Secretary of Commerce Linked to Slum Housing : Administration: Disclosure reports obscure Ronald Brown’s investment in run-down Washington units.

WASHINGTON — For more than two years in office, Commerce Secretary Ronald H. Brown has effectively concealed his personal investment in a trouble-plagued low-income apartment complex that is part of the rental empire of a Los Angeles businessman whom federal officials consider a notorious slumlord.

The two financial disclosure reports that Brown has filed since he was nominated by President Clinton in January, 1993, list an interest in a residential rental property located in the upscale Washington suburb of Potomac, Md.

But a Times investigation has found that the apartment complex is actually located on the opposite side of town in one of the area’s poorer communities: Landover, Md.

Known as Belle Haven Apartments, it is a dismal, drug-infested complex where some units periodically are declared “unfit for human habitation.”

Belle Haven Apartments investors are part of a partnership with ties to A. Bruce Rozet, a Brentwood millionaire who officials say has cost the government millions of dollars by abusing a federal program that helped him and his partners acquire low-income housing, collect subsidized rents and tax breaks, and yet avoid maintaining the property.

Last October, HUD Secretary Henry G. Cisneros charged that Rozet “got filthy rich off this program, and he left filthy places behind him for people to live in.” Rozet strongly denies the charge and says the vast majority of his rentals have worked out well.

Like many of Brown’s other business associates, Rozet is a generous contributor to the Democratic Party, which Brown headed before becoming commerce secretary. Rozet helped to fund the 1988 presidential campaign of the Rev. Jesse Jackson, which Brown managed at the end.

Asked about the discrepancy on Brown’s reports, his press secretary, Carol Hamilton, said Brown is a passive investor in Belle Haven Apartments and has no knowledge of its whereabouts. She offered no explanation of why he inaccurately described it as property in Potomac.

“As a limited partner,” Hamilton noted, “Secretary Brown does not now nor has he ever had any management or operating responsibilities.”

Whether inadvertent or not, the erroneous report no doubt spared Brown embarrassing questions during his confirmation hearings. The required disclosure statements are intended to bring to light any possible conflicts of interest for top government officials or any private holdings or associations that might be considered inappropriate.

*

If Brown had declared an ownership interest in a troubled, low-income property on his report, it likely would have attracted attention and controversy in Congress.

Others involved in Belle Haven question how Brown could not have been well informed about the property and its location--after he bought into the partnership in 1983.

All investors were required to receive a prospectus describing the property before they invested and periodic reports afterward. Other investors said they are familiar with the location of Belle Haven.

“There would be no reason for him not to know the property he invested in,” Rozet told The Times. “He would know what the investment was. He would not know day-to-day details. He certainly would know he was invested in the property.”

Belle Haven is not the only part of Brown’s financial affairs that is in question.

At present, a committee in Congress and the Justice Department are looking into several of his business relationships, including income he received from a company that defaulted on a $24-million federally guaranteed loan. Public integrity advocates have complained about the vagueness and lack of detail he has furnished about his holdings.

Atty. Gen. Janet Reno is considering whether to call for an independent counsel’s investigation of Brown’s finances.

Brown’s disclosure documents, said Gregory S. Walden, a Washington attorney and ethics law specialist who has examined them, are “one of the sloppiest reports I’ve ever seen.”

For his part, Brown has said he never knowingly violated the ethics laws. Knowingly putting false information on a financial disclosure report is a felony that carries a maximum civil penalty of $10,000 and a maximum criminal penalty of five years in prison and a $250,000 fine.

Recently, former Rep. Mary Rose Oakar (D-Ohio) was indicted for falsifying information on her annual report, and former District of Columbia congressional delegate Walter Fauntroy pleaded guilty to a similar crime.

*

Like most investors in low-income property, Brown put money into the project and reaped generous tax benefits under a federal law designed to stimulate development of housing for the poor.

Before the 1986 Tax Reform Act, investors were allowed to deduct all of their losses or depreciation on such projects from their total taxable income. In many cases, the tax write-offs could far exceed the total investment. On average, experts say, those who invested in the early 1980s enjoyed a 3-to-1 return.

Brown’s lawyer, Reid Weingarten, described it as “a typical 1980s investment” in which a small investment promised a high return. “Everyone was doing it,” Weingarten said.

In all, Brown invested in four low-income housing projects originally syndicated by Stephen D. Moses, a Rozet business associate and a political ally of former Democratic National Committee Chairman Charles T. Manatt. Several years later, Rozet’s firm bought the company that manages the partnerships.

Moses estimated that Brown reaped about $175,000 in tax write-offs from the partnership for Belle Haven, based on an investment in 1983 of $71,000. Brown, who owned about 3% of the property, was one of about two dozen limited partners.

In its sad history, Belle Haven demonstrates why these tax breaks have become so controversial in recent years. Critics say the partnerships that bought into low-income housing were structured so that very little money was spent on maintenance.

Not only has Belle Haven fallen into disrepair, but the project has defaulted on a $6.1-million loan from the Maryland Housing Fund that was used to renovate the buildings more than a decade ago. In addition, local police officials say they have made frequent drug arrests in and around the complex.

