July 5, 2007

Gimme Shelter:

Tax Shelter-Funded Affordable Housing

Each year, the Texas Department of Housing and Community Affairs (TDHCA) doles out approximately $45 million in federal tax breaks to private companies. The purpose of these generous subsidies—first enacted by President Ronald Reagan—is to promote the development of affordable housing. This tax-incentive program for private developers has all but supplanted the old system in which the government funded public housing directly.

TDHCA awarded $133 million in federal tax credits to private developers from 2004 through 2006. Because these credits can be used every year for a decade, their face value is a whopping $1.3 billion over their 10-year lifespan. While other federal taxpayers must cover the full cost of these tax breaks, the actual amount of money spent on affordable housing is considerably less. Since developers need their money up front to finance construction, they sell their tax credits at a deep discount to syndicators, who resell them to corporate taxpayers. As a result, the actual amount of money spent on low-income housing dwindles considerably as each person in the chain takes a bite out of this taxpayer asset. A recent study of Missouri’s tax credit system, for example, found that just 35 cents of every tax-credit dollar is used to develop affordable housing.1

Another trickle-down problem with this affordable-housing system is best summarized by the question: Affordable for whom? The tax-credit program has met the housing needs of families that earn 60 percent of their area’s median family income. Yet the program has failed families with the greatest needs—those earning 50 percent or less of median family income. These worst-case families must either spend more than half of their income on rent or subsist in substandard housing, according to a recent study by the U.S. Department of Housing and Urban Development (HUD).2 The same HUD report found that the U.S. population subsisting at this level grew a remarkable 16 percent just between 2003 and 2005.3

In Texas—which relies almost entirely on federal-tax credits to meet its affordable housing needs—there is virtually no other safety net for this struggling population. After recently doubling its affordable-housing budget, this state—with the nation’s second-largest population living in poverty—still spends just $6.5 million a year on this problem. “With the tax-credit program, we’ve done a lot of good for people who fit into that narrow income category [60 percent of median family income] and done nothing for anybody below there,” says John Henneberger of the Austin-based Texas Low Income Housing Information Service.

TDHCA Federal Tax-Credit Awards

Tax Credits
Value Over
10 Years

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.

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.

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.5

Griffin helped expose TDHCA’s pay-to-play culture. Agency staff led by then-Tax Credit Manager Cherno Njie heavily influenced the board’s tax-credit approvals. Moreover, several board members, including Griffin, Margie Bingham and Daisy Stiner, had primary responsibility for the board’s tax-credit awards. In 2000, a state Sunset Advisory Commission reported that flawed projects were being awarded tax credits because of the developers’ connections to TDHCA staff and board members.

After years of public criticism, culminating in an FBI investigation, the legislature reformed the TDHCA in 2001 and 2003 to make it more transparent. The TDHCA now awards tax credits under a system borrowed from Florida that Henneberger calls the “smack down.” Tax-credit applications are made public in advance, giving developers an opportunity to expose flaws in competing proposals. Among other criteria, the TDHCA scoring system gives credit to projects that garner the support of state and local officials. Such official support can help counteract “Not-In-My-Backyard” opposition to affordable housing projects, some of which is rooted in racial or economic discrimination.

Despite earlier reforms, the FBI is not done with the TDHCA tax-credit system. It is investigating allegations that Brian Potashnik, one of Texas’ top affordable-housing developers, improperly compensated local officials in Dallas and San Antonio for endorsing his projects. In Dallas at least ten local officials have received FBI subpoenas, including former Mayor Pro Tem Don Hill and Rep. Terri Hodge (D-Dallas).

President of both Southwest Affordable Housing and Affordable Housing Construction, Potashnik received almost $26 million in tax credits in 2004 (TDHCA has put his subsequent applications on hold pending the outcome of the FBI investigation).6 Potashnik and his wife, Cheryl, frequently build affordable housing through partnerships with non-profit corporations. These non-profit partnerships can be very profitable since they can exempt projects from local property taxes.

