On the south side of Dallas, Nena Eldridge lives in a sparse but spotless bungalow on a dusty lot. At $550 each month, her rent is just about the cheapest she could find in the city.
After an injury left her unable to work, the only income she receives is a $780 monthly disability check. So she has to make tough financial choices, like living without running water.
Every day, she fills bottles with water from a neighbor's house and takes them home. She washes her hands with water heated in an electric slow cooker. She uses a bucket to flush the toilet.
"I'm tired, but I don't have nowhere to go and I don't have enough money to do it," she says, fighting back tears. But she adds, "I'm not living on the streets. I'm not homeless."
Eldridge is among the 11 million people nationwide making these kinds of choices every day. The government calls them "severely rent burdened" — people paying more than half their income in rent.
Thirty years ago, Eldridge was the type of person Congress sought to help when it created the low-income housing tax credit program, which is now the government's primary program to build housing for the poor.
But the tax-credit building that's only a little more than 2 miles from Eldridge's house, where she might pay as little as $200 or $300 in rent based on her income, has a waiting list up to four years long. In Dallas and nationwide, many of these buildings don't have any vacancies.
In a joint investigation, NPR — together with the PBS series Frontline — found that with little federal oversight, LIHTC has produced fewer units than it did 20 years ago, even though it's costing taxpayers 66 percent more in tax credits.
In 1997, the program produced more than 70,000 housing units. But in 2014, fewer than 59,000 units were built, according to data provided by the National Council of State Housing Agencies.
Industry representatives don't dispute the numbers; they say these trends are the result of rising construction costs, decreasing federal dollars that funded other housing subsidy programs, and stricter state requirements to build homes for the lowest-income households. They also say the business is less profitable than it used to be.
But NPR and Frontline also found that little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program. Some key lawmakers say that needs to change.
"My suspicion is, there's a lot of things wrong with the program," says Sen. Chuck Grassley, R-Iowa. "If you aren't following the money, how do you know if the low-income housing tax credit is working?"
How the low-income tax credit housing program works
The federal government used to build its own public housing, which still houses more than 2 million people today. The model was simple: The government built the apartment and became the landlord.
Some of the big, concrete high-rises became infamous for high rates of crime and their concentration of poverty. The government banned public housing construction in 1968 and began demolishing many of the buildings in the 1990s. But while direct federal construction went away, the need for new buildings did not.
So, in 1986, Congress developed a strategy to entice private businesses to build better affordable housing. That incentive came in the form of a tax credit. Since then, an $8 billion industry has evolved to help the government house the poor.
There are two types of tax credits, the smaller of which is financed by tax-exempt state and local bonds. NPR and Frontline focused our investigation on the largest part of the LIHTC program.
Here's how that tax credit works: Every year, the IRS distributes a pool of tax credits to state and local housing agencies. Those agencies pass them on to developers. The developers then sell the credits to banks and investors for cash. Often, to find investors, developers will use middlemen called syndicators.
The banks and investors get to take tax deductions, while the developers now have cash to build the apartments.
Because taxpayers essentially paid for the construction, the buildings can have much lower rent than market-rate developments.
"A very enduring public-private partnership"
The program is often described as a win-win. Low-income people receive well-built, affordable places to live, and private industry players — developers, syndicators and investors — make a profit for their involvement. Years later, the private industry continues to profit, but it's no longer clear whether the poor benefit as much as they could.
Betsy Julian and Mike Daniel, civil rights lawyers who have been investigating the program for years, say the thriving private industry is a sign that the scales may have tilted away from the tenants.
"It's a frightfully expensive way to provide low-income housing and it's got layers of profit built into it that we think we have to provide in order to get people to do something for poor people," Daniel says.
Julian says 30 years ago, attending affordable housing conferences was different than it is today.
"I have the feeling that I'm in the room with nothing but a bunch of rich guys and gals," she says. "That's an impression that has to do with the ambience and the sense that there's a lot of money to be made around affordable housing."
Some attendees at a conference for the LIHTC industry last fall told NPR and Frontline that business is booming.
"We've had so much capital pouring into the market," says Stacie Nekus, senior vice president of investor relations at Alliant Capital, a top syndicator.
But she adds that the thriving industry has not benefited at the expense of the people for whom the affordable housing is built. "It gets the most amount of units built," she says. "We house millions of people."
Advocates of the program say that providing an attractive incentive to businesses is crucial.
"Without private capital we would not be modernizing public housing. We wouldn't be building affordable housing," says former New York Republican Rep. Rick Lazio, who leads the housing finance team at the law firm Jones Walker. "We've got to be realistic about the fact that investors need some return."
That return comes partly in the form of the fee that developers and syndicators earn for their work. The association of state agencies recommends developers receive no more than a 15 percent fee from the total development cost, but the actual percentage varies by state. So if a building costs $20 million, a developer would receive $3 million.
