Since Claire McCaskill joined the Senate, her husband Joseph Shepard has made at least $11 million through a business that buys up tax credits awarded to Missouri affordable housing developers and sells them to high-income entities seeking tax relief.

Shepard's company, the Missouri Tax Credit Fund, operates within the Low-Income Housing Tax Credit (LIHTC), a $9 billion a year federal program that awards tax credits to developers building qualified affordable housing projects. The LIHTC program is designed for developers in need of cash to attract investors for projects by offering them tax credits.

Analysis by policy institutions and government investigators, however, has found the LIHTC program to be inefficient, with much of the money—intended for affordable housing—ending up in the pockets of middlemen syndicators who connect developers with investors, earning lofty fees from both sides.

Shepard plays the lucrative role of syndicator and has made millions off the government program.

Records available on the Missouri secretary of state's website show Shepard’s company acquired tax credits awarded to at least 57 different affordable housing projects in Missouri between 2006 and 2017. Together, the 57 projects were awarded $273.3 million in LIHTCs, a review of the state's tax credit database found.

It can't be determined exactly how much Shepard has made off the tax credit business, due in part to a lack of transparency in the transfer of tax credit, but also because Senate financial disclosure reports don't require specific figures on incomes exceeding $1 million.

McCaskill's disclosures show her husband earned "over $1 million" from the Missouri Tax Credit Fund for 11 consecutive years from 2007 to 2017, meaning that he's earned at least $11 million. McCaskill files taxes separately from Shepard and has never released her husband's returns, which would contain a more specific figure.

The Unknown World of the Low-Income Housing Tax Credit

Much remains unknown regarding how Shepard and other syndicators of LIHTCs earn their high profit margins.

The U.S. Government Accountability Office was ordered to look into "the role of syndicators" in the LIHTC process. In its findings, the GAO reported last year that profits were earned generally through both initial and annual fees. The GAO was unable to garner details on the size of the fees.

In a subsequent GAO report on the LIHTC released last month calling for increased oversight of the program due to findings that only a fraction of allocated funds reach their intended goal, the oversight agency places blame on the unknown cost of syndicators.

"Syndication expenses represent a significant cost of producing affordable housing with LIHTCs, but complete data on syndication partnerships generally were lacking," the GAO found.

Chris Edwards, director of tax policy for the Cato Institute and a major critic of the tax credit, characterized it as "absurd" that there's a government program so complex "that the GAO is left scratching its head to figure it out."

"It's modern crony capitalism where insiders earn money on complex, nontransparent, government schemes," Edwards said. "It may be legal, but it undermines the economy and trust in government."

Edwards said he was unable to determine whether the millions of dollars Shepard made off the LIHTCs were out of the ordinary.

"Whether or not McCaskill's husband is earning above-normal returns for the industry is unknown," Edwards said. "Nobody really knows how much money these syndicators are making and how big the fees they earn are. We need more transparency."

Joseph Shepard's Complex Tax Credit Operation

The public sources with the most information on Shepard's complex tax credit operation—where the Missouri Tax Credit Fund is only a cog—are financial documents showing how the fund uses the LIHTCs as collateral for bank loans.

One such document filed on Nov. 26, 2008, shows the Missouri Tax Credit Fund obtained a loan from Heartland Bank by putting up as collateral "any and all Missouri Low Income Housing Tax Credits" awarded to the Martin Luther King Village, a 108-unit project in Kansas City. The project was ultimately awarded $6.5 million in LIHTCs in 2009, according to a Missouri Accountability Portal database.

Another document filed on Dec. 21, 2012, shows a nearly identical structure, with the Missouri Tax Credit Fund obtaining a loan from Enterprise Bank and Trust, this time using "any and all" tax credits awarded to Cedar Valley Apartments for the rehabilitation of 88 affordable housing units. The project was awarded $5.9 million in LIHTCs that year.

Nearly identical documentation exists showing the Missouri Tax Credit Fund obtaining bank loans using tax credits as collateral for 57 different Missouri projects, which together were awarded $273.3 million in LIHTCs, according to the database. It has 15 additional deals in place with projects that are yet to be awarded LIHTCs.

The Missouri Tax Credit Fund is just a small piece of Shepard's tax credit operation, serving as the entity that enters into the tax credit purchase agreements with developers.

