Campaign cash still flows from LIHTC industry; housing panel to select projects today

Then-State Treasurer Scott Fitzpatrick, left, defended accelerating redemptions of low income housing tax credits during a September 2021 meeting of the Missouri Housing Development Commission while Commissioner Mark Eliff, center, and Lt. Gov. Mike Kehoe, commission chairman, listen (Rudi Keller/Missouri Independent).
Then-State Treasurer Scott Fitzpatrick, left, defended accelerating redemptions of low income housing tax credits during a September 2021 meeting of the Missouri Housing Development Commission while Commissioner Mark Eliff, center, and Lt. Gov. Mike Kehoe, commission chairman, listen (Rudi Keller/Missouri Independent).

In December 2017, following years of complaints about high costs and political influence in Missouri's low-income housing tax credit program, then-Gov. Eric Greitens engineered a vote that shut it down.

It took Greitens' resignation due to an unrelated scandal and nearly three years for the state tax credit program to be restarted. It now has a litany of new guardrails -- including a project scoring system and set-asides for veterans, the chronic homeless and workforce housing -- that not-for-profit developers say helps ease perceptions that credits are distributed as political rewards.

"To have a scoring system that is transparent has been wonderful, and we certainly applaud the state and the Missouri Housing Development Commission for creating a scoring criteria where it's not a mysterious black box in terms of how decisions are made," said Chris Krehmeyer, executive director of Beyond Housing, a St. Louis not-for-profit that has 614 affordable housing apartments and is building 36 more with tax credit funding.

Today, the commission will consider 83 applications requesting $772 million in federal and $540 million in state tax credits. The commission only has $170 million in federal credits and $119 million in state credits to distribute.

And while the changes in how projects are selected for funding improved the public perception of the program, they haven't slowed the flow of political donations from developers or prevented the biggest donors from winning the biggest slices of the tax credit pie.

Since 2018, tax credit redemptions have totaled $845 million, as credits issued as long as 15 years ago were presented to the Department of Revenue.

An analysis of campaign reports and commission documents by the Independent shows during that same time period, developers, company officers and affiliated firms combined to give $1.7 million, according to Missouri Ethics Commission records.

Approximately $1 of every $6 in tax credits awarded since the start of 2018 has gone to the five developers -- JES Holdings, owned by Jeffrey E. Smith of Columbia, MACO Management Co. of Clarkton, McCormack Baron Salazar of St. Louis, Gardner Capital of St. Louis and O'Reilly Development of Springfield -- who contribute the most.

JES Holdings, its officers and affiliates, using more than half-a-dozen PAC names, accounts for about $740,000, or more than 40 percent, of the contributions since the start of 2018.

Gardner Capital is the only company that is not seeking tax credits this year. The other four have 10 projects seeking 9.2 percent of the credits requested.

Donations breakdown

There are four state officers on the commission -- the governor, lieutenant governor, attorney general and state treasurer. The governor appoints the other seven members.

Developers who are regular applicants for tax credits have contributed more than $125,000 this year to the current officeholders on the commission -- Lt. Gov. Mike Kehoe, Attorney General Andrew Bailey and State Treasurer Vivek Malek.

Parson, who is not seeking re-election due to term limits, has not received any donations this year.

Kehoe is chairman of the commission and has been a member since 2018. As part of his bid for the GOP gubernatorial nomination, he's accepted $88,800 worth of donations this year through his campaign committee and joint fundraising PAC, American Dream.

Bailey and Malek are new members since taking office this year and will be voting on tax credit awards for the first time.

Bailey's campaign committee has accepted $2,500 and his joint fundraising committee, Liberty and Justice PAC, has received $25,000. Malek's campaign committee has raised $7,825 from companies that seek tax credits, their officers or affiliated companies.

In a statement to the Independent, Kehoe spokeswoman Gabby Picard said contributions from developers "are separate from his work on the commission" and that Kehoe "does not accept campaign contributions from stakeholders with pending projects before the commission during their application period."

Among Kehoe's top opponents for the nomination, Secretary of State Jay Aschcroft has received $500 this year from tax credit interests. He told the Independent that voting on credits after taking donations from applicants is a conflict of interest.

"It's reasonable that individuals could look at that and believe that that money was given with the hope that it might somehow grease the wheels," Ashcroft said.

