Key Points:

• In order to receive federal or state tax credits, developers must meet certain standards and undergo inspections

• A new audit found that the state had not been conducting enough investigations or enforcing proper standards

• The governor’s office is working on incorporating the auditor’s recommendations into its housing policy

PHOENIX — The Arizona Department of Housing did not conduct inspections for one or more federal health and safety standards in the units it used tax credits to help finance, according to a new report.

And even when it did, Auditor General Lindsey Perry said the inspectors were slow in reporting problems like rodent infestations, bad electrical circuits and even a blocked fire escape access to property owners and, more to the point, ensuring that the issues were fixed.

The department is responsible for awarding tax credits — money developers can use to offset their income tax liability — to support the construction, rehabilitation or acquisition of affordable housing.

“In exchange for receiving tax credits, the developer is required to reserve a certain number of housing units for lower-income households for a specific time frame, which is typically 30 years,” Perry noted in her report.

Between 2020 and the end of 2025, it awarded more than $4.3 billion in both federal and state tax credits for the development of 21,549 low-income housing units.

Perry also reported that her staffers sometimes couldn’t find evidence that tenants who moved into low-income housing units were properly vetted for meeting income standards.

That, she said, increased the risk that tenants were ineligible for low-income housing or, at least, paid the correct rental rates which are tied to their income. And it also meant these units were not available to those who actually were financially eligible.

But Perry also reported some good news for the agency.

Perry said the department appeared to have successfully fixed its policies and procedures for wire transfers that in recent years had allowed fraudsters to get a hold of $2 million by posing as members of a title company and a nonprofit.

Perry said there was supposed to be a wire transfer earlier this year. But before that happened, she said, the department verified banking information, completed a “test” transfer of $1 prior to sending the full amount, and confirmed that the U.S. Department of Housing and Urban Development received the full amount.

The state tax credits, originally established in 2021 under Republican Gov. Doug Ducey, expired at the end of last year when they were not included in the budget negotiated between Democratic Gov. Katie Hobbs and the Republican-controlled Legislature.

But the U.S. Department of Housing’s credits remain, and so does the obligation to ensure that the units built with both state and federal credits meet standards.

To that end, Perry said the department is responsible for conducting an on-site inspection of these properties every three years to ensure that the units set aside for low-income tenants meet health and safety requirements.

“However, the department did not inspect or document that it inspected one or more federally required health and safety standards for 126 of 153 tenant unit inspections we reviewed,” Perry said. And even when there were inspections, problems were not reported — or fixed.

“The department’s failure to fully inspect tenant housing and timely notify property owners of violations it identified has resulted in low-income residents living in unsafe or substandard housing, and increased the risk that health and safety hazards in tenant units were not corrected in a timely manner,” Perry reported.

The report ended with 27 recommendations.

Christian Slater, press aide to Hobbs who put Ruby Dhillon-Williams in charge of the Department of Housing in 2025, said the agency already has implemented 17 and is working on the other 10.