Finding more flaws in HUD’s accounting of HOME program

November 6, 2011

The calls started in mid-May, two weeks before a looming congressional hearing.

Staff members across the vast U.S. Department of Housing and Urban Development were racing to check in with hundreds of local agencies to determine the status of housing construction projects for the poor.

Within days, the massive scramble came to a conclusion: HUD told Congress that its $32 billion HOME Investment Partnerships Program was doing just fine.

Those findings followed reports by The Washington Post that HUD had routinely failed to track the progress of its affordable-housing projects and that hundreds of deals involving hundreds of millions of dollars showed signs of delay or appeared to be in limbo. HUD officials defended the program, saying most projects are successfully completed.

But HUD’s attempt to demonstrate that success to Congress resulted in reports to lawmakers that, to judge by federal records and interviews with dozens of local housing agencies in charge of the projects, contain discrepancies and contradictions that suggest continuing problems with the program.

Indeed, the delays vexing the HOME program are larger than previously reported. In recent weeks, local housing agencies have confirmed that about 75 construction projects drew and spent $40 million in HOME funds with little or nothing built. That is in addition to the nearly 700 potentially delayed projects The Post identified earlier this year.

“The data that HUD has provided to this committee is completely unreliable,” said Rep. Randy Neugebauer (R-Tex.), chairman of the House Financial Services subcommittee on oversight and investigations, which has been probing the HOME program. “HUD has almost no way of knowing whether taxpayer dollars have been wasted or used for their intended purpose.”

In its recent accounts to Congress, HUD reported as complete at least 17 construction projects that did not deliver all of the units that had been promised. One was in Newark, where a developer received nearly $700,000 in HOME funding but completed only four of 11 units, leaving behind partially completed houses and barren lots, records and interviews show.

“We would not have characterized it as satisfactorily completed,” said Newark housing chief Michael Meyer.

HUD also reported that at least 16 projects were completed months or even years before low-income buyers purchased the units, local housing officials said. HUD’s regulations state that homeowner projects are complete only after the homes are sold.

Members of Congress have found similar inconsistencies. At a hearing last week, several Republican members of the House Financial Services Committee said they had tracked down reportedly completed projects in their districts and found, among other things, a vacant lot and a shuttered building.

“Where’s the money? Where are the units that were promised? Has HUD demanded repayments for units that were not built?” said Rep. Judy Biggert (R-Ill.), who chairs the Financial Services subcommittee on insurance, housing and community opportunity.

In North Carolina, Rep. Patrick T. McHenry (R) found a duplex where he said six units had been promised. “I’d like to know how this can happen,” he said.

Through a spokesman, HUD Secretary Shaun Donovan declined requests to comment on this story. In a written response to The Post, HUD officials defended their reports, saying the agency’s data were based on information provided by local housing agencies.

HUD said local agencies are allowed to change the size of projects and count them as complete when financial or market conditions make it impossible to finish them as intended. As long as HOME dollars aren’t used on unbuilt units, HUD said, the practice is appropriate. Unspent HOME money is supposed to be moved to more viable projects, officials said.

The agency acknowledged that for-sale homes must be sold before they are considered complete. Officials said they were not aware of any projects with unsold units that were counted as finished.

HUD has also said that the potentially delayed projects previously identified by The Post amount to a small fraction of the 28,000 open projects in the program, which officials say has produced 1 million units of housing over two decades.

“HOME is a fundamentally strong and successful program,” the agency said.

The Post study looked at only a subset of about 5,000 projects, those involving major construction or renovation. The lack of systematic monitoring by HUD makes it difficult for the public, Congress or HUD itself to track the pace of construction on a broad scale.

“Not knowing what’s out there is what troubles us,” John Mc­Carty, HUD’s acting deputy inspector general, told Congress last week.

Even as HUD defends the program, the agency is taking significant steps to tighten the rules and better monitor idling projects. HUD is strengthening its underwriting standards for developers who receive HOME funding to make sure that they have the experience and financial capacity to do the work.

The agency also said it has made improvements to its in-house database to better track the progress of projects. On Friday, the agency submitted to Congress an overhaul of HOME regulations — the first major rule change since 1996 — to strengthen standards and require more timely construction or renovation of housing. HUD, for example, will require local housing agencies to improve their oversight of developers and better assess projects before HOME money is awarded. The agency also wants to establish firm deadlines for construction, as well as for the leasing and sale of homes once they are built.

“The HOME program is a success story for housing low-income Americans and creating jobs,” Secretary Donovan said in a statement Friday announcing the rule change. “However, there’s more we can do to boost the program’s performance and accountability. Through these new steps, we want to expand HOME’s impact and ensure that every dollar is used smartly to help families afford their homes.”

At the same time, the Senate is demanding changes. A spending bill passed last week, which calls for a 38 percent cut to the HOME program, would among other things require HUD to reclaim money for projects not completed within four years.

In the House, where a subcommittee has called for a 25 percent cut to the program, some members are proposing unannounced inspections at construction sites, independent, third-party monitoring, tighter rules to ensure competitive bidding and stronger tracking of projects.

“There’s no oversight,” McCarty said. “There’s no one out on the street looking at this.”