State Sen. Bill Eigel of Weldon Spring has received $10,000 in support this year from low income housing developers, $2,500 to his campaign committee and $7,500 through his joint fundraising committee, BILL PAC. Eigel did not respond to messages seeking comment.

Bailey's spokeswoman Madeline Sieren said in an emailed statement that "political contributions are separate and apart from the AG's work on MHDC" and directed other questions about the political contributions to the campaign.

"General Bailey supports the efficiency and transparency improvements that have been implemented at MHDC and believes working Missouri families deserve affordable housing," Sieren said.

Bailey's opponent in the GOP primary, Will Scharf, was Greitens' representative on the commission when the program was put on hold.

His campaign has not received any donations from low income tax credit developers.

In an interview, Scharf said Bailey should abstain today, much like his office recused itself in a lawsuit over gambling machines after his PAC took donations tied to companies involved in the lawsuit.

"It's vitally important for the attorney general's office to avoid even the appearance of impropriety when it comes to official acts of that office," Scharf said.

Malek noted in a statement sent via text that donations are reported publicly. He said he makes decisions on the merits of each project.

"I have not and will not make MHDC decisions based on political donations," he said.

The biggest players don't restrict their spending only on members of the MHDC -- they spread contributions far and wide. Since 2018, low income tax credit developers have contributed almost $500,000 to legislators representing 85 of 163 House and 33 of 34 Senate districts.

And most candidates for statewide office in 2024, regardless of party, have taken at least some donations from the industry since 2018.

Past problems

In 2006, southwest Missouri businessman Sam Hamra was upset.

Hamra, best known for building a restaurant empire on the Wendy's brand, was also a property developer who wanted state low-income housing tax credits to support his projects. And when only one of the three projects he presented was funded, he wrote to then-Gov. Matt Blunt to complain.

Hamra reminded Blunt he had raised almost $400,000 for the Republican's campaign in 2004 and 2006, and asked that the commission's action be reversed to reward his political support.

"Loyalty goes a long way with me," Hamra wrote, according to a 2007 article in the Columbia Daily Tribune. "I am loyal to my friends and expect that people I help are loyal to me."

Blunt rebuffed the demand and told Hamra to act on his threat to switch allegiance to then-Attorney General Jay Nixon, a Democrat who was preparing to run for governor in 2008.

"It was the certification of Matt Blunt as a man of integrity," said former Lt. Gov. Peter Kinder, a member of the MHDC from 2005-17.

In 2008, Blunt and Kinder backed removing state officers from the commission to eliminate the appearance of conflicts.

Malek said in his statement that having elected officials helps the commission.

"It's appropriate, because elected officials are accountable to the people," Malek said.

Ashcroft said a middle ground would be for officials on the commission to be barred from receiving donations from tax credit recipients. He also said developers who donate to anyone on the board or who won a position through election to be excluded from the program for a period.

"I will spearhead looking at that because the normal individual is going to look at that and say, 'Well, my tax dollars are for sale to the highest bidder. And that's not right,'" Ashcroft said.

Questions of undue influence on commissioners wasn't confined to political donations. In 2009, the commission was forced to adopt a rule barring business relationships between commissioners and developers seeking financial help. In 2007, the Tribune reported that a commissioner sold undeveloped land in St. Charles County to Columbia developer Jeffrey Smith for $1.7 million two months after purchasing the property for $932,000.

But the biggest complaint about awards, State Auditor Scott Fitzpatrick said in an interview, is that no one could understand how decisions were made.

Appointed treasurer in 2019, Fitzpatrick was a member of the commission until he was sworn in as auditor in January.

"You realize that they're having this black box scoring process," Fitzpatrick said. "There would be a public meeting, where the staff would present a list of projects that they recommend for approval and somebody would make a motion. Somebody else would second that, a vote would be had to approve it with no discussion, and nobody knew why they didn't get it."

Fitzpatrick pushed for several changes to the program while he served on the commission. One was to put the scoring system into the annual document detailing how the program will be run.

"I was very adamant about releasing the scores, and I basically said, we need to release the scores, and if the agency doesn't release it, then I'm just gonna release the scores."

The Missouri Workforce Housing Association, which represents most nonprofit and for-profit developers, worked to design a fair scoring system, said Colleen Hafner, executive director of RISE Community Development in St. Louis.

