Robbin’ HUD

Miami, Fla. —Latachia Jordan carries permanent reminders of her apartment complex. Four bullet wounds. A crippled right hand. Two .22-caliber slugs, one in her left leg, the other behind her right jaw.

Jordan lives in a neighborhood that is among the poorest and most violent in Miami. Cost to taxpayers for her one-bedroom apartment: $133,801 in government subsidies spread over 15 years. Janet Serrano shares a one-bedroom apartment with her three children. At night she puts mattresses on the floor for her daughter and two sons. Each morning she props them against a wall so they can walk through the bedroom. Cost to taxpayers for her apartment: $105,976.

The experiences of Serrano and Jordan illustrate what went wrong with programs funded through the U.S. Department of Housing and Urban Development to build subsidized apartments. A year-long investigation by The Dallas Morning News found that these HUD projects enriched a handful of politically connected private developers while consigning thousands of families to overcrowded and overpriced apartments.

“The winners turned out to be the big developers,” said James Hall, a veteran housing inspector in Miami. “The losers turned out to be the people.”

The News investigation revealed that the 14,164 privately owned apartments renovated under HUD’s Section 8 Moderate Rehabilitation (“mod rehab”) program cost taxpayers an average of $102,608 per apartment over the 15-year life of their rent-subsidy contracts. The apartments are subsidized with government-guaranteed rents, plus tax credits that developers can convert to cash. In addition, many developers received government-backed loans that required minimal cash investment and entailed little financial risk.

The private developers who renovated the apartments say they produced sound housing at a fair price. “I think our projects are the best in the country, and I think our tenants are well taken care of,” said Philip Winn, head of one of the 24 development groups responsible for about half of HUD’s mod rehab housing.

But visits to 42 of the largest projects reveal that at least one-third suffer a range of afflictions — rats, collapsing ceilings, leaking pipes, and other problems — that violate federal housing standards. Some can only be called slums.

“That is the scandal,” said Chris Greer, an assistant inspector general in the HUD Office of Inspector General, the internal watchdog for the agency. “In addition to wasting all the money, poor people are still without adequate housing.”

The real beneficiaries of mod rehab projects were the developers themselves — and the politicians they supported.

Federal election records show that the top 24 developers gave more than $1.67 million in political contributions during the 1980s. HUD records in turn reveal that these same individuals received $1.45 billion in guaranteed rents and tax write-offs.

Forty percent of the most lucrative housing deals went to developers of low-income apartments in six Southern states — Florida, Texas, Tennessee, Virginia, South Carolina, and Georgia. Twenty-five percent of the projects — nearly $361 million in tax money — went to three Miami developers and their partners who made $442,208 in political contributions.

 

 

Inside Scandal

This part of the HUD scandal — the political connections of the developers and the conditions and cost of the housing they built — was largely ignored by Congress and HUD. Instead, investigators focused on a handful of well-connected consultants who worked for the developers.

The scandal leaped onto the front pages in April 1989, a few months after Jack Kemp took over the agency for President Bush. Washington was still honeymooning with the new president, but the HUD Office of Inspector General had some old business it wanted addressed. For years, HUD auditors had been collecting evidence of massive overcharges by mod rehab developers. But the agency had not acted on the audits, and the findings failed to grab attention on Capitol Hill during the Reagan years.

Fed up, the Inspector General publicized two reports. They showed a nationwide pattern of overcharges by developers, many of whom were getting their contracts by hiring high-profile consultants. The small circle of highly paid consultants included a former governor, a former senator, and former Cabinet members.

Congress and the news media went after the influence-peddling issue with zeal. In May 1989, four congressional committees began hearings that lasted 16 months. The HUD horror stories that emerged echoed the tales of 1980s wheeling and dealing on Wall Street. Consult ants had made hundreds of thousands of dollars for a few phone calls. A real estate agent in Maryland pleaded guilty to embezzling almost $6 million in HUD money, supposedly to help the poor.

Thus portrayed, the HUD scandal was a colorful affair of insider deals and corrupt bureaucrats. But it went much deeper than the embezzling “Robin HUD.” It involved what Kemp himself once said would be truly “scandalous” — profiteering developers placing tenants in substandard housing. And it provided a stark example of how the current system of financing politics turns well-meaning government programs into cash machines for big contributors.

“That was the underlying scandal, and I don’t think it ever came out,” said Donald Campbell, staff director of the Senate Subcommittee on Housing and Urban Affairs. “It really was a much more systematic raping of a major department.”