Scramble to verify numbers

Launched two decades ago, the HOME program provides federal money to local housing agencies, which subsidize developers willing to build or renovate homes for the poor. Over the years, HOME funding has been used to produce thousands of successful rental units and homes for purchase by low-income buyers. Advocates say the money is crucial to cash-strapped cities struggling to provide affordable housing.

But The Post, using publicly available data, found in May that nearly 700 current projects showed signs of being delayed, either because they were launched more than five years ago, had stopped drawing federal money or faced other obstacles identified by local housing agencies.

Four days after The Post’s report, HUD said on its Web site that hundreds of the projects were completed and occupied. But behind the scenes, the agency struggled to verify its numbers.

In an e-mail in late May, HOME official Ronald Herbert urged HUD’s field offices to gather more information about the projects that HUD had reported as complete.

“It is not enough that [housing agencies] simply reported projects as completed. We are requesting that you . . . follow up on all [housing agencies] whose projects are now reported as completed,” Herbert wrote.

Across the country, local housing officials described HUD’s calls to determine whether projects were complete, including older projects that had not yet produced the promised number of units.

“HUD started requesting, my God, tons of information,” said Michael Blair of the Department of Community Development and Planning in Greensboro, N.C. “It’s like ‘Get us this by noon today’ and they were calling at 10 a.m. . . . There has been a push to try to clean things up.”

“There’s been a lot of pressure around this,” said Duane Bay, local housing director in San Mateo, Calif. “Our HUD administrator called and said, ‘Okay. Close these projects.’ ”

But HUD’s push created confusion at some local housing agencies. Bay said his staff quizzed him on when to call projects complete: Should it be when construction was done? When a low-income family actually moved in?

HUD presented its findings to Congress in early June. But The Post found that dozens of projects that HUD claimed were built and occupied had inconsistencies in completion dates and unit counts.

For example, HUD described the $700,000 project in Newark as complete and provided as proof a picture of two buildings with four units. But the developer was supposed to produce 11 units. The project, first funded in 2003, has been terminated by local housing officials. In all, the developer drew nearly $700,000 out of the $750,000 that was allocated.

Meyer, Newark’s new housing chief, said that HUD officials knew in April that the project was in trouble and that local officials were going to try to “recover as much funds from the developer as possible.”

“They know absolutely what was up with this project and our travails with the developer,” he said.

Meyer said communication probably broke down during HUD’s scramble to verify the status of projects. “The message didn’t get delivered correctly,” he said. “They were just telling people: ‘Tell us when they were completed.’ ”

HUD said it was “permissible under HOME program rules” to count the Newark project as complete because HUD officials had determined that no HOME money was used on incomplete units. But the agency said “neither the City nor HUD is satisfied with the level of subsidy used for this project.”

The agency added: “This situation is an unfortunate example of the huge effect that housing and credit market downturns had on residential real estate development. While it is unfortunate that this project could not be completed as originally envisioned, there is nothing inappropriate about the completion of this project for the lesser number of units.”

In St. Louis County, Mo., HUD reported a project complete with three units built and the developer drawing $690,000 out of the $1.1 million allocated. But the developer was supposed to build seven units. Some of the money was used on pre-development costs for homes that were not built, local officials said.

“We had kept hoping that we would do something else with the money,” said Darlene Rich, housing programs manager for the county. “Finally, we said, ‘We were done.’ ”

Rich said the remaining money was moved to another project, which was eventually completed. HUD said it will probably seek repayment from St. Louis County.

HUD declined to provide any documentation to verify the status of the hundreds of projects it has reported as complete, such as grant agreements and certificates of occupancy.

Staff members with the Financial Services Committee said they have also struggled to verify HUD’s data on completed projects. They recently visited construction sites for a series of older projects listed on a report that HUD provided to Congress in July. In some cases, they couldn’t find any houses or found fewer units than expected.

At the House hearing last week, members criticized HUD for not reporting for its projects how many units were proposed and how many were eventually delivered. They also cited HUD for providing inaccurate addresses for reportedly completed projects.

Rep. Bill Huizenga (R-Mich.) found an empty lot in Grand Haven, Mich. When his staff called the local housing agency, he said they learned the project was in another location.

The address HUD gave, Huizenga said, was “in the wrong city.”

HUD declined to respond to questions from The Post about the properties identified by members of Congress, saying the agency is researching the cases and will first report back to Congress. Local housing officials said addresses for projects often change as lots are developed. The local officials said HUD has not made a point of requesting updated addresses.

“We’re not required to do it,” said Bay, the official in California. “There’s no resistance to it. Obviously, I would prefer that our records are accurate in that regard.”

Following the money

HUD has also repeatedly told Congress that local housing agencies repay HOME money when construction deals go awry, guarding the federal government from losses.

HUD produced a chart for Congress earlier this year that showed more than $250 million repaid or forfeited by local housing agencies. But the chart provides only an overall amount of repayments for each local jurisdiction. It did not show why or when money was returned — or for which projects.

Officials at several local housing agencies with defunct projects said in recent weeks that they had no idea if money had ever been repaid to HUD. Even when money was returned, it often took years.

In Camden, N.J., a developer was paid $200,000 in the mid-1990s to build 15 houses but produced only a few, said Cyrus Saxon, bureau head with the city’s grants management department. He said HUD’s money was repaid in early 2011 — 14 years later.

cenziperd@washpost.com

Staff researcher Jennifer Jenkins contributed to this report.

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