Agency: Detroit demolition probe not over

Christine Ferretti
The Detroit News

Detroit — A state agency that handles disbursement of federal funds for Detroit’s demolitions indicated Tuesday that a probe that led to a two-month suspension of the city program isn’t over.

That revelation comes a day after Mayor Mike Duggan admitted the U.S. Treasury prohibited the use of federal Hardest Hit Funds for demolitions from Aug. 15 until Friday following the discovery of “mistakes” and “errors” that federal, state and city officials won’t yet reveal.

The initial review, being conducted by the Michigan Homeowner Assistance Nonprofit Housing Corp. in conjunction with Michigan State Housing Development Authority, turned up questions over “certain prior transactions” and indicated specific controls needed to be strengthened, according to MSHDA.

“The MHA/MSHDA investigation that led to the U.S. Treasury’s suspension of Hardest Hit Funds for Detroit demolition is ongoing, so we cannot comment or provide further details at this time,” MSHDA spokeswoman Katie Bach wrote in a Tuesday email.

Late Monday, MSHDA Executive Director Kevin Elsenheimer disclosed that during the suspension, state agencies worked to identify and implement stronger controls “to prevent future problems, and remedial measures to protect the interest of taxpayers so that HHF blight elimination activities in Detroit could resume.”

As result of the investigation, state housing authority employees will now be embedded at the Detroit Land Bank Authority and Detroit Building Authority to provide compliance support, input and on-site assurance that all contracts are bid appropriately. The land bank — which administers the city’s Hardest Hit Fund demolitions — also established a $5 million escrow fund for any demolition costs not eligible for the federal funding.

The strengthened controls come as Detroit’s demolition program is at the center of a federal criminal investigation. The program first came under scrutiny last fall after concerns were raised over bidding practices and soaring costs, prompting audits and reviews. Detroit has taken down more than 10,000 homes since spring 2014, primarily with federal funds.

MSHDA noted the city and land bank “cooperated fully” with its investigation and the program has resumed. But the authority declined to say anything more Tuesday about what went wrong.

Duggan spokesman John Roach said Tuesday the city didn’t previously publicly disclose the suspension because “we didn’t feel that it was our place to announce it.”

Duggan noted Monday “when their reviews are complete, they’ll discuss what their findings are.”

On Friday, Treasury allowed the housing authority to resume blight activities in Detroit that use Hardest Hit funds. It also released $42 million allocated for the city’s fourth round of the program. It’s been awarded more than $258 million under the program.

Duggan said Monday he was “very disappointed” with things he learned during the review. But the mayor declined to reveal specifics, only noting some concern over paperwork, improper billing and misallocation of funds.

Treasury was briefed by Michigan’s housing finance authority in August on details of the ongoing review.

“In light of this review, Treasury directed MSHDA to temporarily suspend HHF-blight-related activities in Detroit,” a Treasury statement read Tuesday. “Treasury coordinated closely with MSHDA to establish stronger controls for the program, and we have allowed Michigan to resume HHF-blight-related activities to support Detroit’s important foreclosure prevention efforts.”

Treasury officials declined to comment on why the suspension was not publicly disclosed in August.

Detroit City Council President Brenda Jones said Tuesday she was looking for answers from the city administration. Jones contends she first learned the program had shut down over the summer during a Monday night media report.

“I would like to request a report on that actual action of when the funding was stopped. ... Nothing officially came before this body,” Jones said during council’s formal session.

The council last fall asked Detroit Auditor General Mark Lockridge to conduct an audit of the city’s demolition activities after cost concerns were raised.

In April, Lockridge confirmed his office received a federal subpoena from the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, after releasing preliminary findings from the months-long audit. The land bank and Detroit’s Building Authority also received subpoenas. In May, the FBI’s Detroit office confirmed an investigation into the program.

A spokesman for SIGTARP declined to comment Tuesday about the demolition program’s suspension. The U.S. Attorney’s Office also said it also was unable to comment.

Duggan, meanwhile, reiterated Monday he’s seen “no evidence of criminal activity” but declined to comment on the federal probe.

Former federal prosecutor Peter Henning said Tuesday the temporary suspension may suggest the federal investigation into the city’s demolition activities has entered an advanced stage.

“One reason to keep that kind of information under wraps is if there’s any effort at an undercover investigation to try to obtain statements from people involved in the demolition contracts,” said Henning, a Wayne State University law professor. “When you have the suspension of payments ... it means there is a serious concern that money has been misused.”

When investigations reach advanced stages, Henning added, investigators “don’t want people to suspect how far along they are.”

“And you just don’t want to tip off someone,” he said.

Staff Writers Chad Livengood and Melissa Nann Burke contributed.