Although the limited partners own nearly 98% of the project, they are not legally liable for the debts.

In 1983, when Brown began investing in low-income housing, he was a newly minted partner of the influential Washington lobbying and law firm of Patton, Boggs & Blow. After leaving his previous job as chief counsel for the Senate Judiciary Committee, friends say, he began to expand his investments and build up his income.

Moses, in an interview, recalled that he and Brown were close friends at the time. Brown still affectionately refers to him as Stevie, and occasionally has visited Moses’ home in Pacific Palisades. Moses said he recalls talking to Brown specifically about Belle Haven.

“Sure I did,” Moses said. “The whole purpose of private placement is to give as much information ahead of time.”

Moses’ Washington salesmen at the time were Evan Dobelle and David E. Phelps, both former fund-raisers for President Jimmy Carter, and both alumni of the State Department during the Carter Administration.

“I know we talked to Brown as a potential investor,” said Phelps, who now lives in Pittsfield, Mass.

Among those who invested in Belle Haven at the same time was Terrance R. McAuliff, another well-known Democratic fund-raiser, who said he visited the property before buying into the partnership and still remembers it as an attractive place. Three other investors contacted by The Times all said they were aware of the apartment complex and its location.

One conceivable source of confusion over the location of Belle Haven could be the name of the partnership that owns it: Potomac Housing Fund Ltd. This is the name printed on the K-1 tax report Brown receives annually from Rozet.

But in the greater Washington area, many businesses in different towns and suburbs use the word Potomac because the capital city sits on the Potomac River. The name does not commonly suggest a location in the community of Potomac, Md.

*

Furthermore, low-income housing in Potomac, Md., is conspicuously rare. The small community is among the region’s wealthiest and most exclusive, dotted with small estates and million-dollar-plus houses. To use a Los Angeles equivalent, confusing Potomac with Landover would be similar to mistaking Brentwood for Bell Gardens.

Brown and the attorneys advising him offered no explanation why they identified the property as being in Potomac. Hamilton noted that neither the names of the properties, nor their locations, appear on the tax statement that Brown receives each year, so the location would not be known without consulting the original investment documents.

However, Brown accurately identified the location of the three other low-income properties he also bought through Moses--all in tiny Texas towns and all in pristine condition.

If Brown was unaware of the misrepresentation of the property on his disclosure form, he was not unaware of the checkered reputations of Moses and Rozet as owners of housing for the poor and working class.

Brown’s law firm played a role in representing Rozet in the early 1990s when HUD moved to prevent him from acquiring any more low-income dwellings.

Ronald L. Platt, Rozet’s Washington lobbyist, recalls that when Rozet was under investigation by HUD in 1989, Platt took his client to Brown’s office at Patton, Boggs & Blow to arrange for Rozet to be represented by the high-powered Washington firm.

Platt recalls that Brown “may have been the attorney of record” in the case. Rozet disputes Platt’s recollection. “Brown was in no way helpful--not counsel, lobbyist or adviser,” he said.

The government’s case culminated in a negotiated settlement in which Rozet agreed not to acquire any more HUD-subsidized low-income housing until August, 1995, and to sell the existing properties to people acceptable to HUD. But HUD officials say very few of the properties have changed hands.

Belle Haven was not a HUD-subsidized property, although it is similar in that it is government-assisted low-income housing. The renovation of Belle Haven was financed with a state bond issue rather than by HUD.

Rozet’s travails were well publicized at the time. In the wake of the HUD scandal involving Ronald Reagan Administration Secretary Samuel R. Pierce Jr. and the steering of favors to well-connected Republican developers, President George Bush’s HUD appointee, Jack Kemp, drew public attention to the poor condition of properties linked to Democrats Rozet and Moses. They included Tyler House in Washington, Ujima Village near Los Angeles and Geneva Towers in San Francisco.

“Slumlords” and “sewer rats” were the terms that HUD Undersecretary Alfred DelliBovi frequently used at the time to describe Rozet and his business associates. In his defense, Rozet told a Senate subcommittee during hearings in 1990 that HUD had failed in its own commitment to help keep these low-income properties in good repair.

“You’ve got a bureaucratic staff that has been unable to make any sensible decisions for years,” Rozet said in an interview. “They (are) unable to cope with urban housing problems and their only recourse is to blame someone else.”

Many of Moses’ low-income real estate holdings--including Belle Haven--eventually became part of the interlocking partnerships that comprise Rozet’s business network.

Later, faced with a $2.5-million judgment against him brought by tenants of Tyler House, Moses declared bankruptcy.

*

During this period Brown, who by 1989 was DNC chairman, relied on Moses and Rozet for political donations. Federal Election Commission records show that Democrats received $45,926 from Moses between 1987 and 1990, and $73,800 from Rozet between 1987 and 1994.

Over the years, Belle Haven became one of several Rozet-related properties that slowly fell into disrepair. Rozet says his firm inherited many of the problem properties when it purchased Moses’ company. He places blame for the deterioration of Belle Haven on Wayne A. Bowie, a local contractor who served as general partner of Belle Haven since it was renovated in 1983.

