HUD defends record, plans to tighten rules for affordable housing program

June 3, 2011

The Obama administration told Congress on Friday that it would work to tighten rules and requirements for its largest affordable-housing construction program amid questions about whether federal dollars are being wasted or poorly tracked.

The House Financial Services Committee convened a hearing on HOME, a program run by the Department of Housing and Urban Development that distributes federal grants to state and local governments for the creation of housing for the poor.

A year-long Washington Post investigation published last month found that hundreds of construction and renovation projects funded under the HOME Investment Partnerships Program have been idling for years, often with little oversight after the money was distributed. The probe found that nearly one in seven projects examined showed signs of significant delay.

In the wake of those findings, Rep. Spencer Bachus (R-Ala.), chairman of the Financial Services Committee, said Friday he wanted to see progress from HUD on three fronts: Contracts with developers should require repayment for misspent funds, those that defraud the government should be pursued and eligibility requirements for contractors should be substantially tightened.

“We want to hear what HUD is doing to make sure the program participants are being held accountable and whether new legislative authority is needed,” Bachus said. At one point, he saidHOME is “being exploited by schemers and crooks.”

Mercedes Marquez, HUD’s assistant secretary for community planning and development, told the committee that the department would help local governments write “a model legal agreement” for use with contractors.

“What is needed is tightening of underwriting criteria for developers in general,” Marquez said, adding that her department would work on that.

But Marquez defended the program’s purpose and management. “No program, public or private, is without problems,” she said, but she added that projects are closely monitored for signs of delay or trouble.

Marquez also said that while construction projects of all kinds had faced trouble in recent years, “HOME’s success rate during the recession actually outpaced the private market.”

James A. Heist, HUD’s assistant inspector general for audit, painted a somewhat different picture of HOME, saying his office found “a lack of internal controls” at the program.

“Our audits have found that in some instances little or no monitoring is occurring, particularly at the sub-grantee level,” Heist said. He added that HOME’s accounting system “is not in compliance with federal financial reporting requirements.”

In his written testimony for the hearing, Heist said that audits have found “a repetitive thread of not meeting the HOME objective to provide affordable housing” and that local housing agencies are “able to update, change, cancel, re-open and increase or decrease project funding without any review by HUD.”

He added that some developers and nonprofits have “lacked the experience and capacity to handle HOME project development. This has caused floundering and failing projects.”

In the IG’s external audits of HOME projects over the last five years, Heist said, “We cited a total of $179 million in questioned costs and $58 million associated with recommendations that funds be put to better use.”

The session was at times a referendum on The Post’s investigation.

Marquez criticized the newspaper’s findings and saying the stories overstated problems with the program. “Indeed, The Post’s picture of the HOME program is a far cry from the one I’ve managed,” she said.

Asked for his response to The Post investigation, Heist said it “brought out some examples of misspending in certain projects that was consistent with some work we’ve done at the local level.”

To explore affordable-housing production nationwide, The Post analyzed a HUD database of 5,100 open construction and renovation projects and contacted 165 housing agencies nationwide to verify the status of more than 1,500 projects.

Because HUD monitors only when local housing agencies draw money from their federal accounts — not what is actually being built — the agency has little way of knowing when projects stall or die.

Committee Democrats, some of them from urban districts that have benefited from HOME, used the hearing to defend it.

“It is a good program and should continue,” said Rep. Carolyn B. Maloney (D-N.Y.). “I certainly hope this is not another attempt by my friends on the other side of the aisle to terminate a successful program.”

Though Republicans largely avoided any mention of abolishing HOME, they were more skeptical of how the program is administered.

“What scares me is, is this the only HUD program that fails to account for taxpayer dollars?” asked Rep. Judy Biggert (R-Ill.) “Is HOME just the tip of the iceberg?”

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