Two officials on the non-profit Bexar County Housing Authority board worked for Potashnik’s Southwest Housing as Southwest and the Housing Authority entered into joint housing projects between 2002 and 2004, according to an internal housing authority audit released in February. Board member Carlos Madrid’s construction company, MDMG, Inc., received more than $25,000 from Southwest Housing for work on low-income housing projects. Madrid resigned in 2006. Southwest hired board member Ken Brown as a lobbyist in 2002 before Brown resigned from the authority later that year. Neither board member revealed these relationships to the Housing Authority through the appropriate disclosure filings.7

The Potashniks built their Dallas Primrose at Highland project, which received almost $9.4 million in TDHCA tax credits, with the non-profit Housing Services, Inc. The Potashniks created this non-profit themselves, stacking it with friends and political allies and then using it to exempt their own projects from property tax assessments. Cheryl Potashnik served as the non-profit’s director under her maiden name Cheryl Grier(sp?). Federal and state laws prohibit non-profits from benefiting for-profit ventures—especially those controlled by the non-profit’s own creators. A Dallas Morning News investigation found that this partnership helped the Potashniks land more than $3 million in tax-free subsidies. Developer fees on the apartments built in part with these subsidies were estimated to bring in over $10 million.8

Dallas Rep. Terri Hodge often wrote letters in support of Potashnik projects or endorsed them at TDHCA hearings. It later turned out that Rep. Hodge practiced what she preached. She lived in one of the Potashniks’ most-afffordable housing units—rent free! Rep. Hodge lived in a $700-a-month apartment in the tax-credit-financed Rosemont at Arlington Park project. Despite the letters of support she wrote for the Potashniks, Hodge was not in the habit of writing a monthly check. The Potashniks kindly footed the bill.

Bill Fisher left Southwest Housing and became a major competitor, forming Odyssey Residential, which received almost $25 million in TDHCA tax credits from 2004 to 2006. The FBI has named three Odyssey developments in subpoenas, along with five Potashnik projects. The Dallas Morning News reported that Fisher has cooperated with the investigation to the point of wearing a surveillance wire. The two-year investigation has yet to produce any indictments. FBI authorities have said that they will announce developments soon.

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.

Ex-board member Margie Bingham received more than $10 million in tax credits for a 2004 development. Bingham also served as director of Houston’s Housing and Community Development Department from 1992 – 2000. An audit of that agency found that Bingham created opportunities for conflicts of interest and fraud and based her housing-project selections on personal whim. In response, the U.S. Department of Housing froze federal funding of the Houston agency.

Joseph Kemp, a former TDHCA board member and Griffin associate, received $9 million in tax credits in 2006. Kemp received this award even though he failed to complete previous developments funded by the TDHCA and despite a poor credit history.9

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)


 Major Company  Representative
No. of
TDHCA Projects
  CGB Southwest, Inc.  Printice Gary
  Lankford Construction  Michael & Claudia Lankford
  AIMCO Equity Services  David R. Robertson
  Zimmerman Investments  Vaughn Zimmerman & Family
  Hettig Construction  John E. & Marianne Hettig
  Landmark Affordable Housing  Kent Ronald Hance Family*
  Tropicana Building Corp.  R.L. Bobby Bowling & Family
  Charter Contractors  R.J. Collins
  Three B Ventures, Inc.  Doak & William Brown
  Realtex Development Corp.  Rick J. Deyoe
  Oak Timbers  Mary Petty & Winfred Myers
  Safari Construction  Michael & Ann Parr
  Alpha Construction Company  Daniel Allgeier
  Galaxy Builders, Ltd.  Arun K. & Karuna Verma
  Construction Supervisors, Inc.  Ron W. Mostyn
  Investment Builders, Inc.  Ike J. Monty
  ICI Construction, Inc.  Russell Cobb
  Churchill Residential, Inc.  Bradley Forslund
  Kegley, Inc.  Anita M. Kegley
  Affordable Housing Construction  Brian & Cheryl Potashnik
* 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.

Printice Gary, Neal Hildebrandt, and David Kelly are partners in Dallas-based CGB Southwest, which is the No. 1 TDHCA general contractor, working on seven TDHCA projects during the three-year period studied. During this period Carleton Development was associated with more than $52 million in tax credits.

