plan was for private developers and investors to build more attractive buildings, manage them and get large tax incentives in exchange. Last fall in Chicago at an annual tax credit conference, developers and investors said that plan is working better than ever. The wine was flowing next to the roast beef carving station as they gathered to talk housing credits and make deals.
An entire industry has evolved over the past three decades to help the government dole out $8 billion a year to house the poor. Here's how it works. Every year, the IRS hands out billions to the states based on their population. Then the states pass out the money to developers. The money comes in the form of a tax credit. So if you're a developer and you get $20 million in tax credits, that's 20 million in taxes you do not have to pay. Or if you want, you can sell the credits to banks and investors for cash. That's what most developers do. Then you use the cash to build an apartment building. Because taxpayers essentially paid for the building, the rents can be much lower than in normal developments. And as a developer, you usually get to keep a couple million in fees. Here in Chicago, developers, brokers and bankers like John Gilmore, Amish Mehta, and Charles Werhane said business is good.
How's business right now?
JOHN GILMORE: Very strong. Demand is off the charts because...
AMISH MEHTA: Oh, it's definitely a good business. I mean as long as...
CHARLES WERHANE: So we consistently have good profits on the capital side.
STACIE NEKUS: Very robust. We've had so much capital pouring into the market, you know?
SULLIVAN: That's Stacie Nekus. She heads investor relations for Alliant Capital. They're one of the largest brokers. They're called syndicators. They put together deals between banks and developers. So I asked her, if everything's going so well, how much housing are we getting?
NEKUS: I mean we house millions of people. It gets the most amount of units built.
NEKUS: This works.
SULLIVAN: Do you think that it provides the most housing we can get for the dollar? Is this the most efficient program that we could do?
NEKUS: I do think 100 percent it is the most efficient program. I think that a lot...
SULLIVAN: Efficient or not, what is clear is that the program is not doing what it used to. NPR and frontline spent months analyzing 20 years' worth of data. The number of units is dropping from more than 70,000 to less than 59,000 a year. But the program is costing taxpayers 66 percent more in credits. That's after inflation. Why is it costing so much more to do less?
We looked at the estimated rise in construction costs, but that only accounts for about half of it. So what about the rest? We asked the IRS, but they did not respond to our request for an interview. We also reached out to more than 20 industry officials, executives at the top investor and syndicator firms. None would agree to an interview.
In written responses, industry officials said they believe several factors were causing the drop in units. Other kinds of government grants are declining, so the tax credit dollars have to do more. And they say states are requiring them to target really poor renters, which means there's less rent to cover any debt. We found these factors have increased costs, but the rise is so great, we kept looking and found a troubling story in Miami, Fla.
MICHAEL COX: Hey, Mike, how are you? Come on out. Good to see you.
MIKE FLENEURY: Good to see you.
COX: Yeah, this is Laura.
SULLIVAN: Hi, I'm Laura Sullivan with NPR.
On a downtown street in Miami, I went with developer Michael Cox to a tax credit property called Labre Place. Cox and several other developers built the $25 million project with tax credits. It houses 90 people, mostly formerly homeless, and has a two- to three-year waiting list. Mike Fleneury manages it.
FLENEURY: Sure, I'll show you around. You want to see the building?
SULLIVAN: Yeah, I'd love that.
FLENEURY: Yes, come on in.
SULLIVAN: Fleneury takes us through the brightly colored lobby past tidy apartments and the computer room to his office.
SULLIVAN: Inside, he proudly display state inspections the building has passed.
FLENEURY: They'll come in with a list, and they go through it. And they be in there for hours and hours and hours, going through it.
SULLIVAN: Standing off to the side, though, the developer, Michael Cox, is staring at the floor. State inspectors have kept an eye on whether this building is up to code, whether it's really poor people who live in it. But what Cox knows better than most is that there was one thing no one was checking - how much money he and his partners were making.
COX: It's a construction kickback scheme.
SULLIVAN: Or in this case, stealing.
COX: The scam was to submit grossly inflated construction numbers to the state in order to get more money and then to have an agreement with the contractor to get it back.
SULLIVAN: Cox worked at a string of nonprofits advocating for the poor until 2006 when he created his own company and partnered up with a tax credit developer. Even before the theft, they were all making a lot of money.
COX: So I went from working with this very small nonprofit to the state's largest affordable housing developer. So it became millions of dollars.
SULLIVAN: You went from making $50,000 a year to making millions of dollars.
