Congressional investigators are looking into allegations that federal grants to build housing for the elderly have been awarded for questionable reasons to private groups that were rated poorly by government evaluators.
Internal documents of the Department of Housing and Urban Development show that nonprofit groups were given loans after local HUD officials found that they were not eligible for the money or rated them well below other applicants who were denied funding.
In one part of Ohio, HUD funded projects with scores as low as 66 on a 100-point scale, while several others that scored as high as 80 were passed over. In another area, the department approved a loan for a church that local HUD officials determined had a negative cash flow of $285,000.
The decisions were made in two ways.
In some cases, senior HUD officials in Washington tapped a $95-million discretionary fund, which is used to finance about 15 percent of the loans that help nonprofit groups develop housing for the elderly and handicapped.
In other cases, HUD's 10 regional offices used newly granted authority to change applicants' scores and to add 10 points to selected applications. Officials are not required to give written explanations for these changes.
The General Accounting Office has been investigating the "Section 202" program at the request of Rep. Don Bonker (D-Wash.), chairman of a House subcommittee, which plans hearings on the allegations. The popular program has financed 95,000 units over the last decade with only one foreclosure.
A HUD spokesman said it would be "imprudent" to comment, in light of the GAO probe. Another official said discretionary awards are based on such factors as minority involvement, area needs, cost-cutting measures and community support.
The inquiry highlights some familiar questions. One is whether a government agency can award discretionary funds fairly. Another is whether nonprofit organizations are capable of handling federal grants and whether such groups can truly be considered nonprofit once they build up extensive connections with the corporate world.
The GAO is questioning why HUD agreed to loan $7.5 million over the last two years to the Salem Lutheran Foundation, a nonprofit group in Columbus, Ohio. The four projects were to have been developed, built and managed by subsidiaries of the Columbus-based Homewood Corp., but were held up or canceled after the auditors found that Salem Lutheran Foundation and Homewood were controlled by the same man.
HUD rules specifically prohibit ties between nonprofit sponsors of housing and the corporate developers they hire to build the projects.
Homewood Chairman George A. Skestos said that he disclosed all his business ties to HUD officials and that they never told him he might be in violation of department rules. "I'm really sorry I got involved in something that turned out to be a mess," Skestos said. He said the projects are not that profitable for him and that his primary interest is in helping the elderly.
Internal HUD ratings for Ohio last year show that Homewood projects fared well.
HUD's Cincinnati office selected four of 22 applicants with scores ranging from 82 to 88 for grants. HUD officials in Washington then gave discretionary awards to three Salem Lutheran Foundation projects with scores of 66, 71 and 74. Seven other projects, with higher scores, weren't funded.
Skestos said that he is the founder and principal donor of the Salem Lutheran Foundation, which aids young clergymen, and that, until his recent withdrawal, he had the power to appoint and remove the trustees. He said he decided that the foundation should become involved in housing for the elderly and that it was logical to join forces with his company.
Homewood President John Bain said the inquiry involved "just a technical violation . . . . HUD approved the projects. How the hell can they turn around now and say we were wrong?"
HUD canceled one of the projects after the GAO pointed out that Homewood owned the land and planned to sell it to Salem Lutheran Foundation. HUD has ordered the other two Salem projects to find a new developer and has withheld funding for a fourth Salem project, approved in 1982, although the building is nearly complete.
Homewood also fared well last year on projects with unrelated sponsors. HUD's Columbus office selected three projects; one of them was a Homewood application on which the Chicago regional office had raised the score from 56 to 71. Officials in Washington added one project, a Homewood application on which the regional office boosted the score from 49 to 59.
Twenty area applicants with scores between 61 and 72 were not selected. The regional office also added 10 points to two Homewood projects that were not funded.
Skestos said that he has "no inside track" at HUD and that the applications are unrelated to contributions he has made to federal and state candidates of both parties, including a $25,000 donation to Ohio Democratic Gov. Richard F. Celeste. "I'm not into the politics of Washington," Skestos said.
Skestos' Washington consultant, Robert Keefe, the campaign manager for Sen. John Glenn (D-Ohio) in his unsuccessful campaign for the Democratic presidential nomination this year, said a Republican administration would not do any favors for him. The GAO is questioning whether a friendship between a Keefe aide and a top HUD official may have affected the awards.
Last year, Keefe's firm mistakenly delivered Homewood's nine applications to HUD Undersecretary Philip Abrams, whose office lost the documents. HUD promptly extended the deadline for Homewood to file with the field offices.
In another case last year, HUD officials in Washington gave a $2.1 million discretionary award to a Youngstown church that had no rating. HUD's Cleveland office had rejected the application after concluding that the sponsor, the Mount Calvary Pentecostal Church, had a negative cash flow of $285,000.
But HUD officials here, after an appeal from the church's Washington consultant, said the church had substantial property assets that could make up for its lack of cash. The church runs a school and televises evangelistic programs.
Months later, according to HUD, the church could not come up with start-up funds and had to redesign it to cut costs by $300,000. In June, GAO auditors told HUD that the church owed substantial back taxes and that they believed it couldn't support the project.
An Internal Revenue Service spokesman said that Mount Calvary owed about $85,000 in Social Security taxes, but that the tax liens were dropped last summer. A HUD spokesman said the project received final approval in August after Mount Calvary reached a repayment agreement with the IRS.
The Rev. Norman L. Wagner, the church's pastor, said local HUD officials had made "some errors in computation" about its finances, but he declined to provide specifics or to discuss the tax situation. "I cannot see where a person would think that the church would be having financial problems in terms of the project," he said.