Profits Made in Carter Years : Playing Favorites at HUD: Latest Twist on Old Game
When Ronald Reagan was elected President in 1980, developer John L. Allen told a city official in Durham, N.C., that his firm would have to “switch aisles” to win federal funds for a housing project for the elderly.
Replacing a Democratic Administration with a Republican one meant wrenching changes in the nation’s housing policy, a new cast at the Department of Housing and Urban Development and profitable new opportunities for developers with the right connections.
But not everything changed.
Indeed, evidence suggests that the Reagan crew simply added a new twist to the old game of using influence and favoritism in awarding HUD grants and subsidies--though even conservative analysts agree that the Reagan Administration system led to abuses of unprecedented magnitude.
As the current congressional hearings on HUD agency practices have amply demonstrated, winning housing grants in the Reagan years depended heavily on hiring the right Republican consultant, such as former Secretary of the Interior James G. Watt or former Florida Republican Party Chairman William L. Taylor.
But the congressional investigators have heard little testimony about the fact that from 1976 to 1980, while Democrat Jimmy Carter was President, developers with Democratic ties grew rich building and rehabilitating housing for the poor and elderly with millions of dollars in HUD funds. Instead of hiring politically connected consultants, these developers contributed to the right campaigns.
Particularly in the last 18 months of his presidency, according to one former senior Carter strategist, Carter “littered the country” with HUD grants in an attempt to rescue his failing campaign.
Real estate and housing developers are traditional bankrollers for politicians because they depend on favorable government decisions at almost every stage of a project and the stakes can be enormous.
HUD was thrust into the relationship because it could loan developers money at low rates and provide subsidies that guarantee the financial success of housing projects. As a result, candidates for the presidency and seats in Congress were able to count on hefty contributions from developers.
“The fact is that the system was designed to have influence driving it because profits are so big and because those on the supply side of housing find it in their interest to compete in this way,” said Stuart M. Butler, director of domestic policy studies at the Heritage Foundation think tank in Washington. “This is sort of endemic to a system that operates on the thesis that you help low-income people get housing by enriching developers.”
Developer Funds
For instance, 70% of the money Carter raised for his reelection campaign in Massachusetts in 1979 came from HUD-connected developers. And every developer who contributed got a new HUD project, according to a 1980 study by the Boston Herald American.
One Carter backer who got new HUD projects under his Administration was Gerard F. Doherty, a veteran Boston developer and lawyer, who headed Carter’s 1976 campaign in New York, where he won a crucial victory.
Chicago developer Thomas B. Rosenberg--who contributed thousands of dollars to Carter and raised an estimated $700,000 for the 1984 presidential bid of Walter F. Mondale, Carter’s vice president--obtained HUD approval for 35 housing projects across the country during the Carter years.
Large contributions to Democrats also have helped open doors for A. Bruce Rozet, whose Associated Financial Corp. of Santa Monica and various affiliates are among the nation’s biggest syndicators and managers of HUD housing.
One of Rozet’s favorite candidates is Sen. Alan Cranston (D-Calif.), whose position as chairman of the Senate subcommittee that oversees housing gives him enormous influence at HUD. Rozet and a handful of associates have contributed more than $17,000 to Cranston in the last decade, federal election records show.
Lawrence B. Simons, federal housing commissioner under Carter and now a Washington lawyer, acknowledged in an interview that political contributions helped developers with the Carter Administration.
“As long as you have a democratic process, there is going to be politics,” Simons said. It was “all part of the political process.”
Not Illegal
This does not mean that the politicians, government officials or developers were doing anything illegal. Congressmen argue that HUD projects help their constituents. Developers contend that contributions represent support for friendly politicians, rather than a nefarious quid pro quo.
“I wanted Carter to win because I thought the FHA (Federal Housing Administration) would be stronger under Carter than it would under Reagan,” said Rosenberg, who added that he did not submit another application to HUD after Carter lost.
Similarly, Rozet maintained that his support of Cranston and other Democratic candidates stemmed from shared ideals and brought him only a “receptive ear” for his ideas on housing.
“What is important is to have input into the legislative process,” said Rozet, who was appointed by Senate Majority Leader George J. Mitchell (D-Me.) to a national commission whose report forms the basis for pending legislation to extend tax credits for investors in low-income housing.
But it does appear that campaign contributions provided access to decision makers in the Carter Administration in much the same way that hiring the right consultant did in the Reagan era.
Several factors, however, appeared to have lessened the impact of influence under Carter compared to Reagan.
“The big difference is that the people who were in HUD under the Carter Administration had some interest in the subject and were interested in serving the constituencies the department worked with--cities, poor people and the housing industry,” said Anthony Downs, a senior fellow at the Brookings Institution.
‘Couldn’t Give a Damn’
“The Reagan Administration put people in HUD who couldn’t give a damn about housing or HUD policies, and when you put those kinds of people in charge of a program, good things don’t happen.”
In addition, the level of HUD funding under Carter was far higher and it was easier to help friendly developers without slighting those with no connections. HUD housing programs for new construction and major rehabilitation were eliminated under Reagan and the department budget was slashed.
