In the fall of 1980, after more than a decade of frustration and failure, federal officials came up with a plan to rescue one of the most run-down public housing projects in Prince George's County.
Glenarden Apartments, a cluster of decaying, three-story buildings in the shadow of Landover Mall, was in financial trouble. The nonprofit owners had not made the most basic repairs. The answer, the Department of Housing and Urban Development decided, was to arrange a sale of the 592 apartments to a California company as part of a new program to encourage private investors to take over troubled subsidized housing.
But after two years and $2 million in federal aid, more than 160 apartments are vacant, most of the expected repairs haven't been made and auditors are questioning how some of the project's funds have been spent.
The inspector general's office at HUD said in a recent report that the new owners of Glenarden Apartments spent $149,000 for unallowable expenses, ranging from employe bonuses and Thanksgiving turkeys to excessive management fees. During the same 16-month period, the auditors questioned another $1.1 million spent by the firm for what they describe as undocumented or duplicate work and repairs that may have never been made.
The auditors also blamed local HUD officials for failing to oversee properly the performance of the new owners, two limited partnerships associated with California real estate investor Stephen Moses. Moses' company, the National Investment Development Corp. (NIDC), has been arranging purchases of troubled federal projects across the country.
A second report by HUD's inspector general, Charles L. Dempsey, said that the Washington-area HUD office did not require the new owners to put up enough cash to make needed repairs when the project was sold.
To some officials in Prince George's, these reports merely confirm what they see as the latest in a string of empty promises by federal housing authorities.
"We told HUD that they have been pouring money down a bottomless pit," said Joe Healey, director of property standards for the county's Department of Licenses and Inspections. "They gave the project all this federal bailout money and never asked for any accounting."
Rudolph Bertrang, a spokesman for HUD's Washington-area office, said he could not comment on the reports because his office is still reviewing them. He said HUD has asked the owners for a detailed response to the audit findings.
Moses, a general partner in the project, said many of the disputed expenses were handled by two local management companies that he has since replaced. Moses asked a subsidiary of his operating company, NIDC, to run Glenarden Apartments last summer.
"There was some bad record-keeping by the two previous management companies," Moses said. "They did not do a good job . . . There's no question money was spent routinely and properly. It's a matter of documenting it."
Officials at both management firms defended their record-keeping and said they could account for the disputed expenses.
Moses said the owners have spent about $1 million more on repairs than HUD has required, and that while the vacant units are producing no income, the owners have kept up their monthly payments on the property. "We've never allowed the mortgage to go into default," he said.
The faded beige brick buildings, scattered across grassy hills on a sloping, dead-end street, hardly seem to reflect the infusion of new resources. The facades form a checkerboard of glass and warped plywood; in one older building, 20 of the 24 windows are boarded up. In a basement apartment, the window space is empty, revealing a wall full of ripped plaster and a dirty sink covered with debris.
Outside, two rotted mattresses, a dismembered blue couch and a pile of broken wooden furniture sit along the curb, waiting for removal. Inside, workmen in a handful of empty apartments are putting in new floors, plumbing fixtures and a fresh coat of paint.
Louie Blunt, a workman on the site, said some of the vacant apartments had been vandalized in the past, "and some of them have really been beaten up by the tenants."
A legal notice, posted in a graffiti-covered hallway, tells tenants of a proposed rent increase. For more than half the low-income tenants, whose rent is subsidized by HUD, the cost of a three-bedroom unit would rise from $358 to $430 a month. For those who are not eligible for subsidies, the rent would jump from $417 to $489.
"We're trying to correct problems from 12 years ago," said June Dennis, the new property manager. She said she hopes that repairs can be completed and vacant apartments rented within six months. "I have nightmares about this project," Dennis said.
All this barely resembles the new federally insured apartments that opened in 1968 under the aegis of the nonprofit Glenarden Housing Inc. But years of mounting code violations took their toll, and by 1979 the project was among those featured in a Washington Post series on "suburban slums."
