The D.C. government has used a $1 billion fund established to create affordable housing and stave off gentrification to repay the federal government millions of dollars for mismanaged grants, the D.C. Auditor said in a new report Tuesday.
Since 2001, the Housing Production Trust Fund, as the program is known, has doled out nearly $750 million in grants and loans to developers to build or preserve thousands of units of affordable housing.
But the agency that oversees the fund, the Department of Housing and Community Development, also used the program for purposes unrelated to creating housing for low-income D.C. residents, according to the audit, the first comprehensive examination of the program.
From 2009 to 2014, DHCD steered $16.6 million from the fund to the Department of Housing and Urban Development to make up for the city’s “ineffective management of federal grants,” according to the audit.
In addition, the audit concluded that the District has collected “far less” than it is owed in loans to developers over the years, limiting what could be a steady stream of repayments that would help replenish the trust fund’s finances.
Besides DHCD, the audit also asserts that the District’s Office of the Chief Financial Officer has failed to rigorously oversee the program’s financial transactions.
“We have made huge investments of taxpayer dollars in affordable housing through the Housing Production Trust Fund but we haven’t gotten our money’s worth,” said D.C. Auditor Kathy Patterson. “We need to address these management issues to meet what we say is our priority: investing in affordable housing.”
Mayor Muriel E. Bowser (D) has made the creation of affordable housing a centerpiece of her first term, and regularly touts her administration’s commitment to devote $100 million to the fund annually.
Polly Donaldson, DHCD’s director, said the administration is “laser-focused on producing the most affordable housing for District residents by using every tool and dollar at our disposal.”
Responding to the audit’s finding about the fund’s lending practices, Donaldson said most loans have not been repaid because they are for 30 or 40 years, an approach “that allows us to fulfill our mission.”
At the same time, Donaldson was plainly irritated by the audit, criticizing Patterson for giving the report’s final version to reporters before her agency, although DHCD received a draft version last month. The housing director’s written response to the audit was included in the report released by the auditor.
“I think the fact that the auditor chose to politicize this report by giving it to the press before giving the final report to DHCD shows her intentions and that they’re not about residents or affordable housing,” Donaldson said.
She declined to elaborate.
Established in 1988, the fund did not receive any money until 2001 when the D.C. Council designated a portion of D.C. tax revenue as an annual source. Since then, the fund has received more than $1.1 billion in revenue that was to finance the production of 10,081 units of affordable housing, according to the audit.
Patterson’s report is her third on the trust fund in the past two years, studies that were initiated at the request of council member Jack Evans (D-Ward 2), chair of the council’s finance and revenue committee.
A 2017 audit concluded that it could not evaluate the fund’s performance because DHCD’s data was “unreliable.” The audit found, based on a sample, that the District had not certified that tenants residing in low-income apartments had met income requirements.
The report also found that over the life of the fund, the District had failed to ensure that 80 percent of its annual disbursements were used to create affordable housing for the city’s poorest residents, as required by law.
In the latest analysis, the auditor concludes that less than 20 percent of the funding went to housing for a family of four earning up to around $33,000 and 12 percent went to creating units for those earning up to around $55,000. Nearly 70 percent of the fund’s disbursements were used for residents making up to $88,000, the audit found.
Donaldson said DHCD since 2015 has devoted nearly 30 percent of the fund’s spending to housing the District’s poorest families, and 37 percent for those earning up to $55,000.
The report also probed DHCD’s history of repayments to HUD. The federal housing agency deemed as “ineligible” DHCD’s use of federal grants “on a variety” of HUD projects. As a result, HUD required that DHCD return funding, $16.6 million of which came from the housing trust fund.
When HUD sent nearly $5 million of the repayments back to DHCD, the city agency assigned the money not to the housing fund, but to a different program, according to the audit.
“If DHCD had properly allocated the expenditures in the first place, it would not have had to repay HUD,” according to the audit. “And even after HUD demanded repayment, DHCD and the [chief financial officer] could have sought other available funds for the repayment. . . . Doing so would have kept $16.6 million of HPTF funding in circulation for new affordable housing.”
Donaldson, in a letter to Patterson last month, wrote that HUD had required no repayments during the Bowser administration. As for the $5 million that HUD returned to DHCD, none of which ended up back in the housing trust fund, Donaldson wrote that “the money was placed exactly where HUD demanded it be placed.”
The audit also found DHCD has used the trust fund to finance projects such as a $19,000 “frosting” of windows at the agency’s office building in 2014. The agency also used $5,104 from the fund to pay for “several pieces of fitness equipment” at DHCD’s gym.
Another $11,000 was used to promote bicycling in the communities east of the Anacostia River, including for “food, face painting, child-care, and DJ services for a Capitol City Bike Expo,” according to the audit.
“While the amounts of these expenditures are modest, we find it concerning that these types of charges were not caught and redirected,” according to the report.