Follow-Up Probe of HOME Program Reveals Weak HUD Oversight

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HUD logoAt nearly $2 billion a year, the U.S. Department of Housing and Urban Development's HOME Investment Partnerships Program for the last two decades has produced housing for low-income households in the form of block grants to state and local government agencies. Yet a growing number of critics say its main legacy is a long trail of unfulfilled promises. The Washington Post once again has provided fuel for this view. A month ago the paper published a follow-up article to a lengthy May expose, revealing that about 75 projects have spent a combined $40 million "with little or nothing built." This is on top of the roughly 700 projects receiving $400 million in federal subsidies that the Post earlier identified as delayed or abandoned. HUD once again is insisting that HOME overall is a success. And Congress once again, justifiably, is highly skeptical. 

National Legal and Policy Center this June analyzed at length the original expose, researched and written by Debbie Cenziper, and published May 14-17. The year-long Post investigation had looked at a nationwide data base of more than 5,000 HOME-funded major projects, concluding the program is "a dysfunctional system that delivers billions of dollars to local housing agencies with few rules, safeguards or even a reliable way to track projects." Many projects, including a good many sponsored by community nonprofit groups, not only were well behind schedule but were community eyesores. Tracts of land often remained vacant and weed-strewn, while dwellings awaiting renovation were boarded and deteriorating.

The series proved embarrassing for HUD. Just four days after publication, HUD stated on its Web site that hundreds of projects were completed and occupied. But behind the scenes, the situation at the department was frantic. In an e-mail, HOME official Ronald Herbert urged HUD field offices across the country to verify the status of ongoing projects. State and local housing agencies were deluged with ASAP requests. "There's been a lot of pressure around this," noted San Mateo, Calif. housing director Duane Bay. "Our HUD administrator called and said, ‘Okay. Close those projects.'" Secretary Shaun Donovan, meanwhile, wrote a rebuttal opinion piece for the Washington Post, asserting that the failed projects were but a small part of the total program inventory. HOME, he argued, has produced around one million affordable homes. A relative few bad apples shouldn't be confused with a full barrel.

But the report by then was reverberating on Capitol Hill. Key House and Senate members announced they would hold hearings and acquire information. Reps. Spencer Bachus, R-Ala., Randy Neugebauer, R-Tex., and Judy Biggert, R-Ill., each a committee or subcommittee chairman, sent the Department of Housing and Urban Development a letter requesting detailed data on all major HOME projects funded prior to 2007. HUD complied and sent the information to Congress in early June. Lawmakers were less than impressed. Rep. Neugebauer, chairman of the House Financial Services Committee on oversight and investigations, announced: "The data that HUD has provided to this committee is completely unreliable. HUD has almost no way of knowing whether taxpayer dollars have been wasted or used for their intended purpose."

The latest Washington Post expose, using HUD information, underscores Congressman Neugebauer's impatience. HUD had indicated to Congress at least 17 separate projects as "completed," but which upon closer inspection were not. Of the 75 projects nationwide identified as delayed or abandoned, more than 30 consisted of empty lots. In one case, a Newark, N.J. developer received $700,000 from HUD, but wound up building only four of 11 promised dwellings; seven "completions" consisted of either a partially built unit or a vacant lot. In North Carolina, Rep. Patrick McHenry, R-N.C., located a duplex on a tract where six units were supposed to be built. And in Grand Haven, Mich., Rep. Bill Huizenga, R-Mich., discovered an empty lot where a "completed" project stood; his staff later learned from the local housing agency that the project was in another location. There also were at least 16 cases of a project listed as complete yet which took months or even years for eligible households to buy a dwelling. HUD regulations stipulate that a homeownership project isn't considered complete until its units are sold. "Where's the money?" asked Rep. Biggert, who chairs the House Financial Services Committee on insurance, housing and community opportunity. "Where are the units that were promised? Has HUD demanded repayments for units that were not built?"

Why have there been so many discrepancies between word and deed? One reason is that HOME is a block grant program. And that means a high degree of flexibility. Grantee state and local jurisdictions can use funds for a wide variety of purposes, including site acquisition, site infrastructure, demolition, relocation, rental assistance, construction, rehabilitation and homebuyer assistance, with much of the money supporting Low Income Housing Tax Credit-financed projects. Moreover, grantees have wide leeway to move funds from one activity to another as the need arises. In a letter to the Washington Post, HUD officials admitted that local agencies are allowed to change the size of projects and count them as complete if financial or housing market conditions warrant it. Unspent funds in a given project, rather than be applied to uncompleted projects, must be routed to more viable projects elsewhere. The problem is that the supposedly more viable projects themselves don't necessarily fly. In Washington, D.C., for example, the (lately) reform-minded District of Columbia Department Housing and Community Development in the past frequently has used HOME funds to bail out cash-short developers. Flexibility, in other words, is a two-edged sword. It gives grantee jurisdictions freedom to tailor federal money to specific situations, but it also makes federal oversight far more difficult.

A second and more discomforting explanation is that the program from the start has been geared explicitly toward aiding "low" and "very low" income persons. Congress created HOME in 1990 as part of the much larger Cranston-Gonzalez Affordable Housing Act. The program, said supporters at the time, would improve upon low-income housing programs, reaching more eligible households while avoiding scandals that severely tested HUD's reputation in 1989. But like all housing programs seeking to reach the lowest layers of demand, HOME has had trouble finding participants. For rental housing, at least 90 percent of families in a given project must have incomes at or below 60 percent of the area median; for housing for sale, families must have incomes at or below 80 percent of the area median. Efficiency and egalitarianism, by nature, are difficult to achieve simultaneously. To make HOME work, state and local housing agencies have to locate participants who are poor, but not too poor.

In a spending bill passed in November, Congress imposed a series of changes at HUD to improve project tracking. HUD, for its part, submitted to Congress an overhaul of HOME statutes, the first major set of changes in 15 years, in order to improve construction standards and ensure timely project completion. The department knows Capitol Hill lawmakers see the program as expendable. The fiscal 2012 HOME appropriation is $1 billion, a sharp drop from slightly over $1.6 billion for fiscal 2011. The new spending law, signed by President Obama late last month, also requires: 1) HUD reclaim all unspent funds for a project within four years unless the participating jurisdiction can justify an extension; and 2) a project sponsor rent out a for-sale unit to an eligible tenant in the event a buyer does not materialize within six months of completion.

It's hard enough reconciling the two main goals of HOME, which is to create projects that are feasible yet affordable to the least well-off. But if HOME should operate, it should make do with less funding and more oversight. HUD knows much has gone wrong. HUD Acting Deputy Inspector General John McCarty testified before Congress about a month ago: "There's no oversight. There's no one out on the street looking at this." Hopefully, the new modifications to HOME will lead to more accountability in the suites and on the streets.

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Washington Post Exposes Flawed HUD Oversight of HOME Program