The Current Low Income Housing Tax Credit System
In December of 2017 the Missouri Housing Development Commission voted 8-2 (at the urging of Gov. Eric Greitens) to halt he Low Income Tax Credit (“LIHTC”) program which funded approximately $140 million in Low Income Housing projects in 2017 and has funded more than $1.3 billion in projects since 2007. As shown in Chart 1 below the current LIHTCH system is extremely complex and inefficient due in part to the high cost of professional services and financing fees which must be paid to lawyers, consultants, investment firms, local banks, wealthy investors and state and federal bureaucracies whose fees “consume 10 to 27 percent of the equity on LIHTC projects” (2) or $134 million to $364 million over the past ten years.
*The LIHTC program provides “provides incentives for the construction and maintenance of affordable rental housing throughout the State”(1) by providing tax credits to developers over a 10-year period. In order to maximize up-front funding for a project developers sell this 10-year tax credit to investors through a complex and costly process shown below.
The Timing of LIHTC Decisions and the Release of Details Surrounding Greitens Affair
Al Watkins, a local attorney and radio personality who represents the ex-husband of the woman with whom Governor Greitens’ had an affair was ordered by Circuit Judge Rex Burlison to reveal the source of $100,000 in anonymous payments he has received “to deal with fallout from his client’s revelation of Greitens’ affair” (3).
Mr. Watkins puzzling assertion that he knows with certainty what the $100,000 payment is for but has no idea who it is from has led to widespread gossip and speculation. The most recent episode of Politically Speaking digs into the theory that this payment and the initial influence behind the investigation into governor Greitens was funded by players within the LIHTC industry. Politically Speaking host Jason Rosenbaum mentioned that Mr. Watkins himself has admitted that a large portion of media inquiries surrounding the Greitens affair started in December of 2017 (4) even though the affair took place more than two years prior. He then brings to light the fact that this just so happens to create a timeline in which Greitens’ effort to squash LIHTC financing in the State of Missouri coincided almost exactly with KMOV St. Louis becoming the first mainstream news organization to report on his affair despite widespread knowledge of the affair among many in the local media.
The hosts of Politically Speaking make it clear that this theory is nothing more than a theory and could be prove wrong in the days and weeks to come. This is an idea I have long pondered privately as I believe the smoke created by the timing of the release, the incentives of the major political actors and sketchiness of the anonymous six figure payment seems create an awful lot of smoke for a situation in which there is no fire.
Listen to the Full Podcast Here!
After hearing this theory verbalized on the Politically Speaking Podcast I decided to scrutinize the topic myself and found that the financial incentive for major players in the Missouri LIHTC industry to invest capital into lobbying efforts and campaign donations is greater than 49 of the countries other 50 states. I also found that Greitens stepping down create a statewide government run almost entirely by supporters of the LIHTC. Like the journalists who inspired me to start this investigation I think it is important to make it clear that nothing I have found definitively implicates anyone in an organized effort to tarnish the reputation of political career of Eric Greitens. I also think it is important to acknowledge that no new findings on the initial motives for starting the inquiry into Governor Greitens illegal activities in anyway change the facts of the case. That being said, the information I have found certainly warrants further exploration from those more capable and more connected than me.
Examining the Significant Financial Incentive of LIHTC Players to Discredit Greitens
The State of Missouri’s state funding toward LIHTCs from 2007-2017 was 2nd only to the state of Georgia. Given the relative size of Missouri’s GDP when compared to other states it is clear that ending the LIHTC program would have a significant effect on the state economy. This impact is illustrated by the fact that Missouri’s per capital LIHTC funding is 5x greater than 47 of the 50 states in the country (5). Chart 1 below compares Missouri’s annual GDP with that of larger states with smaller LIHTC programs.
This impact is most profound in the St. Louis and Kansas City areas which represent over 55% of total low income units produced by the program since 2010 (6). LIHTCs make up more of the state of Missouri’s economy than 49 of the 50 states in the country. This gives the players in the industry an unparalleled financial incentive to invest millions of capital to support candidates who support LIHTCs and to ensure those who threaten to reduce LIHTCs throughout the state do not sustain power.
Examining the Top Recipients of LIHTC Political Contributions
According to the Columbia Tribune the Top 10 recipients of state tax credits donated over $20,000 to 10 republican and 10 democratic office holders from all over the State of Missouri proving their influence spans across party and demographic lines (7). A closer look at this donor list shows that three of the four most powerful statewide officials appear on this list including Lieutenant Governor Mike Parson, House Speaker Todd Richardson and State Treasurer Eric Schmidt(7). Governor Eric Greitens is not included on this list despite the fact that he raised exponentially more than each of these three candidates.
With Greitens out of the way the LIHTC industry will have influence over the three most powerful elected officials in the State of Missouri and leaders of the state’s republican party along with the support of most urban democratic house and senate officials due to the tangible impact their programs have on urban districts. It is hard to imagine the moratorium on LIHTCs remaining in place in this political climate giving the industry over a billion incentives a year to get Greitens out of power.