“It’s not a bad property; it’s been badly handled,” Rozet said. He stressed that the Belle Haven limited partnership managed by one of his firms is not responsible for day-to-day operation of the building.

Court records show companies run by Bowie, who could not be reached for comment, have defaulted on a variety of business debts in recent years, including Belle Haven’s debt to the Maryland Housing Fund. Rozet estimates that the Belle Haven project is $400,000 or $500,000 in arrears in its debt-service payments on the Maryland Housing Fund loan.

The deterioration of Belle Haven is consistent with many similarly financed low-income properties around the country, according to John P. Kennedy, HUD associate general counsel.

Under a typical arrangement, a syndicator would solicit investors for a limited partnership to acquire low-income apartment complexes and properties. The partnership would apply to the government for rehabilitation funds to fix up the units. When the complex was in operation, a general partner would collect tenants’ rent, some of it government-subsidized, and be responsible for upkeep and management.

*

The result in too many cases, said Kennedy, was that much of the original investment went to fees charged by lawyers, accountants and syndicators and little money was put back in for property maintenance. Some Rozet-related properties became particularly notorious for such problems.

Tenants complain that the 150-unit Belle Haven is not a pleasant place to live. Elizabeth Solomon, 81, who pays $508 a month for a one-bedroom apartment, says she often feels frightened by drug activity in the complex.

Over the past year, Prince Georges County housing inspectors reported finding trash and debris--including used condoms and human waste--accumulating around the buildings and in the hallways. Windows were broken, shutters and door frames were rotting, and wrecked vehicles were sitting in the parking lot.

As recently as Feb. 28, 1994, 14 units were declared unfit for human habitation. Other units have been vacated for similar reasons over the years, according to records maintained by the Prince Georges County Department of Environmental Resources.

Vicki Davis, deputy director of the Maryland Housing Fund, said the state plans to foreclose on the Belle Haven loan within the next two months. She said the owners still owe $5.86 million to the state.

Although general partner Bowie is liable for the debt, according to Rozet, when Maryland forecloses, Brown and the other limited partners will be required to repay the Internal Revenue Service for some of the tax write-offs they took for depreciation.

Times staff writer Bob Jackson and researcher D’Jamila Salem contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Incomplete Disclosure

Since being nominated in January, 1993, Commerce Secretary Ronald H. Brown has submitted two disclosure reports, as are required annually under the Ethics in Government Act. Here is a summary of questions raised about those documents by the House Government Reform and Oversight Committee:

FIRST INTERNATIONAL AND CORRIDOR BROADCASTING.

Estimated value: Under $1 million

Brown did not report his interest in First International Limited Partnership and three $45,000 checks he received from it 1993.

He reported he divested his holdings in First International on Dec. 15, 1993, receiving between $250,000 and $500,000. But none of the payments were made on Dec. 15, 1993.

Furthermore, the Commerce Secretary ethics officer said on March 4, 1994, that Brown still had an equity interest in First International Inc.

He reported being a director of First International in January, 1993, which later proved to be erroneous.

He denied any interest in Corridor Broadcasting, which is closely allied with First International, even though the First International’s income is derived almost entirely from interest paid on loan to Corridor.

HARMON INTERNATIONAL INC.

Estimated Value: under $50,000

He did not list himself as president of Harmon in January, 1993. He later acknowledged it as an error.

In 1994, he gave his interest in Harmon to his son, Michael. He did not report the transaction, claiming it was not requried to do so because no money changed hands.

BOSTON BANK OF COMMERCE ASSOCIATES

Estimated Value: Under $50,000

He identified Boston Bank of Commerce Associates in January, 1993, as a corporation. To the contrary, it is a partnership and Brown was a general partner. Under the Ethics Act, corporations and partnership are treated differently for the purpose of judging potential conflicts of interest.

After it was learned that Boston Bank of Commerce Associates was a partnership, he disclosed that the partnership held stock in Digital Corp, which posed a possible conflict of interest.

KELLEE COMMUNICATIONS INC.

Estimated value: Under $50,000

In January, 1994, Kellee, which maintains telephones at Los Angeles Airport, told municipal authorities that there had been no change in the ownership of Kellee since 1990--meaning Brown was still considered an owner after he claimed to have divested himself of it.

He did not tell government ethics officials that Kellee’s sole business at the time was a partnership with AT&T--a; company with many matters pending before the Commerce Department.

KNOW Inc.

Estimated value of promissory note: Under $100,000

He reported a liability to Know Inc., of Columbia, Md., but did not identify its owner as Nolanda Hill, his business partner in First International. Federal regulations require officials to provide the identity of the creditor when it is not a recognized financial institution.

WASHINGTON, D.C., TOWNHOUSE

Estimated value: Under $500,000

He reported holding the mortgage on a Washington townhouse occupied by a friend, Lillian Masden, and rental income of under $15,000 a year. He did not report that Masden had made an equity downpayment of $108,000 on the house, which was obtained by a Brazilian businessman from a French bank and which now technically belongs to Brown.