Feds seek details of funds used for Detroit demolitions

Christine Ferretti
The Detroit News

Detroit — Detroit’s federally funded demolition program is under scrutiny by investigators who last week subpoenaed for documents involving funding used to knock down thousands of houses.

Detroit Auditor General Mark Lockridge on Monday confirmed his office received the request last week from the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, concerning federal funds used in the city’s demolition program.

Lockridge said the federal inspectors requested “all documentary evidence regarding TARP funds” dating back to Jan. 1, 2014. The deadline to turn them over is May 20, he said.

“What they are looking at, I don’t know,” Lockridge said.

A SIGTARP official on Monday said the office does not comment on its investigations. It also does not confirm whether they are open, nor does it discuss its actions, including subpoenas.

The federal subpoena request comes weeks after Lockridge’s office released preliminary findings from a months-long audit into the city’s demolition activities. The report, issued in mid-April, flagged potential conflicts of interest between the city and executive leadership of the Detroit Building Authority.

The Office of the Auditor General claimed the Detroit Building Authority and city violated terms of a joint property management agreement as well as state law “by creating and allowing a conflict of interest” in executive leadership. But Detroit's top attorney, Melvin Butch Hollowell, countered the assertion of conflict is “misplaced and inaccurate.”

The Auditor General's Office has maintained it stands by the original findings cited in the report.

Detroit’s City Council in October further requested the audit of the Detroit Building Authority and Detroit Land Bank Authority’s demolition activities in response to concerns over bidding practices and spiraling costs.

Detroit Land Bank Authority Chair Erica Ward Gerson told The News on Monday that the land bank has not received a subpoena from federal inspectors. But it has cooperated with other audits and reviews of the demolition program conducted by the city’s auditor and inspector general as well as the Michigan State Housing Development Authority — all of which have turned up nothing specific to the land bank.

Gerson said she’s “very proud of the program,” and added, if contacted, the land bank would cooperate with federal inspectors “just as we have everybody else.”

“I’m not one bit concerned or upset about it because I’m a taxpayer,” she said. “We think we are doing the right thing for the city. We’ve cooperated with everybody, and we’ll do the same with these guys (federal inspectors), when we hear from them.”

SIGTARP was established by the Emergency Economic Stabilization Act of 2008. Under the act, the federal office has the responsibility, to conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets under the Troubled Asset Relief Program, according to its website.

It’s mission is to promote economic stability through law enforcement by maximizing the efficiency and effectiveness of TARP and protecting the interests of those who fund TARP — American taxpayers — against fraud, waste, and abuse, the site says.

In an effort to heighten its transparency, the land bank posts all demolitions and average costs on its website and hired an outside firm, Plante Moran, to conduct a review. That also has turned up no concerns, Gerson said.

Since May 2014, more than 8,000 houses have come down in Detroit under the Duggan administration’s demolition program. The vast majority of the city’s demolitions — about 6,000 — have been paid for with federal Hardest Hit Fund dollars, land bank officials have said.

The city has received about $130 million through its first three rounds of federal hardest hit funding and last month learned of its latest award of $41.9 million for the first part of its fourth round.

In April, the U.S. Treasury Department announced it was giving Michigan an additional $188.1 million in federal money to remove blight.

Detroit has received the bulk of Michigan’s federal blight assistance since the program began in 2013. Mayor Mike Duggan has said he expected the new money would help Detroit speed the pace of its demolitions from 4,000 houses in 2015 to 5,000 this year and 6,000 in 2017.

Last fall, the Michigan State Housing Development Authority conducted a review of the land bank’s bid selection process related to Hardest Hit funds amid news reports questioning the city’s bidding practices and spiraling demolition costs.

The state agency noted it did not find “any glaring or significant problems” but did require several changes be made to “further strengthen their selection of contractors.”

Gerson on Monday said the state was happy with the processes and found no violations. The land bank, she added, did implement the state recommendations.

“This is the biggest program of this type that anybody has ever done in the country. It was needed. We are very proud of what we’ve done,” she said. “It’s working. But we had to invent it. So, you try different things along the way.”

Last fall, the mayor’s office defended the bidding process for its large-scale demolition program after after a WJBK-TV report (Channel 2) claimed city building officials improperly met with contractors in 2014 to set prices for bulk demolitions before requests for bids were official.

The report noted that high-ranking members of the Detroit Building Authority met with local and national contractors to negotiate the pricing model. Three of the four local contractors participating in the negotiations were the sole bidders after the project was publicly offered and awarded the work.

The administration later countered there was nothing unusual or improper about the set-price contract initiative for bulk demolitions, which was a pilot program and discontinued shortly after when it failed to attract national players. The state signed off on the plan, which meant to attract firms able to handle big bundles of demolitions in a short period of time.

The set-price contract was based on the city’s average pricing of all of its competitive demolition bids and sought contractors with the capacity to raze 800 houses in two months. The project accounted for nearly 1,400 of the homes knocked down in Detroit in 2014.

The unit price contract, Gerson said Monday, may have been controversial but it wasn’t a mistake. It got over 1,000 houses down for an average cost of about $13,800 each.

“It didn’t attract the national players that we hoped it would attract so we didn’t do it again,” she said. “But it’s hard to call that a misstep. It was an effort to find a better way to do it, which didn’t attract the national players.”

Demolition costs in Detroit under the Hardest Hit program went from an average of about $13,600 per house in 2014 to about $16,400 in 2015.

The city said the rising prices were tied to new environmental safeguards. They have since made changes, and costs are now around an average of $13,900 per house.

So far, the auditor general hasn’t released any findings tied to rising demolition costs. The ongoing audit focuses on citywide demolition activity between Jan. 1, 2014, and Sept. 30, 2015. Officials have said there could be other conditions worthy of reporting. A timeline for a final report has not been set.

Meanwhile, the city’s Inspector General’s Office is conducting its own investigation into an aspect of the demolition program. It should wrap up within the next two weeks, says Deputy Inspector General Kamau Marable.

The investigations of the auditor general and inspector general were not done jointly and are not duplications of each other, Marable said.

The Office of the Inspector General, he added, has not received any federal subpoenas related to Detroit’s demolitions.

CFerretti@detroitnews.com