JEFFERSON CITY — A state tax credit designed to finance affordable housing construction, which was at the center of one of the fiercest political battles of the short-lived tenure of Gov. Eric Greitens, is back.
The Missouri Housing Development Commission could meet as soon as this week to allocate Missouri Low Income Housing Tax Credits for projects around the state, including several in the St. Louis area.
It would be the first time that Missouri has issued state low-income tax credits since Greitens’ administration in December 2017 engineered a vote at the commission halting the state credits, angering a politically powerful industry that because of the move lost out on close to $300 million in credits that would have been doled out over 10 years.
Inefficient program has powerful defenders; and tracking where the money goes is difficult.
Critics of the program have cited state audits from offices led by both political parties rapping the program for inefficiency. A large chunk of the value of the credits is lost because they’re paid out over a decade, purchased at a discount and used to pay administrative and financing expenses incurred turning the complicated program into actual money for housing construction.
But both for-profit and nonprofits use the credits to build affordable housing, and supporters say they’re one of the few programs left to finance projects in the poorest areas of the state, particularly some neighborhoods in St. Louis.
Developers have submitted over 100 applications, including 25 for St. Louis-area projects, for a pool of state and federal tax credits that, over a decade, are worth close to $300 million — $17 million a year from the federal government and $12 million a year from the state.
The demand is well above the amount of credits available, and some major projects are counting on it. A top City Hall priority, McCormack Baron Salazar’s rehab of the Preservation Square housing complex north of downtown, was delayed for over a year because of the halt of the state’s credit, the company has said. It has won federal credits in past years and recently started construction. Now, it has submitted the largest funding request for this year’s round: tax credits worth $1.1 million annually from the state and federal credits worth $1.6 million annually.
The turmoil in Missouri's low-income housing tax credit program under former Gov. Eric Greitens delayed the project for over a year.
Those in the industry say the lack of state credits, which Missouri has in the past issued in an amount equal to the federal credits, made financing affordable housing all the more difficult in recent years.
“With the state credit back in play, there’s just more resources to go into projects like this,” said Tom Pickel of DeSales Community Development, a nonprofit focused on parts of south St. Louis that has applied for the credits this year to help finance a 49-unit affordable housing project for seniors at 3101 South Jefferson. “The last three years, when it hasn’t been available … made it that much more difficult to finance these projects.”
During a town hall Wednesday, plans were also announced to rehabilitate the vacant, former Incarnate Word convent into senior, mixed-income housing.
In the years since Greitens killed the state credit, the commission has continued issuing federal low-income tax credits to developers who build rent-controlled housing. But the absence of the state credit meant developers had to request more federal credits out of a limited pool allocated to the state annually or search for other funding through other affordable housing programs.
“The state credit, having it back is massive in that it just opened the amount available for affordable housing and we expect more projects statewide to get approved because they’re not just relying on the federal credit,” said Eric McMahon, a senior associate with St. Louis-based ND Consulting Group, a for-profit developer that is applying for state and federal credits to rehab Bel-Nor’s historic Normandie Hall into affordable senior housing. “What we’re facing with affordable housing going forward, the need, clearly, is not going to go away.”
Less than two months after Greitens’ move at the housing commission, a recording emerged implicating him in an affair and leading to charges that he took a compromising photo of his lover and threatened to release it if she went public. The attorney representing her ex-husband, Al Watkins, later received two bags with over $120,000 in cash that he said was meant to provide a “soft landing” to his client for going public.
Greitens has suggested that the state’s low-income housing industry, which includes the banks, investors and lobbyists who benefit from the credits, conspired against him because of the amount of money at stake.
At issue is $120,000 a publisher paid to a St. Louis attorney who represented the ex-husband of the woman with whom Greitens had an affair.
Missouri Times publisher Scott Faughn in 2018 told Missouri House investigators the cash delivered to Watkins came from him. Watkins has said Faughn met with him on Jan. 5, 2018, suggesting he knew a “wealthy Republican guy … who didn’t like Greitens” and that it was “personal.” Faughn’s news website is sponsored by Sterling Bank, a big player in the state tax credit industry; the bank also is a co-sponsor of Faughn’s “This Week in Missouri Politics,” which airs Sundays on KDNL (Channel 30) and other stations across the state.
Ending Missouri’s match of the state tax credit in 2017 was one of the first major policy breaks between Greitens and the man who succeeded him, then Lt. Gov. Mike Parson. Both sat on the commission that vets applications for the credits. While Greitens packed it with supporters who voted to end it, Parson voted against killing the program outright and argued reform should come from the Legislature. Parson has long been close with former House Speaker Steve Tilley, a lobbyist whose clients include Sterling Bank.
After Greitens’ 2018 resignation, Parson didn’t immediately move to reinstate the program. He instead pushed the Legislature to reform it.
“We are confident in the Legislature’s ability to develop tax credit reforms that address housing needs, while ensuring greater accountability and an increased return on the investment of taxpayer dollars,” Parson said in a statement in 2018, just a few months after taking office. “But until substantial reforms are enacted, state tax credits will not be issued.”
The program was put on hold by former Gov. Eric Greitens.
