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Clean Sweep
Florida Housing, which hands out millions in government subsidies each year to build low-income housing, is recognized nationally for its innovative programs. But in recent years it increasingly became mired in litigation and a widespread perception that its bureaucratically complex system for distributing money is rigged to benefit a favored few. The convoluted process delays construction of homes for people who need them. It also subjects Florida Housing to a flood of litigation from developers questioning the fairness of the process -- the corporation has been spending $1 million a year fighting lawsuits.
Under the leadership of Executive Director Susan Leigh, the corporation's credibility nearly evaporated. While many members of Florida Housing's board of directors respected Leigh's smarts and drive, some saw her as too powerful and too political. Many staffers found her management style overbearing. Developers thought she was biased. And there was this: A controversial housing deal -- in which Leigh is accused of promising to help a lobbyist's client get bond funding in return for help pushing Leigh's pet legislation through the Legislature -- spawned multiple expensive lawsuits. Leigh says such charges represent nothing more than "malicious rumors." But when Leigh resigned last spring, after a heated meeting with Department of Community Affairs (DCA) Secretary Steve Seibert, few were surprised.
Sarasota whiz kid Brad Baker, who took over as executive director in September, has begun to clean house: In December, at his direction, a dozen Florida Housing employees resigned or were fired, including the CFO, the general counsel and the director of operations. By year's end, Baker had reduced the number of pending lawsuits from 14 to two and was planning to revamp the entire funding process.
But the firings and some of Baker's other early steps -- he brought in his business partner from Kansas as his second in command -- have ruffled a few feathers on the corporation's board. Florida Housing still has a long way to go before it outgrows its reputation. Seibert says ridding the corporation of even the smell of corruption is one of his biggest priorities. "We've got to both be and appear to be totally ethical," he says. "The general perception now is that we're not."
Leigh's resignation capped years of simmering unrest at this small, little-known, public-private partnership (formerly a state agency within the DCA). To understand what the fuss is all about, understand two things:
One: As DCA's strategic plan sums up: "Affordability is the biggest housing problem facing the state." To keep housing costs at no more than 30% of their monthly income, workers earning minimum wage would have to put in 94 hours a week to afford a $628 two-bedroom apartment. So to help provide affordable housing, the government creates incentives: Developers apply for tax credits and bond money from the housing corporation. In exchange, they agree to set aside some, or all, of the units they build for people whose incomes fall below some established percentage of an area's median income. In 1998, the corporation's programs helped construct more than 25,000 apartment units and homes statewide.
Two: There's a lot of money at stake. Government incentives make affordable housing a very profitable business. Florida Housing hands out more than $200 million of tax-exempt bonds and federal tax credits to housing developers annually. Developers who receive tax credits from the corporation can sell them to investment syndicates for cash upfront, making the credits akin to free money. There's more: In addition to development fees reaped during construction, firms can make money managing a property and then profit again by selling it.
How attractive a business is affordable housing? For 1998, the corporation received applications for $72.6 million in tax credits and had only $10.7 million to give. Only 11 projects out of 90 proposals got any money.
The intense competition and the number of regulations in the state's administrative procedures laws -- unlike any other in the nation -- have turned the process of deciding who gets the money into a bureaucratic circus. An arcane system of application, grading and appeals [see sidebar, page 68] means developers can lose out on millions literally because they type in a number on the wrong line in the application.
Leigh takes over
In that heated atmosphere, Susan Leigh became a match in dry tinder. By all accounts, Leigh, 48, is a smart, hard-charger who knows housing through and through. She has bachelor's and master's degrees in housing, and spent two years as governmental affairs director for the Florida Home Builders Association. In five years at the Florida Housing Finance Agency, she worked her way up to chief development officer before leaving to take the top housing job in Texas.
But she was also no stranger to controversy. She left the Texas job after the state Senate there didn't confirm her appointment. The biggest complaint: She was too cozy with developers. Leigh ran the office as if the housing programs were there to benefit developers, not low-income citizens, says Texas housing advocate John Henneberger. She resisted efforts to work with non-profit groups and target programs at lower-income people, he says. Henneberger also recalls "a cadre of folks" who followed Leigh from Florida to Texas, looking for work. These included former Pinellas County legislator Jim Frishe, Leigh's one-time boyfriend, and Winter Park-based America's Preferred Homes. A Preferred Homes exec "gets off the plane and suddenly he gets tax credits," Henneberger says.