Industry representatives told NPR and Frontline that syndicators earned more than $300 million in fees last year.
This program has been described as a subterranean ATM, and only the developers know the PIN.Assistant U.S. Attorney Michael Sherwin
Financial institutions see these investments as low risk. Because of the high demand for affordable housing, the chance of foreclosure is low: Buildings fill with tenants and stay full, often with years-long waiting lists. Banks also use the investment in LIHTC buildings toward the requirement mandated by the Community Reinvestment Act, which says they must help meet the needs of borrowers in the poorer communities in which they do business.
These incentives are purposefully designed to encourage investment in a public good. Mary Tingerthal, a board member of the NCSHA, the group representing the state agencies that run the program, says it has been working well for people who need affordable housing since it began.
"It has housed more than 6 1/2 million households and it's been a very enduring public private partnership that has produced good housing that's very well run," she says.
Higher costs, fewer units
So why are LIHTC costs higher if fewer units are being produced?
The IRS, which oversees the program, declined a request from NPR and Frontline for an interview. We also reached out to more than 20 industry officials, including the leadership of the Housing Advisory Group and the Affordable Housing Tax Credit Coalition, which represent investors and syndicators such as Boston Capital, PNC Real Estate and CohnReznick LLP. They did not agree to an interview but answered questions by email through lawyers representing the industry.
They say several factors have led to higher costs and fewer housing units; primarily, increased construction costs. Indeed, NPR and Frontline found in an analysis of government and NCSHA data that the inflation rate associated with rising construction costs accounts for about half of the overall increase during the last 20 years.
The representatives also noted the decline in grants from two other federal subsidies developers used to help pay for these buildings — the Community Development Block Grant and the HOME Investment Partnership program. Still, fewer than one-third of tax credit units have received grants from these programs historically, according to data from the NCSHA.
Many states also are requiring tax credit buildings to target even poorer renters, which means less rent to cover any debt. But data from the NCSHA show that the proportion of LIHTC tenants in the lowest income category rose from just 4 to 9 percent of new units from 2000 to 2014 across the country.
"Millions ... almost overnight"
On a downtown street in Miami, one tax credit property's dark history offered another reason for increased costs. Labre Place, named after the patron saint for the homeless, is a $25 million development shaded with towering trees. The lobby is painted lime green and the building includes a fitness center, computer lounge and library. It is home to 90 low-income people, about half formerly homeless, and there's a two- to three-year waiting list to live there.
In the leasing office, the apartment manager proudly displays the many state inspections the building has passed. But there's one thing that wasn't inspected: how much money the developers were making off the deal.
For developer Michael Cox, it was a dream job. A longtime advocate for the poor, Cox worked at a string of nonprofits until 2006. That was when he and his own company, Biscayne Housing, partnered with one of the country's top affordable housing developers, the Carlisle Development Group. Between 2006 and 2009, Cox says the two companies had more than $250 million under development.
"I went from working with this very small nonprofit to an equal partnership with the state's largest affordable housing developer. So it became millions of dollars ... almost overnight," Cox says.
That was before Cox discovered his partners Lloyd Boggio and Matt Greer were stealing money from their developments, and he eventually joined them. Together, according to court records, $34 million was stolen from 14 tax credit projects, including almost $2 million from Labre Place.
"It was a construction kickback scheme," Cox recalls. "The scam was to submit grossly inflated construction numbers to the state in order to get more money than the project required and then have an agreement with the contractor to get it back during construction."
"I convinced myself that this was OK and that I was doing such good works and I was building amazing projects in the community," he adds.
Last year, Boggio, Greer and another partner, Gonzalo DeRamon, pleaded guilty to crimes related to the kickback scheme and were sentenced to prison. Cox was sentenced to home confinement and probation. He cooperated with prosecutors, never spent his portion of the money and returned all of it. But the impact of his theft is lasting.
"At Labre, if the costs had been stated in a correct way, we could have built 10 more housing units. So, that's 10 more people every year that that project could have served," Cox says. "That's 10 lives. So it's those people that really take it on the chin when costs are inflated."
"A program of trust"
In a government office building just a few blocks from Labre Place, Assistant U.S. Attorney Michael Sherwin has spent five years investigating the tax credit program in Florida. He also unraveled the Carlisle/Biscayne theft.
"This program has been described as a subterranean ATM, and only the developers know the PIN," Sherwin says.
The IRS relies on the housing agencies to identify corruption. But Sherwin says he doesn't believe the Florida agency, the Florida Housing Finance Corp., was equipped to spot the theft.
"It's really a program of trust," Sherwin says. "These housing agencies don't have a lot of funding. Looking at Florida housing, they have good people that work there, but there are limited resources. It's a small office with a limited staff that is in charge of managing hundreds of millions in state, local and federal money."
