Audit faults Arizona for lack of safety inspections in low-income housing

Even when it did, Auditor General Lindsey Perry said the inspectors were slow in following up in instances such as reporting rodent infestations, bad electrical circuits and a blocked fire escape access to the property owners and ensuring the issues were 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.

Perry said her staffers also found that the department in some cases lacked evidence it completed federally mandated reviews to see whether the tenants going into many of these low-income housing units met the required income standards.

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

Improvements in fraud prevention 

But Perry's new report also included some good news for the housing department. 

In a previous report two years ago, her auditors found the department lacked policies and procedures to prevent and detect theft and fraud.

That wasn't just an accounting problem. Perry said those shortcomings resulted in the agency in 2023 wiring $2 million to fraudsters who had posed as members of a title company and a nonprofit that was working with the department to buy property for affordable housing.

Complicating matters, she said, the department was slow in reporting the scam and the lost money.

Since then, Perry said, the department developed new policies and procedures for wire transfers. They appear to be working, she said. 

Perry said there was supposed to be a wire transfer earlier this year. But before that happened, 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.

Low-income housing developed 

The Arizona Department of Housing 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 new report.

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

Those 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 state budget negotiated between Democratic Gov. Katie Hobbs and the Republican-controlled Legislature.

But the federal credits remain, with the Department of Housing responsible for administering them.

Safety inspections lacking

Perry said the department is responsible for conducting an on-site inspection of the properties every three years to ensure 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. When there were inspections, problems were not reported — or fixed.

For example, she pointed to the 2025 inspection of a project on the San Carlos Apache Reservation, which had been awarded a total of more than $4.3 million in federal tax credits in 2005.

The inspectors found a pest infestation inside a resident's home as well as an outdoor electrical outlet that lacked the required ground-fault interrupter protection, "exposing residents to risks of electrical shock and fire.''

It then took department inspectors another 82 days to notify the property owner of these "urgent violations,'' Perry said, and the problems remained unaddressed for 85 days after that.

In another case, she said, department inspectors identified 14 health and safety issues at one property which should have been addressed within 24 hours, such as infestations of rodents and gnats, a smoking stove, and a blocked fire escape access. But the department did not provide a notice of the violations until 115 days after the inspection was completed.

The report also said that at six properties it identified 45 violations that were not included in notices sent to owners, including hot water heaters with improper piping and non-functioning range burners, "putting residents at increased risk of injury."

Eligibility issues 

On the income eligibility issue, Perry said federal law requires owners of properties that get tax credits to verify that tenants' income falls within certain income limits by reviewing documentation such as paychecks and bank statements.

That is because HUD sets income limits based on the area's median income and the number of people living in the unit.

So, for the Phoenix area, the annual income for a family of four to qualify for low-income housing is $56,200.

Separately, rents are set based on other HUD standards. Again, using Phoenix as an example, the maximum allowable rent for a two-bedroom unit is $1,265 a month.

To ensure compliance, Perry said, federal law requires the state housing department to review the records of a minimum number of property owner files. Auditors found that, in at least one case, the department did not meet that requirement.

That "could result in ineligible tenants being allowed to live in low-income housing units that should be rented to qualified low-income individuals who are in need of housing and/or property owners charging or or less than federal regulations allow," she said. 

The report ended with 27 recommendations.

Christian Slater, press aide to the governor, said the department has already implemented 17 and is working on the other 10.

Hobbs put Ruby Dhillon-Williams in charge of the Department of Housing in 2025.