Stacked Deck

Giving penny-ante politicians a say over lucrative affordable-housing developments seemed like a good idea--until the FBI came calling

Both Potashnik and Fisher, who is now believed to be working as an FBI snitch, rely on public officials to sign off on their projects. (Potashnik would not talk to the Dallas Observer for this story.) Without officials' support, developers can lose as much as hundreds of thousands of dollars spent preparing their applications for tax credits from the state and millions in future revenue. So, in theory at least, it might not be a bad investment to slyly reward a local official for his or her support. Developers, when competing for millions of dollars of tax credits, will typically make it a point to make sizable legal campaign contributions to the local and state representatives who can single-handedly make or break their business.

Since news of the investigation broke last June, The Dallas Morning News and KTVT-Channel 11 have reported how Potashnik tried to reward those who were in a position to approve his proposals. Some cases are perfectly legal; others are murkier. Here are some highlights:

•Potashnik and his wife, Cheryl, have donated $66,000 to the political campaigns and causes of Mayor Laura Miller, according to the Morning News. Miller has been one of Potashnik's most outspoken supporters and appears on a promotional video touting the quality of Southwest's apartment communities.

Gimme shelter: Affordable-housing advocate John 
Henneberger has mixed feelings about the state's tax 
credit program.
Gimme shelter: Affordable-housing advocate John Henneberger has mixed feelings about the state's tax credit program.
Every Rose has its thorn: Southwest builds some of the 
nicest affordable apartments in the state, but how 
Potashnik went about it has raised questions.
Every Rose has its thorn: Southwest builds some of the nicest affordable apartments in the state, but how Potashnik went about it has raised questions.

•Potashnik contributed $64,000 to council member Leo Chaney and programs he supported, including the South Dallas Book Fair and Arts Festival, which Chaney founded. Chaney, in turn, wrote a letter to the state supporting Potashnik's bid to receive $1.2 million in annual tax credits for each of 10 years to redevelop Fairway Crossing, an abandoned apartment complex in East Dallas.

•;A consultant for Southwest Housing, Sheila Farrington, owns a BMW that Mayor Pro Tem Don Hill drives. "It's not a buyout...it's a friend's car--a car I earned the right to drive," explained Hill, who has been one of Southwest Housing's most consistent supporters.

•Potashnik hired Melvin Traylor, a retired DISD principal and member of the influential Dallas Plan Commission, to coordinate after-school programs at Southwest Housing, according to The Dallas Morning News. Matt Yarbrough, a Southwest lawyer, told the paper that Traylor was hired because of his experience in education, not because he could aid the company at City Hall.

•Potashnik gave state Representative Terri Hodge $700 a month in rent subsidies for nearly four years at his property the Rosemont at Arlington near Love Field, a total of nearly $32,000 in rent breaks. Hodge had lent vital support to several of Potashnik's projects, some of which were not even in her district. Without Hodge's backing, those projects may not have received tax credits, particularly since many neighborhood residents opposed the projects.

•Channel 11 reported that D'Angelo Lee, a friend of Don Hill and a former member of the influential Dallas Plan Commission, voted for a zoning permit for an affordable-housing project that helped earn him a $5,000 consulting fee.

If Potashnik were an ordinary developer of low-rent apartments, he would hardly have a reason to interact with half of City Hall. But as a tax-credit developer, he has to gain broad public support for his proposed projects, most of which are not likely to be met with widespread applause in neighborhoods.

"What has driven all this is the level of support you need for these types of deals, which I think is wrong and discriminatory for the type of people we have to serve," says Brent Stewart, the Austin-based managing director for the affordable-housing division of Trammell Crow Residential.

For years now, Potashnik has earned a very comfortable living competing for millions of dollars of federal tax credits under the state's Housing Tax Credit Program. Awarded by the Texas Department of Housing and Community Affairs (TDHCA), the tax credits are like vouchers that can be used instead of cash to pay your tax bill. Say you win $1 million in annual tax credits for each of 10 years. You can keep the credits and use them yourself to pay your taxes, assuming you owe that much. More commonly, however, affordable-housing developers sell the tax credits to a middleman broker for up to 90 percent of their face value. That's legal. Selling your $10 million in hypothetical tax credits could generate $9 million in cash for your development today, rather than spreading tax savings over 10 years. The middleman will typically resell the tax credits to investors and companies that use the credits to offset their federal taxes.

In some deals, the investors also share in the cash flow or future sale of the property. Interestingly, the way these deals are structured, the middle-class family fighting against the proposed affordable apartment down the street may have stock in the companies that are funding its construction.

Meanwhile, the developers can use the cash they made from selling the tax credits to fund a portion of the construction of their new property. Last year, the state allocated more than $42 million in annual tax credits for each of 10 years to developers. That translates to as much as $378 million in equity for new affordable-housing developments throughout the state, a massive infusion of cash into the real estate market.

Once they accept the tax credits, developers must provide below-market rents and safe and decent accommodations. Typically, they try to cater to tenants who make between 40 and 60 percent of the local median income, which in a city such as Dallas is in the neighborhood of $65,000 for a four-person household. The TDHCA awards a finite amount of tax credits to different regions throughout the state.

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