Yet a bill changing the program that passed the Missouri Senate in the 2019 legislative session floundered after being sent to the House. And this year, the coronavirus scuttled nearly all other legislative initiatives.
The Housing Development Commission this year did make some changes to the program, capping the state tax credit match at 70% of the federal credits, a level similar to that called for in the failed 2019 legislation. That will lower the cost to the state over the years, which is substantial.
As of 2016, a state audit said $1.3 billion in state low-income credits were outstanding or obligated to developments because of the 10-year payout, and about $150 million had been redeemed annually in recent years. The uncertainty around future tax credit redemptions makes it that much harder to predict state revenue when crafting budgets.
Another change in this year’s state credit issuance is a new pilot program that will front-load the amount of state credits doled out to some developments, giving projects more credits more quickly. That, many hope, will increase the value of the state credits by getting them into the hands of investors more quickly.
Because Missouri’s pool of investors with state income tax liability is smaller and the state income tax burden is lower than that from federal income taxes, state low-income credits have fetched below 50 cents on the dollar in recent years, far less than the roughly 87 to 90 cents on the dollar investors have paid for federal credits. State audits have said a shorter payout could drastically increase efficiency for taxpayers, pointing to Massachusetts’ five-year payout that boosts that state’s credit prices to above 70 cents.
Pickel, at DeSales, said his organization has submitted an application under Missouri’s new pilot program and received a quote from a state tax credit investor of 63 cents on the dollar.
“That would be a historically high price for state (low-income housing tax credits),” he said. “The rap on the state credit for years has been it’s so inefficient. … For the state’s return on investment, it definitely is a move in the right direction.”
Missouri low-income housing tax credit applicants
The applicants for state low-income housing tax credits in the St. Louis area. Source: Missouri Housing Development Commission
|Project name||Location||Developer||Annual state credits requested||Annual federal credits requested||Housing units|
|Crossroads Senior Living at Bevo Mill||4900 Gravois Avenue, St. Louis||Tower Grove Neighborhoods CDC||$385,000||$550,000||53|
|Preservation Square Phase IIA||1410 Hogan Street, St. Louis||McCormack Baron Salazar||$1.12 million||$1.6 million||137|
|Reserve at Spencer||Spencer Road and Executive Parkway, St. Peters||TWG Development||$454,000||$649,120||60|
|Festus Senior Villas||110 Brandon Wallace Way, Festus||Snider Development||$350,000||$500,000||36|
|South Jennings Homes||5422 Hodiamont Avenue, Jennings||LMAC Holdings||$336,000||$480,000||30|
|Hawk Ridge Senior Living||Freymuth Road, Lake Saint Louis||Iceberg Development Group, LLC||$506,450||$723,500||48|
|Queensbrooke Village Senior Living||411 Elizabeth Drive, St. Peters||Phoenix Real Estate Services, LLC||$437,850||$625,500||48|
|Benton Park Place||3101 South Jefferson, St. Louis||DeSales Community Development||$459,200||$656,000||49|
|Sunridge Meadows||Brandon Wallace Way, Festus||Ring Property Company, L.L.C||$590,100||$843,000||60|
|Normandie Hall||2794 Normandy Drive, Bel-Nor||ND Consulting||$536,200||$766,000||53|
|Alumnus Gardens||4409-47 St. Louis Avenue, St. Louis||Nash Group/ Vecino Group||$559,930||$799,900||60|
|Diamond Senior Apartments||1301 Partridge Avenue, University City||3 Diamond Development, LLC||$468,300||$669,000||60|
|Meadowood Estates II||TR Hughes Boulevard, O'Fallon||JES Dev Co, Inc||$559,650||$799,500||54|
|Baden School Apartments||8724 Halls Ferry Rd||Christopher Shearman||$325,500||$465,000||50|
|Fairview Village II||2100 Switzer, Jennings||Rise Community Development||$402,500||$575,000||34|
|Marquette Homes||3305 Meramec Avenue, St. Louis||Rise/Marquette Homes Developer LLC||$402,500||$575,000||56|
|Scott Manor II Senior Apartments||2111 Chambers Road, St. Louis||Michael Duffy/Scott Manor II Developer LLC||$482,999||$689,999||50|
|Riverbend Estates III||High Street, Washington||MOCAP Development Company||$542,500||$775,000||48|
|Elm Ridge Senior Apartments||3746 Dunn Road, Hazelwood||Marvin Steele/Elm Ridge Developer LLC||$482,999||$689,999||50|
|Village at Delmar Place Phase II||5515 Cates Avenue, St. Louis||Yaphett El-Amin/Village at Delmar Developer||$503,300||$719,000||46|
|The Residences at Jennings Place IV||Middle River Road, Jennings||Stacy Hastie/RR Jennings Developer LLC||$596,400||$852,000||54|
|Vandeventer Place II||Evans and Pendleton avenues, St. Louis||Stacy Hastie/RR Jennings Developer LLC||$528,500||$755,000||42|
|Arbor Hill Apartments||145 Apple Avenue, Maryland Heights||Housing Authority of St. Louis County||$528,500||$755,000||68|
|Lincoln Square||6815 Robbins Avenue, Pagedale||Beyond Housing, Inc.||$415,000||$595,000||40|