Sweetheart Deal

How does Virginia McGuire make a profit in the nonprofit business of creating affordable housing? Simple. She pays her husband.

Today, Lisa Hyland is shopping for another apartment. At Williams Run she pays $585 a month for a one-bedroom unit, $30 less than under the old landlord and a good fit for the $30,000 a year she makes processing insurance claims at a dental office. But even the cheap rent is no longer reason enough to stay.

On a recent Saturday afternoon, Hyland talked about life at the complex while walking her dog. It is a chore she no longer feels comfortable doing at night, thanks to a rash of muggings and assaults that has made the once-tranquil complex a dangerous place to live.

"I'm scared to be here by myself," Hyland says. "I just put up with it, and now I'm to the point where I've got to go."

Coming soon: $1,109-a-month two-bedroom units and a $500,000-a-year tax break. McGuire's nonprofit lent its name to this complex under construction in Richardson. As a result, it will pay no property taxes.
Mark Graham
Coming soon: $1,109-a-month two-bedroom units and a $500,000-a-year tax break. McGuire's nonprofit lent its name to this complex under construction in Richardson. As a result, it will pay no property taxes.
Mark Andresen


The idea of giving nonprofits such as Green Bridge Development automatic exemptions from all property taxes was hardly controversial when the Texas Legislature adopted it with virtually no opposition in 1997.

"It was meant to help a small group of organizations, a handful," says Ray Ocanas, executive director of the Texas Association of Community Development Corporations. "It was supposed to help them provide services like day care, adult education, computer centers or things like matched savings programs to get people on their way to owning their own homes. The problem is, the eligibility requirements were so loose, it was like backing up a dump truck and spilling out a load of cash."

There were plenty of people ready to scoop it up.

Before the exemption came into being at the start of 1998, only a dozen or so nonprofit groups applied to the state each year to become community housing development organizations, known in housing circles as "chodos." The designation is a federal one--used to dole out certain HUD funds unrelated to apartment houses--and it was this benchmark Texas lawmakers used to define who would be eligible for the property-tax break.

Before the exemption, only Habitat for Humanity and other volunteer-driven charities cared much about becoming chodos. Then suddenly, everyone wanted to become one. The prospect of a perpetual bye on all property taxes--beyond the authority of school boards, city councils, county commissioners and hospital boards--created a nonprofit land rush.

Last year, the state granted 82 organizations chodo status, and that doesn't include an uncounted number of chodos certified by city and county housing agencies, which can also confer that status.

"It turned into a major provision. With no taxes, apartment properties are cash cows. Twenty percent of your operating expenses go to property taxes," says Walter Moreau, director of Foundation Communities, which has been in the low-income housing field since the late 1980s and owns properties in Arlington, Carrollton and Austin. "All of a sudden you had nonprofits from California and Washington, D.C., rushing in to take advantage."

Along with the "FedEx"--or overnight--chodos came newly minted, one-man charities doing eight-figure deals, nonprofits dubbed "rent-a-reverends" working hand in glove with for-profit developers to buy four or five apartment complexes at a clip, with fat fees for everyone standing nearby when the deals closed. Critics call them "one- or two-Lexus" deals.

"There's virtually no oversight of the chodos," Moreau says. "If you fill out the application and check the right boxes, you're a chodo."

Fearing that a measurable loss of local tax revenue--or scandal--would prompt state lawmakers eventually to revoke the exemptions, several established groups pushed to tighten the requirements when the state Legislature met last year.

"We tried to proactively address the issue and make sure these monies would be used for some public benefit," says Moreau, who testified in favor of a reform bill introduced last spring. Adds Ocanas: "The idea was, if we're taking funds from schools and police departments and other city services, we should be putting money into some kind of services beyond housing."

The bill would have required the nonprofit to prove in an annual audit that 50 percent of its property tax exemption is spent on social services for tenants.

Moreau's group, for instance, would have easily met the requirement. It receives about $600,000 annually from the tax break at its eight properties and spends more than $1 million on social services, including a program in which it gives low-income families a 2-for-1 cash match on money they save to buy homes or put their kids in college.

The bill was meant to separate the wolves from the sheep by weeding out those who have been using the break simply for plump salaries or to pay out profits skimmed off the top when the buildings were purchased.

But there was hard-set opposition to reform, much of it coming from self-interested quarters. Among those who fought it were the Texas Apartment Association, representing owners whose properties' values are boosted by the heightened demand, and a collection of nonprofits that favored the no-strings-attached status quo.

At the forefront of that group, several sources agree, was Virginia McGuire. "She's done her projects, including her elderly deal in Richardson where they're going to be charging $1,000 a month, which in my mind is hardly mission-driven," says Moreau, referring to Green Bridge at Buckingham, a McGuire property that is under construction. "She helped organize a bunch of chodos in Dallas to fight any restrictions on the tax break. The argument was that in order to create new housing, you need a source of funds unrestricted. Everybody knows she's Jim Wright's daughter, and that still carries some weight."

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