Leigh had problems with her Texas staff, as well. One deputy who resigned on Leigh's watch complained about Leigh's management style and furniture expenses. "I believed Susan was a potential powder keg," says the former deputy, Ginger Brown McGuire. "At that time, I couldn't afford to be around her if she blew up."
Leigh dismisses those allegations as creative rumor-mongering. Frishe came simply to visit her, not look for work, and Preferred Homes was already doing projects in Texas when she arrived. She says the Texas agency was a complete mess when she came, and her failure to be confirmed boiled down to a political dispute between then-Gov. Ann Richards and the state senator who controlled Leigh's appointment.
Returning to Florida, Leigh was named head of the Florida Housing Finance Agency; a 1996 job evaluation by the DCA called her a "remarkably talented administrator." Her staff, however, found her difficult to work with, and many complained privately about her freewheeling habits. Leigh spent generously on travel; for example, she scheduled bond closings in New York City around when she wanted a haircut from her favorite stylist there.
Leigh's chief critic on the board of the corporation was Charles Lydecker, a senior vice president with Brown & Brown Insurance. He began to have questions about Leigh almost immediately after he joined the board.
Lydecker's concerns came down to a belief that Leigh had too much power and often left the board in the dark. "There was always the 30% we weren't hearing," Lydecker says -- about everything from spending habits to policy decisions. For example, just before the agency became a corporation, Leigh leased a new floor for the office and spent $146,000 on new furnishings without the board's approval.
More disturbing to Lydecker was learning that Leigh was hoarding documentary stamp tax dollars that the state collected to give to municipalities for local affordable housing programs (the State Housing Initiatives Partnership or SHIP). The law requires all the money go to the municipalities, but by June 1999 the corporation's SHIP kitty held an estimated $48.6 million. Leigh told the board the money was for disaster relief; and, in fact, $10 million went out to fire-damaged communities in central Florida in 1998. But that wasn't her decision to make, Lydecker says. "It's the municipalities' money. She arbitrarily decided not to give that money out." (After Lydecker raised the issue, $33 million went out last summer.)
In Leigh's defense, she had a tough job. The subject matter was arcane, developers were always complaining, and for a long while the board of directors wasn't always interested in helping. "The board liked to come in and meet and go home by noon on their airplanes," says Jim Murley, who sat on the board while he was DCA secretary. "They didn't want any more work. They'd look to Susan to find creative solutions." Leigh, he says, was "brilliant" and worked hard to make deals succeed. "Sometimes in doing that, people perceived she was bending for a particular project," Murley says. She wasn't, he says.
Leigh says she pushed her staff and developers hard to get the best housing deals for citizens, and admits her brusque manner often ruffled feathers. She says her differences with Lydecker stemmed from a personality conflict and the fact that he (coming from the private sector) didn't always understand how government bureaucracy worked and, understandably, was frustrated by it.
The accusations of bias and the endless appeals are the price Florida pays for an open, competitive system that makes it "the fairest in the nation," Leigh says. During her tenure, the corporation received high bond ratings from Wall Street and a national government innovation award. "It was a long run and a successful run," Leigh says. "These issues that take on a life of their own are so insignificant in the big picture of what was accomplished in this agency."
Certainly Leigh herself wasn't the only source of bad feelings among developers. At a board meeting in early 1998, then-Chairman Jay Ramsey challenged the credit underwriting report of a Collier County project called College Park. Developers listening in the audience glanced at each other with knowing looks. Their belief: Ramsey was trying to get College Park knocked off the list to make way for another Collier County project that involved Tommy Tompkins, another former chairman of the agency's board. Tompkins had some history of his own: He is a housing developer himself, and allegations had swirled during his tenure on the board that the corporation provided funding for projects in which he was involved.