Landmark Affordable Housing, run by lobbyist and ex-Congressman Kent Hance and his children, has received more than $36 million in tax credits for four TDHCA projects during the time period studied. Hance has contributed almost $335,000 to Texas political committees and candidates since 2004. Over the past decade he also has lobbied Texas officials on behalf of three low-income housing interests: Kilday Realty, Lankford Interests and the American Housing Foundation. TDHCA tax-credit recipient Edgewater Affordable Housing also hired Hance to lobby federal officials in 2005. Hance took a leave of absence from his firm10
after Governor Rick Perry appointed him chancellor of Texas Tech University in late 2006.

R.L. Bobby Bowling of El Paso-based Tropicana Homes is a former president of the Texas Association of Builders. Bowling helped craft the controversial Texas Residential Construction Commission in 2003. This industry-dominated agency has created new obstacles that delay buyers of lemon homes from getting their day in court. Bowling’s family is a major player in El Paso’s low-income housing market, where it competes against Investment Builders, Inc., owned by Ike J. Monty, one of President Bush’s elite “Pioneer” fundraisers.11

Charter Contractors, Eagle River Builders and Tejas Housing and Development are all run by R.J. Collins of Austin. Collins, the individual associated with the most TDHCA developments, was awarded 11 projects worth $52 million in TDHCA tax credits. Rick J. Deyoe, who owns Austin-based Realtex Development Corp., is associated with nine TDHCA developments and almost $48 million in tax credits.

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
Value of
Tax Credits
 Kent R. Hance  Lankford Interests
 G. Granger & T. Justin MacDonald  G.G. MacDonald, Inc.
 James "Bill" Fisher II & III  Odyssey Residential
 P. Rowan Smith  Texas Regional Construction
 Royce Faulkner  FCI Operating Co.
 Chris Richardson  Blazer Residential
 Patrick Barbolla  Fountainhead Construction
 Randall J. & Gregory Bowling  Tropicana Building
 Albert E. Magill  Magill Development Co.
 Willie J. Alexander  Scott Street Group
 Vernon R. Young, Jr.  Artisan/American Corp.

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.

The next largest share went to Rep. Robert Talton (R-Pasadena) who received $32,375 from low-income housing tax credit recipients. In 2005, Talton headed up an unsuccessful attempt at overriding the TDHCA reforms the legislature had passed in 2001 and 2003 in order to appease developers who opposed changes to the system. The reforms would have stripped the state of its power to oversee the tax credit system and weakened the number of low income units required for tax credit eligibility. 

Tax-Credit Recipients Backing Talton, 2003-2006

 Donor/Tax Credit Recipient  Associated Business
 P. Rowan Smith  Texas Regional Construction
 Richard R. & Les Kilday  Kilday Realty
 G. Granger MacDonald  G.G. MacDonald, Inc.
 Chris Richardson  Blazer Residential
 Patrick Barbolla  Fountainhead Affiliates
 Michael A. Hartman  Kegley Group
 Albert E. Magill  Magill Development Co.

TDHCA board members contributed $85,184 to Texas political committees or candidates from 2003 through 2006. The top recipients of this money were Lieutenant Governor David Dewhurst ($24,000) and Governor Perry ($22,930), who appointed every current board member except Dallas developer Kent Conine, the last remaining Bush appointee.

Donations from TDHCA Board Members 2004 – Present

 TDHCA Board
 City  Business Interest
Amt. Of
(2004 & 2006
Election Cycles)
 Elizabeth Anderson†
 Dallas  Marketing Consultant (EDS, SAIC)
 Shaddrick Bogany
 Houston  ERA Bogany Properties
 Kent Conine
 Frisco  Conine Residential Group
 Sonny Flores
 Houston  PEC Corp. (Engineering)
 Vidal Gonzalez*
 Del Rio  Banker
 Patrick Gordon*
 El Paso  Gordon & Mott Law Firm
 Norberto Salinas
 Mission  Mayor of Mission
 Gloria Ray
 Mc Allen  St. Paul Area Development Corp.
†Includes donations from her spouse, Kenneth Anderson.
*Not currently on the board. Patrick Gordon resigned from the board and Vidal Gonzalez’s term expired during the time period studied.

Conine also served as president of the National Association of Builders in 2003. The 2006 financial disclosures that Conine filed with the state reveal that he has interests in 19 development companies, including Conine Residential Group. Although Conine has built some low-income housing projects of his own, none of them are in Texas. In 2000, federal regulators from the U.S. HUD department found that Conine had violated federal conflict of interest rules when he sold a piece of land for over $200,000 to another developer to be used in a TDHCA-funded project. The project was later terminated by TDHCA.