Once the tax credits are acquired, investors for the projects are brought in by Sugar Creek Capital, which advertises the tax credit investments on its website as "an effective, reliable tax planning opportunity" for "companies and high-income individuals to maximize cash flow."

Both Shepard's companies, the Missouri Tax Credit Fund and Sugar Creek Capital, are located at 17 W. Lockwood Ave. in St. Louis.

Less transparently involved in the operation is a Missouri company called Horizon Asset Management, formed in St. Louis in 2004, the same year the Missouri Tax Credit Fund was formed by Shepard, business filings show.

Horizon Asset Management is involved in nearly all the Missouri Tax Credit Fund's partnerships with developers, including both the above-mentioned arrangements with Martin Luther King Village and the Cedar Valley Apartments. The tax credits awarded appear to be allocated, at least for a period of time, to Horizon Asset Management.

Horizon Asset Management acts as the storehouse for the tax credits in the LIHTC operation, and the reason for this is its ties to a tax-exempt Missouri nonprofit organization, the Horizon Housing Foundation.

The Horizon Housing Foundation's annual tax filings show that it owns Horizon Asset Management, and that the foundation's assets are derived almost entirely from the tax credits allocated from developers to Horizon Asset Management. The foundation lists millions of dollars' worth of tax credits in its control each year and has virtually no tax liabilities.

In its most recent filing for 2016, the foundation reported $52.8 million in income in the form of tax credits earned through Horizon Asset Management's "investments in affordable housing projects." The foundation reported just $1,466 in charitable contributions and paid just $16,772 in taxes for the year, all for payroll, the filing shows.

The foundation's filings also shed light on the large volume of tax credits in Horizon Asset Management's control and how quickly the operation has grown over the years.

The 2016 filing shows Horizon Asset Management with a book value of $228.2 million, a spike from $176.4 million the previous year and the highest its ever been. In 2007, McCaskill's first year as a U.S. senator, its book value was reported as $25.4 million.

The foundation currently has no obvious ties to Shepard aside from being involved in nearly all the partnerships with developers, mainly Shepard's Missouri Tax Credit Fund. But there are strong indications that it's part of the same operation.

The strongest indication is a 2002 Horizon Housing Foundation filing where its listed address, 17 West Lockwood Ave. in St. Louis, and phone number, (314) 968-2205, match exactly with the current contact information for Sugar Creek.

The foundation's current listed address is 23 North Gore Ave. in St. Louis, a location just around the corner from Sugar Creek's offices.

Many of the foundation's officers also have ties to other Shepard businesses.

Sugar Creek did not respond to an inquiry on how Horizon Asset Management and the Horizon Housing Foundation fit into its tax credit operation. Neither are listed in McCaskill's financial disclosures.

A representative for the Horizon Housing Foundation told the Free Beacon it could expect a call back, but the call has yet to come.

The Future of the Low-Income Housing Tax Credit

The LIHTC program has come under increased scrutiny in recent years due to findings such as the one reached by the Missouri State Auditor, which found that only 42 cents of each credit dollar awarded actually goes to low-income housing projects, with much of the remainder ending up in the hands of middlemen syndicators like Shepard.

The St. Louis Post-Dispatch reported in 2014 that a major obstacle to changing the program is the political clout of syndicators such as Shepard, who declined to be interviewed for the story. Shepard purchased more tax credits than any other syndicator in the state that year, the paper wrote.

Experts on the tax credits such as Cato's Edwards have advocated for ending the "costly, complex, and corruption-prone" program, arguing that a demand-side system where housing vouchers are given to those in need of affordable housing would be more effective.

"The supply-side approach is very inefficient, and a lot of money ends up disappearing with the middle-men," Edwards said. "The great irony of this program is it's intended to help the needy, but it seems to be benefiting the top one percent."

McCaskill's office did not respond to an inquiry into her husband's tax credit operation or on possible changes that could be made to the LIHTC program to make it more efficient.

The Kansas City Star reported earlier this year that Shepard had been on the receiving end of more than $131 million in federal housing subsidies since 2007. McCaskill's Republican opponent Josh Hawley has pointed to Shepard's use of government programs to generate profit for his businesses as a reason she should release his tax returns.