SULLIVAN: Just like that.
COX: Almost overnight.
SULLIVAN: But then Cox's partners Lloyd Boggio and Matt Greer started the kickback scheme. Cox eventually went along with it, and they made even more money. Their scheme stole $34 million from 14 projects. Almost $2 million alone was from Labre.
COX: I convinced myself that this was OK and that I was doing such good works, and I was building amazing projects in the community. I went from fighting monsters to becoming a monster.
SULLIVAN: Boggio and Greer went to prison last year for the scheme. Cox avoided prison and got probation because he cooperated with prosecutors. He never spends any of the money he stole, and he returned all of it. He's since gone back to his roots, working for nonprofits. But the impact of the theft is lasting.
COX: When costs are inflated, the number of housing units actually produced decreases. At Labre, if the cost had been stated in a correct way, we could have built 10 more housing units. So that's 10 more people every year that that project could have served. Those are 10 lives, and so it's those people that really take it on the chin when the costs are inflated.
SULLIVAN: Just a couple miles away from Labre in a government office building is the man who was able to unravel their theft.
MICHAEL SHERWIN: My name is Michael Sherwin. I'm an assistant United States attorney here in Miami, Fla.
SULLIVAN: Sherwin spent five years investigating the tax credit program in Florida for the Department of Justice.
SHERWIN: This program has been described as a subterranean ATM, and only the developers know the pin.
SULLIVAN: He flips through reams of paper showing how Boggio and Greer devised a way to steal millions with inflated construction costs. But he says he does not believe the Florida Housing Agency which gave them the money was equipped to spot it.
SHERWIN: These are IRS tax credits. They rely upon the states to ensure that they set up an architecture to oversee the program.
SULLIVAN: So the IRS is relying on the housing authorities to ferret out problems and corruption.
SHERWIN: Correct, correct. These housing agencies don't have a lot of funding. Looking at Florida housing, they have good people that work there, but they're a limited resource. It's a small office with a limited staff that is in charge of managing hundreds of millions of dollars in state, local and federal money. So it's really a program of trust. So...
SULLIVAN: Did you just call an $8 billion tax program a program of trust?
SHERWIN: Yes, it is a program of trust. It is.
SULLIVAN: Do you think that's a problem?
SHERWIN: I think we have a lot to learn from this case and how this program should be managed. There's a lot of holes that developers have been exploiting that we're trying to correct.
SULLIVAN: I went to talk with the man who runs Florida's housing agency, the Florida Housing Finance Authority. Steve Auger says program money is well spent. The $34 million theft was a one-time thing.
STEVE AUGER: This kind of fraud has not been rampant in the tax credit program both here in Florida or nationally.
SULLIVAN: Auger says Florida has added some additional audits to make sure developer theft won't happen again.
AUGER: It's probably the most efficient tax housing program that's ever existed. That's why you've got this asset class that's performed so well with such few scandalous incidents.
SULLIVAN: A week after our interview, Steve Auger was forced to resign after a state audit revealed he spent more than $50,000 on a steak and lobster dinner for affordable housing lenders and gave his own staff almost half a million in bonuses. And a couple months after that, the Assistant U.S. Attorney Michael Sherwin charged another company, a shell company called DAXC that belongs to the owners of another of the largest affordable housing developers in the country, Pinnacle Housing Group. He charged DAXC with the theft of $4 million from four tax credit developments in Florida.
In a statement, Pinnacle says the owners did not violate state housing rules. But in a federal court filing, DAXC acknowledged that it, quote, "inflated costs for its owners' personal benefit." Sherwin says he's not done investigating the program.
SHERWIN: I know that this fraud doesn't just reside in South Florida. There's too much money involved. And based upon information we've looked at, this fraud exists in other jurisdictions.
SULLIVAN: Sherwin says his investigation is expanding to other developers with projects in other states, and he's now turning his attention to the banks, lenders and syndicators. To be sure, developers all over the country are using the money as taxpayers intended, using tax breaks to build homes with cheap rent. And there are millions to be made on these deals.
Just like the developers, the contractors and syndicators also get fees. Industry officials said syndicator fees were more than $300 million last year. And usually the more a project costs, the bigger the fees everyone gets. Industry officials say the business is less profitable than it used to be, but they did not provide specific profit figures to compare. Mary Tingerthal with the state agencies says the fees are reasonable, and in return, taxpayers have gotten quality developments.