Steve Auger, the man who ran Florida's housing agency, says the Miami case was one bad apple.
"This kind of fraud has not been rampant in the tax credit program both here in Florida or nationally," Auger says, adding that Florida has added additional audits to make sure developer theft won't happen again.
"It's probably the most efficient tax housing program that has ever existed," Auger says. "That's why you've got this asset class that has performed so well with such few scandalous incidents."
After the interview with NPR and Frontline in late 2016, Auger was forced to resign from the agency after an audit revealed he spent more than $50,000 on a steak and lobster dinner for affordable housing lenders and gave his own staff almost half a million dollars in bonuses.
A few months later, Sherwin charged a Miami-based shell company called DAXC LLC belonging to the owners of Pinnacle Housing Group, another one of the largest developers in the country, with the theft of $4 million from four tax credit developments.
In an agreement with prosecutors, a DAXC representative acknowledged that the company "inflated costs" for its own "personal benefit." The company returned the money and paid a $1 million fine. In early 2017, the Florida Housing Finance Corp. went to court to ban Pinnacle from affordable housing projects for two years. Pinnacle declined our request for an interview but told us it didn't violate any state rules and would contest the ban.
Sherwin says he is not done investigating the LIHTC program. He says he is turning his investigation to more developers with projects in other states and also to the banks, lenders and syndicators.
"I know that this fraud doesn't just reside in South Florida," he says. "There's too much money involved, and based upon other information that we've looked at, this fraud exists in other jurisdictions."
Following the money
There are well-built, attractively designed tax-credit buildings all around the country where developer fraud has not played a role. Industry representatives say it's unfair to draw wider conclusions about the program from what happened in South Florida. They say they support more stringent auditing and do not tolerate any fraud.
But without strong oversight of the billions flowing through LIHTC's private sector, there is no way to say for certain just how rare fraud is: The vast majority of housing agencies have never been audited. There have been only seven audits of the 58 state and local housing agencies that the IRS relies on to watch the program since it began in 1986. And when you trace the tax credits of LIHTC properties upward to syndicators and investors, the profit structure becomes even more obscure.
Grassley, the Iowa senator, is one of the few lawmakers looking into the program. He recently asked the GAO to find out how much money syndicators are making and whether that is influencing developments.
"The lack of data shows that maybe the IRS isn't doing a proper job of oversight," Grassley says.
Despite the lack of data, Tingerthal of the NCSHA says the investors' willingness to participate in the program and compete against each other is a sound indicator of the program's overall efficiency.
"This is a market-driven program. And our barometer is really that rate of return: How much is the investor willing to pay for those tax credits and for those units of housing?" Tingerthal says. "We're working all the time to drive towards more cost-efficiency."
"It's all we got"
Daniel, the civil rights lawyer who has been focusing on the program, says the industry's focus on rates of return can lead to blind spots in other areas. He discovered that 90 percent of projects in Dallas were built in high-poverty areas. He filed a lawsuit against Texas that in 2015 went all the way to the Supreme Court and helped set standards for fair housing nationwide.
Daniel says getting deals done matters more to the developers, syndicators and banks than how many units a project has or where it's located. Building low-income apartments in high-poverty areas doesn't get met with as much opposition.
"They don't make these deals in good places. They make these deals in the same places they won't lend," he says. "They were being put there because it's easier to do."
Nationally, only an estimated 17 percent of projects are built in high-opportunity areas – places without a lot of crime and with access to jobs and high-performing schools — according to forthcoming research by Kirk McClure, a professor of urban planning at the University of Kansas who has studied LIHTC for more than a decade. And that matters: Studies show that moving to these types of areas helps children rise out of poverty so that when they're adults, they may not need any government housing help.
The balance of power in the LIHTC program, Daniel says, tips heavily in favor of the banks, brokers and developers.
"They're the ones that have a lot more influence than the poor people who need the housing. Nobody else involved in it has got any reason to come in and criticize it," Daniel says.
Even housing advocates independent of the industry are not likely to publicly criticize the program, he says.
"If they take it away, what do you have? Not only do you take it away from poor people, but you also take it away from all the intermediaries who lose the money," Daniel says. "It's difficult to get anybody to look at it from the taxpayers' point of view. Or even the families that should be benefiting from it. It's all we got."
Frontline's Emma Schwartz, Rick Young and Fritz Kramer contributed to this story.
Correction: May 9, 2017 12:00 am — In a previous version of this story, Gonzalo DeRamon's first name was misspelled as Gonzales. Additionally, we said there was no public accounting of the LIHTC program's costs. In fact there is some, although it is minimal. Also, we clarified that the Texas lawsuit, filed by Mike Daniels, wasn't filed in 2015; the case reached the Supreme Court in that year.