July 31 marked the first opportunity for the Texas Dept. of Housing and Community Affairs -- for years the Legislature's problem child -- to show a clean face to legislators who slapped the agency with severe Sunset reforms last spring. The occasion was the agency's annual allocation of federal tax credits -- this year worth $34 million, or more than a third of a billion dollars during their 10-year life span -- to developers who build apartments with below-market rents for poorer residents.
Historically, these allocations have generated the hottest controversy for the agency. This year is no different: Dallas Rep. Harryette Ehrhardt, one of the most persistent critics of the problem-plagued TDHCA, and a co-author of last spring's Sunset legislation demanding agency reforms, says, "the same inefficient administration, capricious allocation system, and appearance of favoritism continues" at TDHCA. Despite legislative scrutiny, she and other critics say, the agency's staff doesn't seem interested in changing the way it conducts business.
TDHCA spokesman Michael Lyttle says the agency is conforming to the strict new rules imposed by the Legislature, including mandates to disperse tax credits more equitably across the state and to open the allocation process to greater public oversight. He wonders whether the agency's critics will ever be appeased. "If we're still receiving these complaints next year [after the Sunset legislation officially takes effect Sept. 1], we'll have to throw our hands up and say, 'Well, what else can be done?'" he says.
Meanwhile, internal conflicts between the governing board and agency staff are creating a rocky road to reform. Last year, board members awoke from a years-long stupor and attempted to regain some control over the tax-credit program, previously the exclusive purview of staff and two board members -- including Florita Bell Griffin, convicted on corruption charges last November. But as this year's allocation round shows, the board never seems able to reach the burr under the blanket.
Although Griffin is gone, agency staff -- some of whom legislators have accused of trying to sabotage their efforts to overhaul the TDHCA last session -- still draw up the list of projects recommended for tax credits. The board has challenged some of the staff's decisions, but their efforts so far have only landed the agency in court.
This year, for example, the TDHCA board yanked off the staff's recommended list a housing project in Wichita Falls that developers the Encinas Group proposed to build in an industrial zone, next to a paint factory. Last week, Encinas sued TDHCA and its board members. Does this sound familiar? Last year, when the board scrapped a project proposed by Dallas developer and former TDHCA board member Joseph Kemp, Kemp -- a perennial tax-credit winner, not to mention an associate of Florita Bell Griffin's -- sued the agency for not approving his 2000 tax-credit application and won a settlement.
This time around, the board approved a tax-credit deal for Kemp worth about $8 million. And the board didn't blink at a Dallas project proposed by Jay Oji, who, like Kemp, has uncanny good luck at winning tax credits year after year, and whose projects have been pointed to by other developers as evidence of favoritism.
In a letter to Gov. Rick Perry critical of this year's TDHCA allocations, Rep. Ehrhardt singled out Oji's project, which will get nearly $7 million in subsidies in exchange for only 60 affordable apartments. This sets a new record in per-unit costs for the agency's tax-credit program, says Ehrhardt, but rents for two-bedroom apartments still will run upward of $960 -- higher than the average mortgage payment for a new three-bedroom, two-bath home in most Texas cities.
The board also passed a staff recommendation to award tax credits to a project in Temple proposed by the Encinas Group -- though a project directly across the street would have provided almost as many units for $1.7 million less.
Not to say the TDHCA board didn't struggle to make the process look cleaner this year. Led by realtor C. Kent Conine, who led the coup against Kemp's development last year, the board voted to overturn staff's decision to grant some projects even more tax credits than their developers had requested. But Conine failed to obtain the support he needed -- even from two of the three new Perry-appointed board members -- for a resolution that would have forced staff to investigate whether any developers who got tax credits this year were behind on projects awarded credits last year.
While the board succeeded this year in taking extreme measures that landed the agency in court, it unfortunately failed to establish longstanding precedents that would better safeguard the agency against future bad deals. The agency is about to be sued again -- this time by Fort Worth developer Kenneth Mitchell.
Mitchell was the informant who tipped the FBI about Griffin's illegal activities in 1997, and he says he hasn't had a single project approved for tax credits since. In July, he sued the agency because staff again rejected his projects on minor technicalities. In that suit, filed in Travis County district court, Mitchell alleges a long history of agency retaliation against him, specifically orchestrated by Tax-Credit Program Manager Cherno Njie, TDHCA Executive Director Daisy Stiner, and former TDHCA board member Margie Bingham. "The retaliation is ongoing today," he claims in his lawsuit. Mitchell's suit included the first official, public accusation that Njie, Stiner, and Bingham are co-conspirators with Griffin in punishing those who questioned the housing agency's fairness and objectivity. A district judge forced the agency to reconsider Mitchell's projects, but staff did not subsequently approve them for tax credits. Mitchell promises more court action.
Tim Thetford, an aide to Rep. Ehrhardt, says that new rules she helped adopt in the Legislature, to make the housing agency's allocation process fairer and more objective, will only do so much. "Until we have people at the agency who are willing to work within that spirit," he said, "the law alone is not going to accomplish what we were after."
On that note, a TDHCA spokesperson confirms that Njie resigned his post on Aug. 10, and will leave the agency at the end of this month. Njie says he plans to pursue opportunities in the private sector.