When many of the apartments lost their hot water in February 1979, Prince George's officials say, they could not find anyone from Glenarden Housing to serve with a court summons. Glenarden briefly hired H.R. Crawford, now a D.C. City Council member, to manage the project. "When we were brought in, the boiler room had blown up and the place was going down the tubes," Crawford said.
Finally, HUD officials decided to arrange a sale to Moses and his partners. But HUD officials did not ask the new buyers to put up at least 10 percent of the $9 million mortgage--as is generally required by agency regulations--and did not tell the auditors why.
Businesses can receive substantial tax benefits for investing in substandard housing. These benefits, which are set by Congress, can be used to reduce the owners' taxable income and also can be sold to outside investors for additional profits.
Moses said it would be unrealistic for HUD to insist on greater cash payments for such money-losing projects. "The only benefit an investor gets is the tax advantages," he said.
The auditors reported that HUD officials did not adequately inspect the project and did not realize that the buyers' cash payment of $800,000 would not finance all the needed repairs. As a result, they said, the sale "resulted in further deterioration of the projects."
HUD officials have committed $2 million in special subsidy aid to help Moses and his partners make the repairs, of which about $1.4 million has been spent. But the auditors found that HUD's effort to monitor how the firm spent this money was "insufficient or nonexistent."
In reviewing the expenses from April 1980 to July 1981, the auditors said that the owners paid out $16,732 in "excessive" management fees that were not approved by HUD. They said officials at the first management company paid two outside consulting firms $41,816 for work they should have done themselves, while paying themselves another $11,000 in unallowable consulting fees.
The first management firm paid $19,516 for repairs on 24 vacant apartments, but the work may not have been done and the units were never occupied, the auditors said. On five other units, they said, the firm made another $1,698 in duplicate payments to paint and refurbish them twice.
Moreover, the report said, the first management firm spent over $7,500 in repair money for such items as employe bonuses, a Christmas party, Thanksgiving turkeys, meals for workers, and loans on two trucks that didn't belong to the project and were later repossessed.
Both management firms did not produce any invoices, receipts or contracts for $640,367 in expenses, the auditors found.
Ted Dailey, president of the first management firm, JJJ Management Corp., which has gone out of business, disputed the audit findings and said he needed to study them further. He said both the consulting and management fees were justified because of the extensive repair work JJJ had to oversee, and that the disputed repair work involved only an accounting mixup.
Dailey added that he considered such benefits as Thanksgiving turkeys for employes to be legitimate expenses.
"We had to submit invoices to HUD," Dailey said. "We couldn't have drawn the money down without HUD's approval. It's possible some invoices got lost, I don't know."
John Wagner, president of the second firm, Beltway Management Inc., said problems were rampant when his firm was hired, that he made no repairs and withdrew after five months. He said he had produced receipts for his expenses and had returned a disputed management fee. "All those dollars have basically been accounted for," Wagner said.
Dailey and Wagner also disputed several other audit findings: that the management firms used tenants' security deposits to pay bills, could not account for $53,380 in rent payments and lost track of a number of typewriters, ovens and refrigerators.
The report also said the owners should not have used $64,471 in federal aid to repay a loan they took out to pay the mortgage. Moses, the general partner, said he believes this was a proper expense. He did not dispute some of the audit findings on consulting fees and duplicate work, however, and said he hopes to recover the money from the firms involved.
Local HUD officials allowed these problems to fester by failing to check financial statements or approve management contracts and simply losing many of the project's records, the report said. HUD did cut off the federal repair money for several months last year, but this only delayed the repair work even further.
In the spring of 1981, county officials cited the project for 180 code violations--from broken lights and windows to lack of fire extinguishers or alarms--and revoked its occupancy license for the second time. They didn't close the buildings, however, and many of the tenants remained.
Prince George's officials now expect to allow the owners to rent the vacant units if they pay a $20,000 penalty for past violations, but the county is running out of patience. "This is their last shot," Healey said. "If it goes down the tubes this time, we're going to ask HUD to cut off the funding."