St. Louis Post-Dispatch (Missouri) August 27, 2006 Sunday FOURTH EDITION Family matters JOSEPH A.

SHEPARD, husband of Claire McCaskill, has seen his financial dealings become the target of political attacks. Now he talks about them. BYLINE: By Virginia Young POST-DISPATCH JEFFERSON CITY BUREAU CHIEF SECTION: NEWSWATCH; Pg. B1 LENGTH: 1448 words When an apartment complex for the elderly in Columbia, Mo., was about to go belly-up, the owners called Joseph A. Shepard. Shepard, the husband of Democratic U.S. Senate candidate Claire McCaskill, loves fixing "a busted deal." So he snapped it up. For 30 years, Shepard has used that flair for finance to amass a housing empire that, at one point, included nearly 10,000 apartments in 23 states. Now, those far-flung holdings have given the Missouri Republican Party ammunition against McCaskill in the Nov. 7 election. Party officials have accused her of hiding family assets, taking advantage of government subsidies and conducting audits where she has conflicts of interest. The GOP has filed a complaint with the Senate Ethics Committee, alleging that Shepard's web of 264 interlocking companies is deliberately confusing. Questions revolve around how 175 of his partnerships can be valued at less than $1,000. McCaskill, the state auditor, said she has complied fully with disclosure laws. According to the statement she filed with the Senate, the couple's net worth totals between $13 million and possibly more than $30 million. She said Shepard, whom she married in 2002, is a self-made businessman who has improved housing for poor people. His first project in the Bootheel region in 1976 replaced "shacks, cardboard windows and outhouses." "Has he made money? Yes," she said. "But is there anything he's done that was wrong or illegal or not playing by the rules? No, of course not." Shepard, who avoided reporters when his nursing homes became an issue in McCaskill's unsuccessful bid for governor in 2004, agreed to an in-depth interview with the Post-Dispatch last month. For more than two hours in his white-columned office building in Webster Groves, he answered questions. But he declined to turn over his tax return, as Republicans have demanded. "That's private," he said. McCaskill "argued with me, but I'm not going to do it." While Shepard's fortune provided $1.6 million when McCaskill battled Gov. Bob Holden in 2004 for the Democratic nomination for governor, Shepard doesn't anticipate a similar outlay this time. "It's not like before," he said. "She ought to be able to make it on her own."

Who is Joe Shepard? The picture of Shepard that emerges from public records and interviews reveals a shrewd businessman who has aggressively sought public subsidies and made millions, mainly in rural, low-income housing. In the mid-1980s, he even had a Washington office and traveled there every week to lobby for the Council for Rural Housing and Development. Shepard, 60, said he has been hooked on business since his first accounting class. He attended Principia College, a school for Christian Scientists in Elsah, Ill., about 35 miles from St. Louis. Graduating in 1968, he was briefly a church practitioner, or lay minister, but found "it wasn't my calling." He soon got his first taste of deal-making. Shepard returned to his hometown of East Lansing, Mich., to help salvage his father's Red Wing shoe stores, which were threatened by the debts of a sister business. Moving to St. Louis in 1973, he ran financial projections for developers at an architectural firm, all the while looking for ways to become his own boss. He compares his entrepreneurial drive to a woman knowing she wants to be a mother. "Well, I knew I was going to have my own business," he said. "I do pro formas in my head. The more complicated it is, the more I enjoy it." In 1976, he founded Group Three Construction Co., the firm that would form the backbone of his housing network. But the company got off to a shaky start: One partner immediately died in a plane crash. That left Shepard and partner Skip Mange, now a Republican St. Louis County councilman. "Neither of us had any money," Shepard quipped. Luckily, the federal Farmers Home Administration provided 1 percent loans. Shepard wooed investors while Mange, a civil engineer, supervised construction. Together, the pair developed more than 60 apartment complexes before Mange left the firm. On the mantle in Shepard's office is a photo of the pair at their first groundbreaking -- in impoverished Hayti, Mo. Shepard also served on the board of the Children's Home Society of Missouri, which provides adoption services. He and his first wife, Suzanne Shepard, adopted four children, who now range in age from 24 to 30. How subsidies work Shepard's housing empire eventually stretched across the South and Midwest, from Kissimmee, Fla., and Roanoke, Va., to Sylvan Grove, Kan., and Wilber, Neb. It consists of overlapping partnerships, which are virtually indecipherable to a layperson. Housing experts say there are several reasons for the Byzantine business structures. The government requires a separate limited partnership for each project. Also, developers can sell their tax credits -- but only to buyers who own a share of the development. Diagrams Shepard provided look like spider webs. Take one example -- a 24-unit complex in Howardville, Mo.

Shepard developed the apartments. He also is a shareholder in six entities that have a slice of the project's ownership. However, his stake amounts to less than 4 percent, and third-party investors own the rest. The low-income housing industry is lucrative for rich investors because they can write off more money than a project produces, thus claiming a net loss for tax purposes. That helps explain why Shepard's interest in 175 companies is valued at less than $1,000 in the report McCaskill filed. As for the 192 companies listed as producing less than $201 in annual income, McCaskill's campaign says many of the projects have no return at all because the government controls the rent. Shepard has quit developing apartments and now works mainly as a middleman, selling tax credits. His other businesses include a property management company and three Red Wing shoe stores, including one outside the South County mall. GOP cites conflicts During McCaskill's last campaign, Shepard's six nursing homes drew Republican barbs. They are likely targets again, even though he has sold most of those interests. Republicans say McCaskill misled the public by saying Shepard was out of the business in 2004. Records show he still received $3 million in rent from nursing home companies that year. The GOP says the auditor should have hired an independent firm to audit the regulatory unit that licenses nursing homes. McCaskill contends she has no conflict. Her audit, which is under way, doesn't overlap with any period of time when her husband operated nursing homes, she said. He still owns a building that contains a nursing home in Moberly, Mo. Republicans also say McCaskill shouldn't audit the Missouri Housing Development Commission. They contend Shepard still benefits from subsidies because a Georgia company that bought a Shepard development received a government loan. Shepard laughs at the allegation. "You're telling me I can't even sell them? What should I do? Bomb them?" Shepard's maze of businesses could include an offshore tax shelter, Republicans say. They point to McCaskill's disclosure statement, which lists an interest in the Rural Housing Re-Insurance Co. of America Ltd., located in Bermuda. Bottom line: Republicans want Shepard's tax return. "I believe that's something the public has a right to know," says GOP executive director Jared Craighead. "There are lots of hardworking citizens who make $28,000 a year and pay way too much in income taxes." Shepard says he and other developers created the Bermuda company in 1986 because the property insurance market was tight and apartment projects were unable to secure policies. McCaskill's campaign said he owns less than 6 percent of the company. Still, Shepard's divorce from his first wife suggests that he knows how to hold taxable profits down. The divorce filing, in St. Louis County Circuit Court,

showed that the couple paid no federal income tax in 1995. All that, of course, was before McCaskill knew Shepard. So the political impact is hard to gauge. McCaskill said her husband pays "a significant amount of taxes, oodles and oodles of taxes, now." Some staunch Republicans who know Shepard well say the GOP's claims seem like a stretch. His longtime banker, prominent Republican L.B. Eckelkamp Jr., of Washington, Mo., calls Shepard a "totally honest, reputable businessman." Eckelkamp is chief executive officer of the Bank of Washington. Mange, Shepard's first business partner, said the two have remained friends since Mange sold his interests to Shepard two decades ago. Mange said campaigns should stick to the issues and avoid personal attacks like those being aimed at Shepard. "I'm a Republican, but I find it unfortunate," Mange said.