Steve Sterquell, the one-time head of the now bankrupt Amarillo, Texas nonprofit affordable housing corporation American Housing Foundation, gave out nearly $370,000 to Texas elected officials over eight years according to the Amarillo Globe-News. This made Sterquell number 65 on the 2006 list of Texas campaign contributors according to Texans for Public Justice, a campaign watchdog group.
Sterquell died in an April 1 car crash that has been ruled a suicide. Bankruptcy proceedings for American Housing Foundation began in April of this year.
The nonprofit owns 78 apartment projects renting to low-income persons, 52 of which are in Texas. The Amarillo Globe-News has posted a list of the apartments.
This situation raises many questions.
1) Why did a Texas nonprofit housing corporation head give so much in political contributions to Texas state officials?
We will probably never know the true answer, but here is some speculation.
The largest contributions were made to the two most recent Texas Comptrollers. The Texas Comptroller’s office oversees the status of Texas corporations. According to the Amarillo newspaper…
In Texas alone, at least 160 for-profit and nonprofit limited partnerships, limited liability companies and other business entities can be tied to AHF, its office suite at 1300 S. Washington St., to Steve Sterquell or his son, Steve “Sterk” Sterquell II.
Contributions were also made to the Texas Attorney General, the state’s chief civil law enforcement official. It would be up to the attorney general to go after a statewide nonprofit corporation for violation of state law.
The governor and a local state representative also received contributions from Sterquell the paper reports. In recent years the Texas Legislature has dealt repeatedly with the question of property tax exemption for nonprofit Texas housing corporations. The Legislature also makes the ultimate decision on the amount of tax-exempt bond financing available to corporations like American Housing Foundation along with the rules on who the recipients of this state authorized bond financing can rent to as tenants and how much rent the tenants can be charged.
2) Did city and state housing officials exercise due diligence in providing bond and tax credit funding totaling in the hundreds of millions of dollars to American Housing Foundation?
This question has a simple answer is self evident — “no.”
It is clear that something was deeply wrong with the finances at the American Housing Foundation. It is unlikely that this happened overnight.
Each time AHF went to state or local officials seeking housing tax credits or tax-exempt bond financing to purchase another apartment project those officials had an obligation to examine the condition of the borrower (in this case AHF) who was asking for public funds. Whatever process state and local officials used to determine that AHF was creditworthy obviously came up with the wrong answer.
It was common knowledge in the affordable housing world that AHF was an unusual nonprofit. It has been the subject of rumors and speculation for years. AHF was purchasing properties at a rate far greater than any other Texas nonprofit. Then there is the matter of the corporate airplanes that the nonprofit owned and operated for its executives, and occasionally giving a state official a ride too. I can’t think of another example of a nonprofit low-income housing corporation that maintains a fleet of corporate airplanes. This was no secret. It should have raised flags. But it did not.
Finally, there were the management problems which plagued AHF owned apartments. My colleague Karen Paup worked, along with the leaders at Austin Interfaith (a grassroots community advocacy organization) to try to get government officials to force AHF to clean up deplorable substandard living conditions at the corporation’s Fairway Village apartment project in Austin. The same government officials who readily handed over millions of dollars in government authorized loans to AHF claimed to have little authority over the nonprofit so far as enforcing minimum housing property standards when the tenant’s health and safety were imperiled.
This tells me that the relationship between government officials and this large nonprofit corporation were, at the least, far too informal. American Housing Foundation is not the only nonprofit or for-profit corporation that enjoys a too trusting and too cozy relationship with public officials overseeing affordable housing programs.
3) What will become of the properties AHF owns and the the low-income tenants who live in the apartments?
Unfortunately, I fear that we know the answer to this question as well.
If the creditors are successful in the bankruptcy proceedings then the nonprofit will lose the housing. In many cases, the rent restrictions, monitoring requirements and long-term affordability covenants the corporation entered into with government housing financing entities will be erased in the bankruptcy.
If the use restrictions are wiped out by bankruptcy one of three things can happen.
- If it is in the creditor’s financial interest they might operate or sell the property while maintaining it as affordable housing.
- If the property is really nice, and a desirable place to live, then it will likely be worth more if it is operated as market rate housing. In this case the rents will go up and low income tenants will be forced out.
- If the property is undesirable, or if the creditor is lazy or incompetent, then the property is likely to be allowed to deteriorate in both its physical condition and its property management. In which case these properties will become a blight upon both the tenants and the surrounding community.
This bankruptcy could not have occurred at a worse time. Because of the current financial crisis gripping the country it is extremely difficult to find financing to purchase multifamily housing. This is doubly a problem for affordable housing. The lack of available capital to allow for the purchase of these apartment projects by new, responsible owners will likely consign many to a path of deterioration and decay.
There are clearly many lessons to be learned from this fiasco.