Also, local housing authorities had a stronger say in choosing projects in the Carter period, which diminished Washington’s influence. From 1983 on, a change in the law meant that key decisions on awarding the dwindling supply of HUD funds were made at headquarters.
‘Sort of Popped Up’
“Washington became sort of a bottleneck and some political consultants just sort of popped up,” said Doherty, who cut back on his HUD involvement during the Reagan years.
Indeed, the concentration of decision making in Washington and the far smaller pool of funds helped spawn a cottage industry of instant consultants, often without any housing expertise, who became necessary to get HUD funds.
The role of the consultants appeared to dumbfound Rep. Barney Frank (D-Mass.) during the current hearings on HUD when he was questioning a developer who paid $300,000 to Watt for bringing her project to the attention of former HUD Secretary Samuel R. Pierce Jr.
“You would rather pay $300,000 than ask your senator or congressman?” Frank asked Judith Siegel. “The reason I say that is that, you know, sometimes I’m in a bad mood and people call me and I’m grumpy, but geez, I never think I’m $300,000 grumpy. I mean, I can’t imagine that someone would say: ‘Well I could call my congressman or I could pay 300 grand and boy, he might be in one of his moods and I’d rather pay the 300 grand.’ ”
“I think the system is very bad, too,” Siegel responded.
Boston developer John Allen anticipated that Reagan’s victory would affect his 2-year-old effort to obtain HUD financing to turn an abandoned hosiery mill in Durham, N.C., into housing for the elderly.
Paul Norby, Durham’s top planning official, recalled in a recent interview that Allen had said he would have to “switch aisles” and rely on a partner with better Republican ties.
Allen did not return telephone calls to his Boston office. But records show that the project languished until Louis Kitchin of Atlanta, a Reagan campaign strategist with no housing experience, was hired as a consultant and Durham’s new Republican mayor, Charles Markham, a one-time associate at the same law firm as HUD’s Pierce, began actively supporting it.
HUD records and congressional testimony indicate that Pierce ordered a generous package of benefits for the project in 1985 over staff objections and despite the refusal of his assistant secretary for housing to approve it.
Because Pierce told the House subcommittee that he was not involved in specific projects, the Durham decision has emerged as one focus of the inquiry.
In his congressional testimony on May 25, Pierce tried to shift some of the spotlight to Democrats who benefitted through HUD under Carter. He said that, when he came to Washington to join the Reagan Cabinet in 1981, lawyers told him that HUD funding for new construction was being “sold” for $1,000 to $2,000 a unit.
But Rep. Frank--a former chairman and longtime member of the housing and community development subcommittee of the House Banking, Finance and Urban Affairs Committee--berated Pierce for bringing up the issue and criticized him strongly when the former secretary refused to identify specific Democrats who benefited.
‘Let It Get Worse’
Rep. Christopher Shays (R-Conn.), who has been an outspoken critic of his own party’s operation of HUD, said in an interview: “The Reagan Administration had its chance eight years ago and instead of ferreting out waste, fraud and abuse at HUD, they just let it get worse. There is no doubt in my mind that there were abuses in the Carter Administration, but that happened a long time ago and we are concentrating on the last three or four years.”
He predicted, however, that some Democratic developers may wind up before the subcommittee through their use of Republicans “who opened the doors.”
Some Democratic developers withdrew from the HUD scene when Reagan was elected and others who have remained have taken their lumps.
Called ‘Scandalous’
During a tour last month of a Washington housing project owned partly by Rozet, HUD Secretary Jack Kemp called the complex “scandalous” and threatened to bar the owners from doing business with the department if conditions were not improved.
Similar criticisms have been aimed at a San Francisco project, Geneva Towers, partly owned by Rozet. Robert J. De Monte, HUD regional administrator, vowed in an interview to foreclose on the property by September unless the partnership makes substantial improvements.
But Rozet blames the Reagan Administration for failing to provide enough money for the Washington complex and said that his partners have responsibility for improving Geneva Towers.
Since it started in May by examining allegations of favoritism in one HUD program between 1983 and 1988, the subcommittee’s inquiry has broadened dramatically, sometimes using information provided by Democratic developers.
Rozet acknowledged in an interview that he has provided “unsolicited” information to members of the subcommittee.
Providing Information
“Nobody is relying on me,” he said. “They are asking lots of people for help. I am merely providing information gratuitously.”
A source close to the investigation said that the California developer offered a tip about a Florida project involving Republican Carla Anderson Hills, the U.S. trade representative and former HUD secretary, who has done legal work for developers.
Rozet did say that he has complained to HUD about the project, in which his proposal to develop a piece of property in Jacksonville with HUD assistance was rejected in favor of one backed by a developer represented by Hills.
In testimony before Congress, Hills denied any impropriety in the transaction and said that she billed it at the hourly rate she charged legal clients, rather than at the $1,000 a unit that was the going rate for consultants during the Reagan Administration.
Staff writers Douglas Frantz reported from Washington and Dan Morain from San Francisco.