Amid a 1996 Inspector General's inquiry into the conflict-of-interest questions, Tompkins was not re-appointed to the board. Nothing came of the Inspector General's inquiry. Two years later, Tompkins and the corporation came under fire because Tompkins sat on the board committee that designed the rules for how developers would win tax credits and other state loans in the next year's cycle. Other developers complained that Tompkins' insider role would give him a competitive advantage in structuring deals likely to win funding. Ultimately, Tom Lang, the corporation's long-time outside counsel, determined that Tompkins' role was not a conflict of interest.
Trust and distrust
College Park's developer, Paula Ryan, knew all this when she went to the podium to defend her project, but stuck to the merits. "It was like the showdown at OK Corral," she says. "Everybody knew what was going on." Ryan prevailed, and her project proceeded. (For his part, Ramsey says the idea he was questioning College Park to benefit Tompkins is "bull stuff.")
If Leigh wasn't the only reason why participants in the system didn't trust it, she became the focal point of complaints. Many observers of the corporation say Leigh began to run the housing finance agency as her own personal fief. After the agency became a corporation, Leigh angled, unsuccessfully, for a roughly $35,000 raise to around $140,000, and pushed, successfully, to have her title changed from executive director to CEO. She seemed to thrive on being able to grant favors to legislators, and she bragged about her connections with certain lawmakers, Lydecker says. "She liked being a queen bee," he says. "Very inappropriate for an agency head." All in all, he says, Leigh enjoyed her power too much, especially when it came to deciding which developers' projects got money and which didn't.
The last two years of Leigh's tenure saw the agency's credibility dissolve amid paranoia and distrust. The story centers around the 1998 cycle for awarding bond financing for multi-family housing, and a Longwood company called Worthwhile Development.
Worthwhile first applied for bond money in late 1996 -- unsuccessfully. For help, Worthwhile's president did what most developers do: He hired a consultant, in this case Ken Powell, to work with housing finance staff and resolve problems with the company's applications. Powell didn't get very far, mostly, he feels, because of a personality conflict between him and Leigh.
Leigh, meanwhile, was having problems of her own. During the legislative session of 1997, she was trying to pass the law that converted the housing finance operation from a state agency to a public-private corporation. The change was meant to streamline the way housing finance bonds got issued plus give staff more control over budget and operations. But the "corporation bill" had stalled, based in part on opposition from elected officials who believed the bill gave the corporation too much freedom.
Consultant Powell says Leigh asked him to help with the corporation bill, which he did. Among other things, Powell arranged a meeting between Leigh and the bill's opponents and helped them "get comfortable" with its provisions. The bill finally passed, and the agency became a corporation in January 1998.
For Powell, working on the bill allowed him to establish a rapport with Leigh that he hoped would reflect well on his client, Worthwhile. "That was the way Susan Leigh worked," Powell says. "She had control over it." It seemed the right thing to do: Powell says Leigh herself, in meetings with him, sent a clear message that if the corporation bill passed, whatever roadblocks Worthwhile's projects faced would disappear.
But they did not. The Worthwhile Development applications continued to run into problems, many of which didn't make sense. For example, on a project called Heritage Park, staff reported that a required survey was not included in the application; then later, staff said it had simply fallen out of its plastic sleeve. Leigh wouldn't take Powell's calls.
"Lies," says Leigh. Worthwhile consistently failed to complete applications properly, she says, and was treated like anybody else who did the same. "Instead of dealing with that, they went political, and they continue to bully people around to try to get what they want," she says. "If what (Powell) says was true, he'd have gotten what he wanted."
Meanwhile, Leigh went to a February 1998 board meeting in Tampa to get approval for the corporation's rankings of proposals seeking bond money. With only so much money available, a project's ranking determines whether it gets funding that year. But Leigh didn't bring the list with her -- she asked the board to approve the rankings sight unseen. At least one board member, Lydecker, objected, and the list was faxed over.
In the fall of 1998, however, more funding became available, and some developers who didn't make the initial cut expected to get funding based on their ranking on the first list. But when the corporation distributed the new money, it "re-ranked" projects to spread the money around different counties and different developers. The net effect: Being 12th in the original ranking didn't mean you were 12th in line to get funding.
