Investigators at the Housing and Urban Development Department have found "an appearance of preferential treatment" in the awarding of a grant to two developers with close ties to the department, but they said there was no evidence of wrongdoing by HUD employes.
The probe began after The Washington Post reported in May that senior HUD officials had overruled career civil servants in awarding the $6.7 million grant to a company that includes Daniel M. Hughes, who resigned last year as HUD's deputy undersecretary, and Larry Green, a longtime business partner of the No. 2 HUD official.
"The indication of favoritism is especially strong since the project received preliminary approval over strong staff recommendations not to fund the project," HUD Inspector General Charles L. Dempsey told HUD Secretary Samuel R. Pierce Jr. in a letter.
Pierce responded that he would issue a "warning" to his top staff "to be particularly sensitive" to the need to avoid the appearance of favoritism.
The urban development action grant, for an apartment building and garage in Manchester, N.H., was recommended last spring by the late Stephen J. Bollinger, then a HUD assistant secretary. Its approval followed an internal staff memo that rejected the proposal on the grounds that financing was uncertain and that the housing would cost $44,000 a unit, which the staff said would shatter the $15,000 limit for UDAG projects.
Dempsey said Pierce's former executive assistant, Lance H. Wilson, "showed an unusual interest in the application on behalf of the developers."
Margaret B. Sowell, then UDAG director, told investigators that Wilson called her repeatedly to ask why the application was being held up; whether she had received new data from the developers and to urge her to clear obstacles.
Sowell said it was rare for Wilson to call about a particular project, that he "seemed irritated that the process was not moving along" and that her staff "was not happy with the pressure to push the project along."
Wilson told investigators that his job was to mediate such disputes and that he had no special interest in the project. Wilson said he was "very good friends" with Hughes but had discussed the project only with Green, a former partner of HUD Undersecretary Philip Abrams. Abrams played no role in the matter.
Green told investigators that he had complained to Bollinger and Wilson that he was "getting the shaft" from HUD's staff on the project.
Hughes, the former HUD official, acknowledged to investigators that he was in frequent contact with top HUD officials in New England, but he said this was "only to maintain previous friendships," not to discuss the project. John C. Mongan, a top HUD official in Boston, said Hughes occasionally called him identifying himself as Larry Green because Hughes felt that such calls were "no one's business."
Investigators confirmed that HUD had an "unwritten policy" of funding no grant when housing costs exceeded $15,000 per unit, as the staff had maintained. Bollinger said at the time that he had made "a judgment call" that the project was "very sound" and that his staff had "made a mistake" in the way they calculated the housing costs.