|
| There is nothing the East Bay Times enjoys more than pointing out anything they can find that looks like Richmond fiscal problems. The latest, “Richmond: After audit, city to repay feds $1.5 million,” cites “waste, fraud and mismanagement,” without really looking at the facts and the context.
The City finally resolved a long-simmering dispute with HUD that goes back over ten years. The primary issue involved the City’s use of a HUD grant to fund pre-development costs for a proposed affordable housing project sponsored by a non-profit affordable housing developer. The project got caught up in the recessionary squeeze on real estate financing and was unable to go forward. There was no “fraud and mismanagement,” just bad timing and bad luck.
The second issue involved a contractor who was unable to complete projects funded as part of the Neighborhood Stabilization Program, which was intended to use ARRA money to buy and rehabilitate vacant foreclosed properties.
It was not the City that failed to perform; it was other organizations and contractors that were the recipients of HUD funds administered by the City.
Following is more information provided by the city manager who notes, “Especially in this context, to say that correspondence from HUD was “ignored” (as reported in the East Bay Times article) is journalistic incompetence.”
Housing Director Tim Jones has provided the following information as background to the recent East Bay Times article regarding repayments to HUD, and to provide a basis for the origin of these repayments. I would first note that the time period regarding the audit of program grants (2005-2010) was well prior to Mr. Jones’ responsibilities for administering these funds, but he has assisted, along with the City Attorney’s office, in finalizing repayment agreements with HUD.
Between 2005 and 2010, the City of Richmond (City) entered into Community Development Block Grant (CDBG), HOME and Neighborhood Stabilization Program 1 (NSP1) program grant agreements with HUD to carry out affordable housing development and rehabilitation program activities. On July 29, 2016, the City was notified that, based on Office of the Inspector General audit findings and their monitoring reviews, HUD had determined that CDBG, HOME and NSP1 program funds in an amount totaling $8,425,239.79 represented ineligible or disallowed expenditures. In this same correspondence, the City was provided repayment options for the disallowed costs. The City submitted written correspondence in response to HUD’s July 29, 2016 letter, had numerous conversations with HUD staff, and requested a repayment plan and resolution of OIG audit findings, as well as all other outstanding HUD program monitoring findings and repayment obligations concerning various HUD programs.
On December 8, 2016, HUD gave written approval to the City’s requested repayment plan. The plan involved two repayment agreements which were approved by the City Council at its meeting this past Tuesday, December 20th. The repayment agreements permit the City to offset repayment amounts that are owed to HUD as a result of the OIG and HUD findings with:
- NSP1 and HOME program voluntary grant reductions totaling $2,403,353.60;
- Defeasance of two unspent Section 108 loans in the amount of $3,551,000;
- Unspent Economic Development Initiative funds, which date back to the year 1999, in the amount of $1,000,000.
In other words, the repayment to HUD was made using unspent program funds which were identified in the audit as exceeding expenditure time limits, and with funds that had not yet been obligated by the City.
The above listed repayment sources leave an outstanding balance owed of $1,470,886.19. This amount will be paid with Successor Agency debt service repayments made to the City on loans issued by the City to the former Richmond Community Redevelopment Agency for the Ford Building and North Richmond Iron Triangle projects.
The disallowed expenditures related to CDBG grants dating from 2005 to 2010 totaling $8,095,369. Of these grant funds, $1,152,659.50 were determined to be disallowed. In each case, the funds were for a development by Community Housing Development Corporation (CHDC) where the project (Filbert Townhomes) was not completed. A detailed list of disallowed costs is as follows:
- CDBG-R Grant #B-09-MY-06-0015
Year: 2009
Award Amount: $366,063.00
Repayment Amount: $366,063.00
Reason for disallowed cost: Funds were issued to developer for site acquisition/no subsequent development activity)
- CDBG Grant #B-05-MC-06-0015
Year: 2005
Award Amount: $1,565,534.00
Repayment Amount: $429,000.00
Reason for disallowed cost: Funds were issued to developer for site acquisition/no subsequent development activity)
- CDBG Grant #B-08-MC-06-0015
Year: 2008
Award Amount: $1,347,735.00
Repayment Amount: $266,000.00
- CDBG Grant #B-09-MC-06-0015
Year: 2009
Award Amount: $1,360,473.00
Repayment Amount: $51,000.00
Reason for disallowed cost: Funds were issued to developer for site acquisition/no subsequent development activity
- CDBG Grant #B-10-MC-06-0015
Year: 2010
Award Amount: $1,471,932.00
Repayment Amount: $40,596.50
Reason for disallowed cost: Funds were issued to developer for site acquisition/no subsequent development activity
The disallowed expenditures for the NSP 1 program related to a total allocation of $3,345,105 of which $318,226.69 were disallowed transfers to a developer KH Development for acquisition and rehabilitation of affordable housing where the project was not completed. See details below:
- NSP 1 Grant #B-08-MN-06-0006
Year: 2008
Award Amount: $3,345,105.00
Repayment Amount: $318,226.69
Reason for disallowed cost: funds issued to developer (KH Development Co) for rehabilitation work which was not completed.
