Homelessness: The Low Income Housing Scandal

Poverty in America

Frontline (2017)

Film Review

Poverty in America is about the massive corruption scandal behind homelessness and the dearth of affordable housing for low income Americans.

Despite the nearly ten years that have passed since the 2008 economic crisis, 2.5 million Americans are made homeless through home eviction every year. The limited stock of affordable housing has no way of absorbing this many new renters. This, in turn, drives up rents at a time when real wages are decreasing. In many cities, families are forced to pay over 50% of their income in rent – a precarious situation leaving them one family emergency away from the streets.

This documentary focuses on two grossly inadequate federal programs dedicated to increasing access to affordable housing. The first is the Section 8 voucher program enacted in 1968. Under this program, the Department of Housing and Urban Development (HUD) awards vouchers to low income renters that pay the different between the rent a landlord charges and the rent a tenant can afford based on income.

There are currently 2 million Americans on the waiting list for Section 8 vouchers and only 25 percent will ever receive vouchers. The filmmakers follow three women who have waited six years or longer to qualify for Section 8 vouchers. None of them can find a landlord willing to accept their voucher within the 90 day limit they are given.

The second federal program Frontline explores is one in which the IRS allocates tax credits to states to grant to developers – who, in turn, sell the credits to investors. An entire tax credit industry has grown up around this scheme. Owing to inadequate IRS monitoring (only seven companies have been audited in 29 years), the scheme has been plagued by bribery and kickback scandals.

In Florida, for example, developers routinely cheat the program by over inflating the cost of development projects and either pocketing the difference of siphoning it off to shell companies (including one in Costa Rico specifically created for this purpose).

Despite heroic efforts of a handful of Department of Justice attorneys and Senator (R) Charles Grassley from Iowa, there seems to be little interest on the part of federal or state authorities to end this corruption. The IRS and HUD declined to be interviewed for this program.

Marijuana Cash-Only Business in Colorado

 

Owing to recent legalization, recreational marijuana use is a growth industry in both Colorado and Washington State. In Colorado alone, annual turnover is projected to reach $10.2 billion by 2018. Yet owing to archaic federal banking laws, it remains a cash-only industry.

A BBC Business report gives the example of Pinkhouse Blooms. A chain of five marijuana dispensaries grossing over $100,000 a day, they remain a cash-only business. No Denver bank will give him a checking account. As Avinash Tharoor reports in the Huffington Post, the FBI is pursuing Bank of America, JP Morgan and HSBC for laundering billions of dollars of Mexican cartel money. Meanwhile they thumb their nose at legal marijuana merchants.

Relying on armored cars and armed security guards, owner Elliott Klug uses cash to pay his suppliers and employees – as well as $35,000 in monthly sales tax and $45,000 in state licensing fees.

Federal Laws Encourage Money Laundering

Although the Obama administration has directed federal attorneys not to prosecute marijuana users, growers, and distributors in states which have legalized marijuana (for recreational and/or medical use), banks that do business with marijuana producers and distributors remain in legal limbo. At present all federally insured banks that accept deposits from “drug dealers” are subject to suspension of their banking license and criminal prosecution under federal drug racketeering laws.

Both the Bank Secrecy Act and the Anti-Money Laundering Act were enacted to prevent money laundering. Ironically they do just the opposite in the eleven states with legal marijuana dispensaries. Cash-only businesses are notoriously susceptible to both tax evasion and money laundering. Without bank records, there’s no audit trail. Federal and state authorities only have the owner’s say-so for the amount of business they take in.

In February the Obama administration issued “guidance” that the Justice Department and FinCEN (under the Treasury Department) is “unlikely” to prosecute banks provided they meeting specified conditions, including reporting suspicious criminal activity to law enforcement. Unfortunately this “guidance” offers no real legal immunity, as all marijuana use is still illegal under federal law.

In 2011 Congressman Jared Polis (D-Colorado) tried to legislate immunity for banks doing business with medical marijuana dispensaries with his proposed Small Business Banking Improvement. The bill died in committee, and it doesn’t appear that similar legislation is forthcoming any time soon. Not if a myopic press release by Senators Charles Grassley and Diane Feinstein, as co-chairs of the Senate Caucus on International Narcotics Control, is anything to go by.

Their joint letter and press release castigate the Obama administration for “assisting those businesses that seek to inject the proceeds of criminal activity into the nation’s financial system.”

Makes you wonder when Feinstein was last in California, the state she supposedly represents. California was the very first state to set up legal marijuana dispensaries in 1996 when voters passed an initiative legalizing marijuana use for medical purposes.

Big Boost from State Marijuana Tax

Both Colorado and Washington have suffered major budget difficulties since the 2008 downturn. And in both states, legalizing (and taxing) recreational marijuana use promises a major cash injection for state coffers.

In Colorado, retailers pay a 10% marijuana tax in addition to 2.9% general sales tax to the state. County and city authorities may charge additional tax. In Denver, for example, the total sales tax can reach as much as 21%. This is in addition to a 15% excise tax charged on marijuana as it leaves the cultivation facility.

Washington charges a 25% excise tax on sales at each transaction level: from the producer to the processor, the processor to the retailer and the retailer to the customer. This is in addition to B&O (Business and Occupations) and sales tax all businesses pay. As of July 8, producers will be licensed by the Washington State Liquor Control Board to sell directly to consumers.

Small Local Credit Unions Do Business with Washington Dispensaries

In Washington State, two brave local (federally insured) credit unions (Salal Credit Union and Numerica Credit Union) have announced their intention to do business with marijuana dispensaries when they begin operation July 8. Unlike the big boys, they aren’t laundering money for the Mexican cartels or, presumably, speculating on derivatives and food futures

photo credit: Wikimedia Commons

Cross posted at Veterans Today