The Cash Constituency

According to Federal Election Commission (FEC) records, the top 24 most successful mod rehab developers — along with their family members and business partners — were regular, and often large, contributors to the Republican Party, members of Congress and, to a lesser extent, the Democratic Party.

The Republican Party was the largest recipient, getting $767,710 from the developers during the 1980s. Republican candidates for president and Congress were the next-biggest recipients, getting $403,161.

Craig McDonald, coordinator of the Public Citizens Campaign Finance Project for Congress Watch, said the $1.67 million in total contributions gave the developers considerable clout.

“That’s a very substantial amount of money in this time when your contributions are technically so limited,” McDonald said. “The average American doesn’t have the ability to give anywhere near those amounts.”

Of the top 24 developers who received nearly half of all mod rehab contracts awarded nationwide since 1984,23 were political donors. By contrast, surveys since the 1950s have shown that 4 percent to 13 percent of Americans make political contributions in any given year.

The developers often gave the maximum allowable contribution of $1,000 to individual candidates — and their family members frequently made additional donations of $1,000. FEC and HUD records also show:

Six of the developer groups — the developers and their associates — gave more than $100,000 during the 1980s. Ten groups gave more than $50,000. The largest contributor group — composed of New York developer Stephen Ross, Miami partner Jorge Perez, and their associates — gave $238,430 during the decade.

Individually, four developers contributed more than $100,000: Ross, Joseph Michael Queenan, Herbert Bamess of Warrington, Pennsylvania, and Bernard Barnett, a Florida lawyer.

Ross and Queenan were both members of Team 100, an elite circle of 249 Republican contributors. The group made use of a loophole in campaign laws limiting contributions to political parties to $20,000 by placing funds in a special “soft money” account earmarked for party advertising and get-out-the-vote efforts.

The more developers gave, the more they tended to receive in apartment renovation deals. Ross and Perez, for instance, were the second-largest mod rehab developers in the nation, renovating 1,449 apartment units for $139.1 million in HUD subsidies.

Bamess and partner Michael Levitt were the fifth-largest mod rehab developers, renovating 1,121 units for $83.8 million.

The rate of giving rose during the decade, as did the awarding of mod rehab contracts to the top 24 developers. Contributions and contract awards both peaked from 1987 to 1988.

Most of the developers refused to discuss their campaign contributions. A few said they gave to support the party of their choice and exercise their constitutional rights. Perez said political ties did not help him get contracts.

But experts on campaign finance say that such well-financed voices buy contributors special access to politicians — access that can be parlayed into tangible rewards in Washington. Larry Makinson of the Center for Responsive Politics calls big donors part of “a shadowy cash constituency that’s all but invisible to the voters.”

The workings of this constituency are subtle, said Herbert Alexander, director of the Citizens Research Foundation at the University of Southern California. “The developer doesn’t necessarily go to a member of Congress and say, ‘I need help from you with HUD....’ Sometimes it’s just part of the old boy network. If I give $10,000 to the Republican Party ... I get a chance to drop in on my congressman or senator — and mention that I’m a loyal Republican.”

And when contributors give loyalty in the five-digit range, politicians and their appointees at agencies like HUD remember their names. “When you get into campaign contributions, most of the time it gets access,” concedes Stuart Weisberg, staff director and chief counsel for the House Subcommittee on Housing and Labor. “You can’t pretend that the guy who gives you a $10,000 contribution, that you’ve never heard of the guy.”

 

Wired by Money

Did the contributions from developers actually win attention — and contracts — at HUD? Alphonso Jackson, executive director of the Dallas Housing Authority and past director of the housing office in Washington, said that by the late 1980s it was widely understood by housing directors that the mod rehab program was “wired” to serve connected developers.

“It was clear to me: It did not make any difference how good the proposal was or what the proposal was, it was if you were connected to the top echelon at HUD,” Jackson said. “You had to be in good with somebody at HUD or some senator to get those units.... You didn’t get anything unless it was wired. Every director knew it.”

The House subcommittee that investigated the HUD scandal found ample evidence that politics mattered at the agency — especially to the political appointees who exercised control over the mod rehab program.

The HUD hearings revealed, for instance, that developers Ross and Perez won an early rehab project after an appeal to HUD headquarters from a New York lawyer at Battle, Fowler, Jaffin & Kheel, the former law firm of then HUD Secretary Samuel Pierce. The project, proposed on Battle Fowler stationery, was approved in less than two months.