"We felt that it was necessary for all players across the state on all sides of the development process to kind of come together and talk about some of the struggles that we've had in, you know, being able to structure a deal that we believe could get funded," Hafner said.

It took four years to obtain funding for one of RISE’s most recent project, Marquette Homes with 60 units.

"We're so glad to see that we've moved to this process," Hafner said. "It makes a huge difference. And Missouri was one of the last states to implement a scoring system."

One part of the effort to quiet criticism of the program, Hafner said, is to show how the need for affordable housing is a problem in rural and urban areas alike.

"Every single community in the state of Missouri has folks who are struggling for an affordable, safe, good quality place to live," she said.

Jason Maddox, president of MACO, said his company stands by its work, both in construction and political persuasion.

"Maco is very proud that we have produced thousands of units of quality, affordable housing over the past 30+ years in Missouri and surrounding states," he said in an emailed statement. "We are also proud of our advocacy efforts, including educating and supporting legislators who champion Missouri's affordable housing program, especially our efforts to bring policymakers to our developments where they can meet residents and hear first-hand how this program has helped transform lives."

Financial future

Created in 1990 as a match to a new federal tax credit, the state credit is rarely redeemed directly by the developer. Program rules allow developers to sell the credits as soon as they are authorized to raise cash to cover the cost of construction.

Investors pay less than face value because they must wait until the project is built and fully rented before the redemption period begins. Housing commission documents summarizing applications show credit requests in terms of a single year's amount, but each project authorized gets 10 years of that amount.

When a tax credit matures, the holder can file amended returns claiming the credit on up to three years of past returns and use unclaimed portions for up to five years after maturity.

Investors pay less than face value because they have to wait to claim the credits.

A 2014 audit found that only 42 cents of every tax credit dollar issued actually paid for housing. The rest, the audit reported, goes to the federal government in the form of increased federal income taxes, to syndication firms, and to investors.

Fitzpatrick pushed for a change that, early on, gave indications that it could push more money into housing. The commission created a pilot program to accelerate redemptions, front-loading the state credits by allowing up to 72 percent to be redeemed in the first five years of issuance and the remainder in the final five years.

When interest rates are low, tax credit prices rise because it costs little to set money aside for 10-15 years. In 2021, when the first accelerated program credits were issued, projects were obtaining about 58 cents on the dollar. The first accelerated projects were bringing about 67.5 cents, a 2021 report found.

Whether that is still true is uncertain, Fitzpatrick said.

"We were basically in a zero interest rate environment at that point," he said. "So the cost of capital was lower and people could afford to pay more for the credits."

Beyond Housing was approved for a project called Pagedale Town Center Homes, 36 three- and four-bedroom houses at sites around Pagedale.

The rapid increase in interest rates during the past two years and inflation in construction costs has made projects approved in recent years difficult to close, Krehmeyer said.

"The price points just went off the charts with all the inflationary issues that happened in the last two, two-plus years, and that just made the pricing of the project extremely challenging," he said.

Beyond Housing, like most developers approved for projects in the past two years, have returned to the commission for additional financing. Today, the commission will receive a report on cost increases and the status of previously approved projects.

Inflation in housing construction nationwide is fueling a push in Congress to increase the allotments of federal low income housing tax credits. Democratic U.S. Rep. Emanuel Cleaver of Kansas City, in a recent press release, called for passage of a bill with 186 cosponsors, evenly divided by Republicans and Democrats, to boost allotments permanently by 12.5 percent and by 50 percent for two years.

"That support, which includes 79 percent of the Ways and Means Committee, is both an indication of its efficacy, but also the incredible need for affordable rental housing nationwide," Cleaver said in the release.

An increase in federal credit allotments would increase the amount of state tax credits because the state issuance is tied to the federal amount. Fitzpatrick said Missouri should enact a fixed dollar cap for annual awards of state credits.

"I was very much in favor of setting a cap on the program (as a legislator)," Fitzpatrick said. "Tying our feet to the whims of the federal government that has the ability to print currency to make things work for the budget is not exactly a great position for a state government to be in."

The Missouri Independent,, is a nonprofit, nonpartisan news organization covering state government and its impact on Missourians.

Editor's note: The story was updated to note that Marquette Homes with 60 units received funding after a four-year wait.