Tuesday, February 8, 2022

Taxpayer Cash for Corporate Control: Affordable Housing is a Business Bailout

This past month, the city of St. Pete received an unsolicited offer from a real estate developer to purchase taxpayer-owned land in Midtown with plans to construct a 96-unit “affordable” apartment building. The apartments will only be leased to those making below the area median income, with rents capped as not to exceed 30% of a tenants annual income. As rents in St. Pete continue to soar at some of the highest rates in the country, this announcement appeared to be a positive headline amidst the daily deluge of news stories about skyrocketing rents, gentrification and tenant abuse. However, a closer look into the developers behind the proposal, and the process by which so-called “affordable” housing is produced, is something workers and tenants should be paying close attention to.

Former Carlisle Executives Mitch Rosenstein (top) and Oscar Sol (bottom)

The development on 18th Ave. S. was proposed by the Green Mills Group, a Ft. Lauderdale-based company who recently developed two multi-family apartment buildings here in St. Pete, Burlington Place and Burlington Post. The company’s founders, Mitchell Rosenstein and Oscar Sol, were former senior executives at another South Florida-based corporation, the Carlisle Development Group. That company, which was one of the largest affordable housing developers in the country during the mid-2000s, was part of a $36 million fraud scheme which resulted in federal charges brought against a number of those involved. Between 2007-2012, Carlisle executives were accused of submitting inflated construction costs at 14 development projects in order to obtain large government tax credits, then pocketing the excess cash. Rosenstein, director of finance for the company during this time, and Sol, who was senior vice president, left Carlisle in 2011 over an alleged pay dispute. The pair subsequently ratted to the FBI and struck a cooperation deal with the feds, according to the Miami Herald. No charges were ever filed against them. Seven others charged in the scheme would ultimately plead guilty, including Carlisle founder Lloyd Boggio and CEO Matthew Greer, who were both sentenced to prison.

The Low Income Housing Tax Credit (LIHTC) program, which Carlisle Development took advantage of, is the top source of public funding for so-called “affordable” housing in the United States. Founded during the Reagan years in 1986, the program was part of a years-long push to divest from federal public housing and shift toward private ownership of “affordable” housing. In this convoluted public-private partnership, tax credits are allocated to individual states annually, which are then distributed to developers in a competitive process through individual state housing finance agencies. Developers who are awarded these tax credits then sell them to investors to shore up cash for development projects. Despite $8 billion in tax money pumped into this program annually, the housing it produces remains in full control and ownership of unaccountable landlords who are only required to keep the rent low for a limited time. If more tax money is not funneled into corporate coffers, these owners are free to jack the rents up on tenants as high as they please.

The program requires landlords to keep rents at an affordable rate for a minimum of 30 years, although a loophole exists which can allow them to raise rents in as little as 15 years. It’s estimated that 143,456 affordable homes subsidized by the LIHTC program across the country have been lost since 1990. In addition, more than 387,000 LIHTC-subsidized homes are set to lose their 30 year affordability requirements by the end of the decade, and 1.2 million homes have already surpassed the 15 year early opt out mark. Expiring affordability requirements and the conversion of once-subsidized units to market rate has led to instances of massive rent hikes and tenant displacement, as noted by the LA Tenants Union, who has been organizing tenants at a formerly LIHTC subsidized property which saw a 200% rent increase upon expiration of it’s affordability requirement.

The program has also been criticized as lacking adequate oversight. In a 2017 interview then-U.S. assistant attorney Mark Sherwin, who helped prosecute the case against Carlisle Development, described the LIHTC in Florida as “a program of trust” and said “this program has been described as a subterranean ATM” of which “only the developers know the pin”. It should be noted that up until the federal investigation, Carlisle Development showed no signs of being a bad actor, having had an excellent reputation on paper and a history of projects delivered under budget. What’s more troubling is that since 1986, only 7 of the 56 state housing finance agencies who administer the program have been audited, which means it’s impossible to know the full extent of non-compliance, abuse and fraud within the program as a whole.

The taxpayer-owned property on 18th Ave. S. where Green Mills Group is seeking to develop "affordable" housing

For the Green Mills Group, along with their partners and investors all looking to get their beaks wet, the project on 18th Ave. S. is an excellent opportunity to expand profits and personal wealth on the taxpayer dime. Along with seeking to utilize the LIHTC program, Green Mills is also fishing for additional government cash from other sources including Penny for Pinellas, Florida SAIL, city funding and the American Rescue Plan to further subsidize their profits. The asking price for the 2.1 acres of taxpayer-owned land is $1 million, a virtual giveaway in one of the hottest real estate markets in the country. As part of their proposal, Green Mills is seeking a whopping $2.8 million profit payout, which amounts to 13% of the total cost of the project. Newly elected Mayor Ken Welch, who received a total of $8,500 in campaign contributions from Green Mills and two of their subsidiaries, will be in charge of choosing a proposal for the site before it is sent to city council for final approval.

Public wealth should be invested in housing. In fact, we should be investing a whole lot more. In return the public must retain full, Democratic control of what is produced, with permanent affordability being part of the deal at bare minimum. If we’re ever going to guarantee a safe, stable, unconditional roof over the head of everybody in the Sunshine City, and in cities across the country, we’re going to need to rein in the parasitic, profit-driven institutions which make this goal impossible. Landlords and other tyrants who deny us access to our basic needs, along with politicians who enable them, are enemies of the hard working people who make up the backbone of our community. Their power is an illusion. Without our labor, strength and minds – our collective consent – these crooks wouldn’t profit off another meal served, another trip driven, another rent check paid or another home built. The choice is ours to make together: will we continue to accept the scraps we’re given, or seize the freedom we’re owed?

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