Consultant Bill Taylor, former head of the Republican Party in Florida, used party stationery in writing to HUD on behalf of his client, mod rehab developer Lynwood Willis. During the HUD hearings, Taylor said he could “find nothing wrong with letting people know who I am by using my National Committee stationery. I’m very proud of the fact.”

Yet by focusing on high-priced consultants like Taylor, Congress allowed the invisible “cash constituency” to remain safely invisible. Representatives of only four of the top 24 developer groups testified at the hearings. With few exceptions, neither the news media nor congressional investigators spotlighted the political contributions. To date, federal officials have yet to fine or suspend any of the top developers.

Stuart Weisberg, the subcommittee counsel, defends the scant attention paid to developers. He says political donations do not prove a quid pro quo — that contributions garnered contracts.

“I would be surprised if you found any area where you have people who depend on either government grants or government subsidies who are not big campaign contributors,” he said.

But Larry Makinson at the Center for Responsive Politics said a quid pro quo can almost never be proved. Rather, finance analysts assess the relationship between donors and politicians by looking at the size, timing, and targeting of contributions.

“They’re not exchanging bribes, but the question is: Is the net effect of what they’re doing the very same thing?” he said.

One indicator that contributors are being more practical than philosophical is when they give to politicians of varying partisan stripes. Campaign finance analysts say that contributors who cover their bets on both sides of the aisle are pressing their own agendas.

About 70 percent of the 24 top rehab developers contributed to Republicans and Democrats. Some split their contributions more than others. Most of the developers gave the majority of their money to Republicans and only a token amount to Democrats. Ten, however, more closely divided their contributions between Democrats and Republicans.

“These guys are very, very pragmatic,” Makinson says. By giving to both parties, he notes, the developers were able to gain favors from a Republican administration — and still be shielded from public scrutiny by a Democratic Congress.

 

The Losers

While Congress paid scant attention to developers, it all but shut the door on information about the projects they renovated. Not a single tenant of the mod rehab projects testified before any of the committees.

Instead, Congress heard consultants and developers describe their projects in glowing terms. Judith Siegel, for instance, testified that she had “followed the rules and developed high-quality, low-income housing.” She encouraged members of Congress to talk to residents at her biggest project, Kingsley Park Apartments in Essex, Maryland.

Lawmakers said that wouldn’t be necessary. Representative Matthew Martinez of California told Siegel, “Clearly, you’re a victim in all this... because your project is meritorious.”

“Absolutely,” she replied.

Had members of Congress looked further, they would have learned that federal auditors found that Siegel and her partners overcharged taxpayers $4.57 million for Kingsley Park. Auditors cited unnecessary expenses and subsidies for units that didn’t qualify under the mod rehab program.

Had members asked tenants, they would have found them angry and ready to talk. Many consider the project less than meritorious. Kingsley tenant Adriana Scott said the complex has decrepit appliances and crowded apartments and has been invaded by drug dealers.

“The owners don’t care about anything as long as they get their rent,” said the mother of two. “I wish there was someone at the top of HUD we could speak to.”

Interviews with more than 250 tenants of mod rehab projects nationwide revealed a litany of woes. Many tenants say they feel trapped, struggling with problems ranging from the annoyance of a broken stove to the life-threatening lack of security in areas where nighttime gunfire plays like background music.

Pamela Freeman cannot forget the sounds of her baby’s screams. It was 1988, the first time her bathroom ceiling collapsed.

“I had been calling and complaining for months, and they didn’t do anything,” recalled Freeman, who lives with her two children in the Liberty City section of Miami. “I heard this boom, and then my baby started screaming. His head was bruised and bleeding. The whole ceiling came down.

“Last year half of it collapsed again,” she said, producing a photo showing the ripped-away ceiling. Freeman worries that a third collapse is just a matter of time.

Latachia Jordan, another Liberty City resident, learned first-hand about another danger threatening many tenants and their children. She was on the third-floor walkway of her apartment complex last March. “My baby was coming around the corner when the shooting started, and I ran to grab her. That’s when I was hit,” said Jordan, who was struck four times.

For thousands of tenants like Jordan, insider deals by developers have condemned them to live in substandard — and often dangerous — apartments. “This place is much worse than the public housing projects,” the young mother said, her eyes filling with tears. “In the projects, they fight. Here, they shoot. And it never stops.”