The disjointed process infuriated developers who had relied on the original list. "Everyone hears Susan Leigh did the list as she wanted it and then assigned the weight," says one developer. "The perception is that the favored developers knew what the weights would be or influenced the weighting behind closed doors." Many, including Lydecker, allege in retrospect that Leigh wanted the board to approve the list without seeing it back in February because she planned to fiddle with the rankings, which Leigh vehemently denies.
No one, however, was angrier than Worthwhile, which had applied for bond funding for the 1998 cycle, seeking money to help it build two apartment projects. Frustrated, Worthwhile sued the corporation, and word of the Powell-Leigh "deal" began getting around. Lydecker says he has no trouble believing that Leigh entered into a quid pro quo. Former board Chairman Clark Bennett, however, says such charges are another example of developers' creativity in inventing reasons for their lack of success in getting their projects funded. He recalls a board meeting during which he and another member took a restroom break at the same time. Later, he heard developers spreading the word that the two men had conspired on a funding deal in the bathroom. "It was absurd," he says.
With the process in a shambles, Leigh quit last spring. She says she wanted to spend more time with her family, and she recognized she had lost credibility. Seibert, the DCA Secretary, then brought in Brad Baker to take her place and try to rebuild the agency's reputation.
Baker, of Sarasota, made his fortune in the computer business by age 26, then got into politics. He spent a year in Washington, D.C., on a White House fellowship working for the U.S. Department of Treasury and the Resolution Trust Corp. In 1992, he ran unsuccessfully for Congress against Dan Miller. Later a friend introduced him into the business of affordable housing in Kansas. In September, Baker became the corporation's third executive director in its 20-year history.
By December, four months into the job, Baker had gotten quite an education. He was aghast at the number of lawsuits the corporation was dealing with and focused on whittling that down. He also moved to plug some obvious problem-causing holes in the application process: For example, as a result of the dispute in the Worthwhile case over a missing survey, the corporation now places original applications in a new "safe" room with computer-controlled entry and uses copies for scoring purposes. Says Baker, "I want to eliminate the possibility of anyone questioning the integrity of the organization."
The Worthwhile Development suit also gave Baker a chance to "figure out some of the leaks in the organization." He believes some developers were getting early knowledge of information such as when additional bond funding would be available; such information could give them an unfair advantage in preparing applications for funding. Baker wouldn't talk about individual cases, but says some of the December firings and resignations involved people who he believed were giving out information improperly.
Those firings, however, ruffled the feathers of some on the board who say Baker didn't communicate well before he acted. They were also perturbed at an early draft of the corporation's legislative agenda, and at Baker's plans to buy a phone system that would allow closer monitoring of employees.
Simplifying the system
Baker says he's concentrating on simplifying the system of awarding money to developers and refocusing the board of directors so they spend less time on details (should a developer be allowed to install pantries in a kitchen instead of storage cabinets, for example) and more time on matters of policy (how can the state promote affordable housing in inner cities?).
Actually, Lydecker initiated the effort in June, as the new chairman of the board, with some important changes to the 2000 application cycle. Remember the scrivener's errors that could mean the difference between success or failure? Developers now are given a "cure period" during which they can correct minor errors, and there are new limitations on penalties for such mistakes.
At a board retreat last month, Baker planned to introduce a plan for revamping the appeals system to speed the process. Baker believes he can come up with a way to satisfy Florida's rigorous administrative code while making it less cumbersome. In Kansas, he says, a developer could apply, get his tax credits and start his project in the same month. In Florida, that takes a year. "A developer wants to be treated fairly, but once we've gotten past that, a developer only makes money once they actually do the project," Baker says.
With the process so competitive, however, can any amount of tinkering eliminate suspicions of favoritism? Bennett, the former chairman, thinks not. "It's going to be that way as long as there are as many bucks out there to line the developers' pockets as there are," he says. "I wish Mr. Baker the best, but if he survives for any length of time and there's a new administration, you're inevitably going to hear bad things about him, too. It follows."
Housing Finance Corp.'s Grading System: 'The Craziest Thing'
Florida Housing Finance Corporation hands out a multitude of incentives to developers to build affordable housing. The biggest: federal housing tax credits and tax-exempts bonds.
