How Did California Spend Billions on Homelessness Only for It to Get Worse? Two New Criminal Cases Offer a Clue

How did California manage to spend $24 billion in taxpayer money to address homelessness over the past years, only for the problem to get substantially worse?

The state has not offered any explanation since that figure was revealed in a state audit released earlier this year. But the arrest of two California men on Thursday suggests that at least some of the money may have been stolen through fraud.

Cody Holmes, the former chief financial officer at a downtown Los Angeles-based developer of affordable housing, was arrested on a federal criminal complaint charging him with mail fraud. In a separate case, Steven Taylor is accused of defrauding lenders to aid his property-flipping business. He is charged with seven counts of bank fraud, one count of aggravated identity theft, and one count of money laundering.

The arrests come as part of a larger federal investigation into homelessness funding fraud in the Golden State.

“Accountability begins today,” said acting U.S. Attorney Bill Essayli when he announced the arrests on Thursday. He said the two cases are part of a pattern of the larger misappropriation of billions in state funds meant to combat homelessness.

An audit released by the state in April revealed that California has spent more than $24 billion over the past five years to address the state’s homelessness crisis. The acting U.S. attorney formed a Homelessness Fraud and Corruption Task Force earlier this year to investigate where those tax dollars have gone.

“The two criminal cases announced is only the tip of the iceberg and we intend to aggressively pursue all leads and hold anyone who broke any federal laws criminally liable,” Essayli said. 

Holmes, 31, is accused of fraudulently obtaining $25.9 million in state grant money for Shangri-La Industries, the developer of affordable housing for which he served as CFO. That money was intended to be used to purchase, construct, and operate homeless housing in Thousand Oaks under a state project called “Homekey.”

Holmes allegedly knowingly submitted inflated, fake bank records to the California Department of Housing and Community Development (HCD), to falsely prove the company had the capacity to fulfill homeless housing projects. However, authorities say the bank accounts that Holmes said contained these funds did not exist.

Holmes is now accused of using more than $2 million in state grant money to pay credit card bills that he was associated with, including purchases at luxury retailers.

HCD had previously paid millions of dollars to Shangri-La to buy, build, and operate housing for the homeless in Redlands and King City, among other California cities.

If convicted, Holmes faces up to 20 years in federal prison.

Meanwhile, Taylor, 44, is accused of using fake bank statements and false cash representations to obtain loans and lines of credit to operate his real estate business from August 2019 to July 2025.

The Brentwood man is also accused of lying to lenders about his intended use of various properties. He allegedly lied to the lender behind his purchase of a Cheviot Hills property, telling the lender he intended to renovate and use the property himself. However, he apparently had already contracted to sell the property, which he bought for $11.2 million thanks to a loan acquired through the use of fake bank statements. He was contracted to sell the property to a homeless housing developer who was purchasing the property with public funds from the city of Los Angeles and the state of California for $27.3 million in a double-escrow transaction hidden from the victim lender and others.

If convicted, Taylor would face up to 30 years in federal prison for each bank fraud count, up to ten years in federal prison for the money laundering count, and a two-year prison sentence for the aggravated identity theft count.  

The investigations that led to the arrest and indictment are just the beginning, Essayli said. “We will continue to go where the evidence takes us.”

Akil Davis, the assistant director of the FBI’s Los Angeles Field Office, said, “In both of these cases, defendants took advantage of funds allocated to assist the homeless, some of the most vulnerable people in society and many of whom may be suffering from myriad conditions, including addiction.” 

“The FBI is committed to the Homelessness Fraud & Corruption Task Force to find perpetrators of this insidious fraud and build cases to hold the offenders accountable in court,” he said. “It is my hope that the charges we’re announcing today send a message to others who may be contemplating similar criminal behavior.”

There are nine state agencies involved in addressing homelessness and they collectively administer 30 programs. Those agencies are overseen by the California Interagency Council on Homelessness, which was supposed to track how the money was being spent but failed to do so.

“The State lacks current information on the ongoing costs and outcomes of its homelessness programs, because Cal ICH [the California Interagency Council on Homelessness] has not consistently tracked and evaluated the State’s efforts to prevent and end homelessness,” state auditor Grant Parks wrote in his introduction to the report earlier this year.

Over the five-year period covered by the audit, California’s homeless population grew by 20 percent, from 151,278 in 2019 to 181,399 in 2023.

Brittany Bernstein is the deputy news editor of National Review Online.

Reprinted with permission from National Review by Brittany Bernstein.

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.