Staff has worked diligently with HUD on trying to achieve compliance. These actions are the culmination of multiple meetings and correspondence between City staff and HUD staff from the San Francisco Office as well as the HUD headquarters office in Washington D.C. In its email transmittal of the repayment agreements, HUD staffed thanked the City for its “patience and assistance with this entire process.” Especially in this context, to say that correspondence from HUD was “ignored” (as reported in the East Bay Times article) is journalistic incompetence.
At the end of the day, this did not cost Richmond taxpayers anything. It was all resolved by juggling HUD funds.
Richmond: After audit, city to repay feds $1.5 million
City did not use HUD funding as required, auditors found
Richmond City Manager Bill Lindsay. The city will have to repay HUD $1.4 million after auditors found that the city did not properly use the funds. (Kristopher Skinner/Staff)
By Karina Ioffee | kioffee@bayareanewsgroup.com
PUBLISHED: December 21, 2016 at 11:40 am | UPDATED: December 21, 2016 at 4:28 pm
RICHMOND — Richmond has agreed to repay $1.5 million to the federal government over the next three years after an audit revealed that it did not use the money as intended.
The U.S. Department of Housing and Urban Development has repeatedly issued scathing audits in recent years documenting waste, fraud and mismanagement within the city’s housing programs. The latest news also comes a year after Moody’s downgraded the city’s bond rating and the state auditor put Richmond on a list of municipalities most at risk for waste, fraud, abuse and mismanagement.
The agreement, reached earlier this year, was negotiated down from more than $8 million the U.S. Department of Housing and Urban Development said the city misappropriated starting around 2011.
In numerous instances, officials spent money on predevelopment tasks such as site plans, remediation and acquisition plans without actually building anything, a HUD audit found. In another project, $1 million aimed at economic development in the Iron Triangle, a low-income neighborhood in central Richmond,
sat unused in a bank account, collecting interest.
Some of the funding the city received was in the form of Community Development Block Grants, money that was supposed to go toward affordable housing and anti-poverty programs. But according to auditors, the city did not distribute the funds in a timely manner, holding on to an estimated $3.4 million from 2011 to 2013. Last year, HUD temporarily froze CDBG funding to the city, citing problems in the way the program was administered.
When HUD repeatedly sent letters to City Manager Bill Lindsay and others, they were ignored, auditors found. This raised red flags for HUD, given that the city is considered a “high-risk grantee.”
Lindsay did not return calls and an email seeking comment. But in a letter to HUD, he explained that the city needed debt forgiveness and a three-year repayment plan because it has not benefited from the ongoing economic recovery. While Richmond has seen a 5.7 percent increase in home property values this fiscal year, they are still lower than prior to 2009, Lindsay wrote.
“Although a balanced budget was adopted, the city continues to work within rigid budget constraints as reductions were again made to staffing, overtime for sworn personnel, professional services, utilities and other operating expenses,” Lindsay wrote. “To put the 6 percent reduction in perspective, the deficit is equivalent to approximately 75 police officers, 71 firefighters or 108 non-sworn staff.”
The city has repeatedly come under fire from HUD in recent years. In June, a HUD audit found that the Richmond Housing Authority misled HUD about $2 million it was supposed to reimburse the federal agency from the sale of a housing authority property, instead transferring the money to repay a debt to the city. The investigation also found that the housing authority, which provides housing for the city’s poorest and uses federal funds, engaged in questionable accounting, failing to record some $600,000 in expenses.
Many worry that the city’s financial situation continues to be precarious despite cuts to nearly all departments this year, which slashed more than $13 million from the general fund, and a half-cent sales tax that was supposed to be used in part for roads but now diverted to the general fund.
“The city is chronically short on money, so when there’s money that’s coming from elsewhere, it uses it to fund for things it wants to do,” said Vinay Pimplé, an outgoing Richmond City Council member and a frequent critic of the city’s handling of its finances. “Then it turns out to be inappropriate use. Some of the uses don’t seem outlandish, but nevertheless they are not approved. The bigger question is why that money was just sitting in the bank. Was someone at the city asleep?”
Last December, the California State Auditor listed Richmond as one of six cities in the state showing signs of impending financial problems.
|
|