To receive tax credits, developers must submit up to 24 forms and reams of information, and the corporation's staff scores each form. The slightest error -- a number transposed, a document out of place -- means the developer loses points. The system is rigid to the point of absurdity: The corporation in 1998 docked a proposed West Palm Beach project called the Rosemary 15 points because the city's mayor had signed a particular form instead of the highest-ranking administrator, as required. Never mind that in West Palm Beach, the mayor is the highest-ranking administrator. Nancy Graham, then mayor, was not amused. "It was the craziest thing I have ever seen," she says. That same year another project lost 22.5 points because an item was typed on the wrong line.
This is more than a matter of nitpicky bureaucracy. Last year, the point difference between the lowest-ranked large-county project to get funded and the next one on the list: 0.68 -- less than one point.
As rigid as the scoring system is, it's only the beginning of the process. The system doesn't allow developers to appeal just their own scores; a so-called "competitive appeals" process also allows developers to challenge the scores awarded to their competitors. (The corporation staff dubs these appeals "rat letters.")
The process can get nasty: Developers go to some lengths to find errors in competitors' applications, typically hiring legal and technical experts to comb through documents. Ed Kinsey, who won tax credits for the Mangonia Residence apartments in Palm Beach County, says he once caught a competitor flying over his site, looking for anything that would help catch Kinsey in a mistake.
Despite efforts by the housing corporation to simplify the system, the administrative burden remains intense: In 1998, developers filed roughly 400 appeals. In 1999, the number jumped to about 600.
The millions at stake and the intensity of the battles mean some developers inevitably feel wronged. "There were constant accusations of partiality and favoritism by staff or board members," says former board Chairman Clark Bennett. There was "not a scintilla" of truth to them, he says. But the subjectivity built into the scoring process -- the staff scores the projects and also decides the appeals -- has fueled feelings that certain builders get special treatment.
Similar problems plagued the corporation's bond program, in which the state loans the proceeds of tax-exempt bonds to developers at lower-than-market interest rates. Deciding who gets bond money is even more subjective than scoring for tax credits; the housing corporation staff ranks proposed housing developments based on board-approved criteria. One year, for example, the corporation may decide to target medium-size counties over small counties, or to give extra credit for elderly projects. Then the corporation, starting at the top, goes down the list of proposals until the money runs out. The criteria change every year, as do how they are weighted.
The bond program has become almost as competitive as the tax credits; developers invest tens of thousands of dollars in applications and wait with bated breath for the annual rankings to be released. Again, developers who get left out complain of unfair treatment.
Observers like Bennett contend there's not much anybody can do to eliminate such complaints, as long as there's money to be made. And, they note, the competition has its positives: Florida has some of the highest-quality affordable housing in the U.S. because developers know they won't get funded without extra amenities or additional set-asides for lower-income citizens.
Consultants: Hired Guns
One group has benefited from the contentiousness and complexities of Florida Housing Finance Corporation programs: the cottage industry of consultants and lobbyists who specialize in completing applications and shepherding them through the process. Most developers feel they won't get funded without a hired gun: "It's so cutthroat," says Ed Kinsey, a south Florida developer.
Among the most successful consultants are some former housing finance corporation employees. At the top of the list is Mark Hendrickson, the agency's first executive director, who resigned in 1994 after running it for 13 years. That expertise makes him the go-to guy for developers applying for corporation funding, and his biggest clients include the best in the business.
But many other developers secretly complain that his former position and the long-time relationships he has with people associated with the corporation give his clients an unfair leg up. For example, Leigh got her start at the corporation working for Hendrickson. Later, when she became executive director, Hendrickson ended up representing some former clients of Leigh's consulting business. Others point to Hendrickson's relationship with Tom Lang, the corporation's long-time outside counsel -- the two went on a fishing trip together.
Says Hendrickson: "People hate to say they lost because they screwed up. They'd rather tell the boss they lost because they got screwed." Hendrickson says his clients have lost out on funding just like other developers, and that there's no magic to why they often win: They're good at what they do and so is he. But even Hendrickson sees problems with the way the system worked, or didn't work. "It needlessly made everyone paranoid."
Other consultants include former Housing Finance deputies Priscilla Howard and Candy McKinney-Coates. Leigh herself is consulting for housing agencies in other states and local governments in Florida.