TINGERTHAL: If we didn't have developers and investors at the table, this housing wouldn't be produced at all.
SULLIVAN: That may be true, but what's not clear is whether the developers and investors could have produced more of it. I ask Tingerthal how she knows this is the most housing taxpayers should expect. And here's what she said.
TINGERTHAL: This is a market-driven program, and our barometer is really that rate of return. How much is the investor willing to pay for those tax credits and for those units of housing? We're working all the time to drive towards more cost efficiency.
SULLIVAN: Industry officials also said this. The program is efficient because banks and investors get into bidding wars over the tax credits. But efficient for whom, banks and investors fighting over tax credits or poor people in need of more housing? Take a look at the thousands of tax credit properties across the country. You'll find attractive, well-designed buildings. Taxpayers spent billions on their construction, but taxpayers don't own them. The banks do. Usually that's part of the deal.
NPR traced dozens of properties, following them from the developers to the syndicators to the investors. Mostly they are the nation's biggest banks - Wells Fargo, Bank of America, PNC, Goldman Sachs, JPMorgan Chase. Syndicators and some banks bundle the properties taxpayers built for the poor into hundreds of private equity funds worth billions of dollars. It's another incentive to get banks to invest. And yet taxpayers know little about these funds, how they operate or if they may be impacting the program. It's hard to know. The government does not audit the funds or how much the banks make off of them.
CHARLES GRASSLEY: If you aren't following the money, how do you know that the low-income housing tax credit is working?
SULLIVAN: Senator Charles Grassley, a Republican from Iowa, is one of the few lawmakers to look into the program. He recently asked government auditors to find out how much the syndicators and banks are making and whether that is influencing developments. And he says in addition to profits, the IRS needs to start reviewing the 58 housing agencies who oversee them. The vast majority of housing agencies have never been audited even once.
GRASSLEY: There's only been seven audits in 29 years. It may not be serving all the people it should serve. There may be people in the middle getting more than they should. My suspicion is that there's a lot of things wrong with the program.
SULLIVAN: Longtime civil rights lawyer Mike Daniel says you don't have to look far. If you want to see how money influences the program, he says you only have to look at where projects are built. Daniel brought a landmark lawsuit against the program to the Supreme Court after discovering 90 percent of projects in Dallas were built in high-poverty areas with high crime and terrible schools.
MIKE DANIEL: Well, they were being put there because it's easier to do. There was no opposition from those communities to it. You don't have everybody mad at you. You get your deals done.
SULLIVAN: And getting deals done appears to have mattered. New research from the University of Kansas found nationwide, only 17 percent of projects have been built in neighborhoods with opportunity, the kind of places that studies show can actually get families out of poverty so maybe they won't need low-income housing in the first place. Industry leaders say their projects have improved poverty-stricken neighborhoods, but Daniel says for developers, investors and banks, how many units their projects are producing or where they are putting them has always mattered less than closing the deal.
DANIEL: They don't make these deals in good places. They make these deals in the same places they won't lend.
SULLIVAN: Still, he says, you won't find many housing advocates publicly criticizing the program.
DANIEL: People protect it because it is all that there is. And if they take it away, what do you have? And not only do you take it away from poor people, but you also take it away from all the intermediaries who lose the money. It's difficult to get anybody to look at it from the taxpayers' point of view or even the families that should be benefiting from it. It's all we got.
SULLIVAN: On a recent afternoon in South Dallas, I stood outside Nena Eldridge's wooden house where she can't afford to pay for water.
ELDRIDGE: It's a pretty day out here, ain't it?
SULLIVAN: Just up the road to the left is the tax credit property that has no room for her. And just down the road to the right is where she gets her water.
ELDRIDGE: I don't take them out at daytime. I go down there early in the morning when it's dark; I go at night. They don't see me toting water. It's embarrassing. It is. I don't want them to know.
SULLIVAN: But for her, it's a simple choice - housing instead of water.
ELDRIDGE: I'm not homeless. I'm not living on the streets. And I look at other peoples be under bridges and sleeping. And I'm like, you know, that what make my pray every day, like, God, I'm not homeless.
SULLIVAN: After billions of dollars a year and 30 years of effort, there's still no place Nena Eldridge can afford to live. Laura Sullivan, NPR News.
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MCEVERS: "Frontline's" full investigation with NPR, "Poverty, Politics And Profits," airs tonight at 10, 9 Central on your local PBS station.
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