At the same time, HUD found former board chair Don Bethel, who left the board in 2001, had also violated ethics rules when he received a broker’s fee for a project that was awarded tax credits from TDHCA. In 2003, Bethel was appointed to the scandal-ridden Texas Youth Commission. As the scandal was uncovered during the 2007 legislative session, Gov. Perry named Bethel to temporarily head the TYC board before the board was dissolved.

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.

The Tax-Credit Lobby, 2004-2006

 Lobby Client
Sum of
 Sum of
Value of
Tax Credits
(Over 10 years)
 Congress of Affordable Housing*
 LULAC National Housing Commission
 Blazer Residential
 Continental Realty Inc.
 Finlay Development
 Kilday Realty Corp.
 Magill Development Co.
 NRP Holdings
 G.G. MacDonald Inc.
 CDHM Group
 Texas Regional Properties
 Tejas Housing and Development Inc.
 Texas Affiliation of Affordable Housing Providers
 ORH Acquisitions II
 San Antonio Development Agency
 Lone Star Housing Corporation
*Includes the following lobby clients that are listed below as hiring their own lobbyists: Blazer residential, Kilday Realty, Magill Development, CDHM Group, Texas Regional Properties. Totals have been adjusted for double counting of these tax credit recipients.
†TAAHP is a trade organization representing dozens of low-income housing tax credit interests identified in this study.

Congress of Affordable Housing is a trade association for affordable housing providers that John R. Pitts and P. Rowan Smith created in 2002. Eight tax-credit developers from this study sat on the association’s board in 2004, according to state incorporation records. Since then, these developers have been awarded 24 tax credit developments from the TDHCA, with a value of almost $111.7 million dollars over ten years.

Three lobbyists carried almost 90 percent of these tax-credit contracts. Joseph Bishop and Jim Shearer are co-owners of the Capital Consultants lobby firm in Austin.  Since 1998 Bishop has represented up to $1.8 million in lobby contracts for low-income housing tax credit interests. Shearer started representing these interests in 2005 and has garnered up to $775,000 in contracts since then. John R. Pitts helped found the trade association Congress of Affordable Housing and worked as a lobbyist for the organization in addition to a handful of other low-income housing tax credit recipients since 2002.

Top Tax-Credit Lobbyists 2004-2006

 Lobbyist Name
Min. Sum
of Contracts
Max. Sum
of Contracts
 Bishop, Joseph W.
 Shearer, James F.
 Pitts, John R.

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.


1 “Someone’s getting rich at Missouri’s Expense,” St. Louis Post-Dispatch, April 22, 2007. 
2 “Affordable Housing Needs 2005: Report to Congress,” U.S. Dept. of Housing and Urban Development. May 2007.
3 The report does not include the latter part of 2005 so increases in housing needs do not include those needs created by hurricanes Katrina and Rita.
4 “A Developer’s Jackpot,” Austin Chronicle. Oct. 22, 1999.
5 “Appeals court voids conviction of three on mail fraud charges,” Associated Press. March 11, 2003
6 “Ex-rep pushing legislative probe of Dallas developer,” San Antonio Express-News. July 31, 2005.
7 “Audit ties housing officials, developer,” San Antonio Express-News. February 13, 2007. An audit conducted by the Housing Authority also found that a Southwest Housing-owned management company paid itself six percent of total revenue instead of the five percent called for in the contract and that Southwest Housing may have paid itself twice for one $150,000 budget item.
8 “Nonprofit’s ‘loan’ helped builder profit,” Dallas Morning News. March 26, 2006.
9“House of Cards: Is the State Housing Agency Stacking the Deck?,” Austin Chronicle. Oct. 22, 1999.
10 Hance Scarborough Wright Ginsberg & Brusilow.
11 Former board member James Daross had been an attorney with Karfsur Gordon Mott, a law firm which has represented Monty on matters unrelated to his tax credit developments. “Texas, Part II: Texas Housing Agency Faces Two Years’ Probation; Analysis of LIHTC Allocations Finds Inconsistencies,” Affordable Housing Finance. May 2000.