Federal report: More oversight of blight funds needed

David Shepardson
Detroit News Washington Bureau

Washington — A government report says the U.S. Treasury needs better oversight of federally funded blight removal programs in Michigan and five other states.

The special inspector general overseeing the $700 billion Troubled Asset Relief Program says Treasury should keep a closer eye on funds that were initially set aside for helping struggling homeowners avoid foreclosure, and to be used for blight removal. Michigan was the first state approved for funds for the program.

"Given the nature of this TARP program, the limited performance history, and the very different set of risks involved in making large payments of taxpayer dollars to individual contractors and other parties not previously participating in a TARP program, Treasury cannot conduct the same type of oversight that it has used for programs that provide assistance to homeowners and mortgage servicers," wrote Special Inspector General Christy Romero in its quarterly report to Congress.

"Treasury must develop and implement new and appropriate oversight tools to monitor its blight elimination program."

Congress created the $700 billion fund to rescue Wall Street banks, automakers, auto finance companies and AIG. The government used about $426.4 billion for bailouts and housing programs, and has recovered $441.7 billion. The Treasury ended its six-year-auto bailout in December.

Treasury officials defend their oversight of the blight eradication program, saying it is similar to how they monitor other state Hardest Hit Fund programs. The state program is run by the Michigan State Housing Development Authority, which reimburses funds spent on demolition after receiving invoices and documentation that the work was done.

Erin Quinn, the program director for the Hardest Hit Fund, said states ensure the funds are properly spent by invoicing and documenting costs.

"The state will not disburse program funds until they have proper invoices and documentation that demonstrate that funding is going to pay for an activity that is in compliance with the state's program," Quinn said.

Michigan was the first state approved to use funds for the project — $100 million announced in June 2013. Last year, Michigan added another $75 million. Treasury has since approved programs in Ohio, Indiana, Illinois, South Carolina, and Alabama.

Of the funds, about $100 million has been set aside for Detroit, while the program was expanded to another 11 cities in Michigan — including $6 million for Lansing, $5.5 million for Jackson, $5 million for Highland Park and $2.25 million for Inkster.

Michigan had received 5,985 applications through Sept. 30, with 816 approved, none rejected, 329 withdrawn and 4,840 under review. Those figures don't reflect all demolitions under the program, said John Roach, a spokesman for the city of Detroit. He said the program has resulted in at least 2,868 demolitions in Detroit since January 2014.

The state told the Treasury that as of Dec. 31 under preliminary figures, Michigan has spent $23 million to demolish approximately 1,900 homes, a little more than $12,000 per home. Michigan also told Treasury it has committed more than $94 million for use statewide.

Through Sept. 30, Michigan has spent on average per property $8,049 on demolition and $1,250 on "greening" — preparing the property for resale or reuse. The program has resulted in 201 properties demolished in Detroit, 266 in Flint, 51 in Grand Rapids and 298 in Saginaw. Michigan said it has paid an average of almost $11,000 per property to remove 816 properties spending $8.7 million, the report found.

But that means that the program could result in far more than 7,000 properties being demolished; at an average price of $12,000 per demolition, Michigan could demolish as many as 14,500 homes.

Members of Congress including Sen. Debbie Stabenow, D-Lansing, and Rep. Dan Kildee, D-Flint, told The Detroit News in separate interviews that they have been looking for ways to get still more blight removal money for Michigan; both have spoken to Treasury Secretary Jack Lew about the issue, warning that the funds will run out soon.

Kildee wants the program expanded to derelict commercial buildings.