Surely there must have been something below-board about the deal, even with all the lawyers and due diligence and state officials assuring it was fine-'n-dandy.
With no money down, former state housing official Virginia McGuire managed in late 2000 to arrange a complex state-sponsored financing package to buy an East Dallas apartment complex and pay herself and her husband's small company roughly $500,000 in fees the day the transaction closed.
McGuire, the politically connected daughter of former U.S. House Speaker Jim Wright, resigned last year from the one-person charity that bought the complex when details of the kitchen-table profits came to light. (See "Sweetheart Deal," by Thomas Korosec and Rose Farley, April 25, 2002.)
In the months since, the Internal Revenue Service has been auditing McGuire's former charity, Green Bridge Development. It found that the mechanism that was so beneficial to the McGuires did not follow federal tax laws governing tax-free bonds.
In a document that became public this month at the Texas Department of Housing and Community Affairs, the IRS made a preliminary finding in its audit that the Green Bridge financing arrangement violated the tax code.
Green Bridge had used tax-exempt revenue bonds to purchase the 252-unit Williams Run apartments for $12.8 million. The bonds are a mechanism through which the federal government entices private-sector organizations to provide affordable apartments to mid- and low-income tenants. Under the tax code, only 2 percent of such bonds can be used to pay for so-called issuance costs such as fees to lawyers, accountants, developers, financiers and so on. With the reimbursements Green Bridge paid to McGuire's husband's company and the $100,000 it paid itself, the transaction costs amounted to much more than 2 percent of the total, closing documents show.
In a preliminary finding dated last September, the IRS declared that as a result of so many costs being rolled into the deal, the bonds could no longer be considered tax-exempt.
Robert Russell, who took over Green Bridge when McGuire resigned last year, said lawyers for the bondholder--publicly traded Charter Municipal Mortgage Assistance Corp. --as well as his organization and the state reached a compromise with the IRS that keeps the bonds tax-exempt and imposes only a minor penalty on Green Bridge.
This month, the state housing agency approved the compromise in which Green Bridge must pay the IRS a $3,000 penalty and Charter must redeem $40,000 of the bonds, taking them out of tax-free status.
"They didn't find a whole lot wrong," says Russell, who nonetheless confirmed that the IRS continues to review other deals made by Green Bridge during McGuire's time there.
Citing privacy laws, a local spokesman for the IRS declined to comment on the settlement or any aspect of its audit of Green Bridge. Russell says the service is auditing another large deal done by Green Bridge in 2001, a $20 million apartment complex for retirees in Richardson. McGuire could not be reached for comment.
Hal Barker, a former Williams Run tenant who has been a harsh critic of the McGuires and the way they purchased the apartments, said the fine was a moral victory from his perspective, even if it amounted to "a slap on the wrist."
"I've tried to get the sun to shine in on this, and they've tried everything they can to prove I'm nuts," Barker says. "Now it's clear this guy isn't nuts, and they can't make out that he's nuts forever."
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Barker says he met with IRS agents last year to share documents unearthed from state files. In his opinion, nobody was concerned whether all the T's were crossed because significant fees were on the table for many people. Charter received a $128,000 origination fee. Virginia McGuire's organization received $116,000, through which she paid her own $83,000 salary. Her husband's firm was paid more than $500,000 after putting about $100,000 in up-front costs at risk. "Everybody had something to gain," he says.
Russell, who has since changed Green Bridge's name to Placet Development, has done a more thorough job of reporting who the organization is doing business with than his predecessor. In 2000, under McGuire, Green Bridge made no mention on its IRS forms that it was doing business with her husband's firm. Last year, when Green Bridge did only $3,500 in business with Scott McGuire's company, Russell reported that fact and specifically stated the family relationship. "You have to, and I made a point of putting that in there," he says.
Russell, who came to the nonprofit group from the real estate business, says he has put Williams Run on better financial footing in the year he has been at the helm. "Technically, Williams Run was in default when I took over," he says, adding that it had run down its reserve accounts to keep up with loan payments. He has raised occupancy of the affordable housing complex from 75 percent to 95 percent, and added a computer center to serve lower-income tenants. "We're making our monthly payments and trying to make sure the residents are happy. It's as simple as taking care of work orders and keeping up on repairs.
"I'm more from the real estate side," Russell says. "Ginger was more involved in government and things like that."