Audit: Costs, hazards plague Detroit demo program

Rising administrative costs for demolitions, accumulation of debris at sites and “a clear and present danger” due to hazardous conditions at some spots are cited in an internal report released Wednesday on Detroit’s federally funded demolition program.

The analysis from the Office of the Auditor General covering Jan. 1, 2014, through Dec. 31, 2016 focuses on the program that is under scrutiny in a federal criminal probe as well as state and local reviews over concerns over bidding practices and soaring costs.

Mayor Mike Duggan and the Detroit Land Bank Authority, which oversees the demolition program with the Detroit Building Authority, have defended the program and pledged cooperation in the investigations. Since spring 2014, the program has toppled nearly 11,000 houses.

“Our preliminary findings indicate escalating administrative costs in both the Land Bank and DBA,” the review by Auditor General Mark Lockridge stated. “We question the ability of the Land Bank and DBA, as it relates to demolition program management activities, to be self-sustaining in the short and long term ... .”

Land Bank leaders immediately blasted the analysis within hours of its release as “full of errors and misinformation” and said they weren’t given a response ahead of time as is standard. They also said a more detailed response to the report would be presented soon.

The report also flags the land bank’s dissolution of an Approval Committee in response to a lawsuit filed against it this month alleging a violation of the Open Meetings Act.

The committee was created as one of several measures to tighten controls in the program as a result of the temporary suspension of the city’s use of Hardest Hit Fund program. The new policies called for pre-contract reviews in an effort to address concerns raised in an independent audit commissioned by the land bank last summer, which revealed excessive demolition costs were hidden by spreading them over hundreds of properties to appear they didn’t exceed limits set by the state. The audit turned up inadequate record keeping, bid mistakes and about $1 million improperly billed to the state.

The approval committee, a three-member group comprised of a representative from the land bank, DBA and office of Detroit’s chief financial officer, were to meet and approve or reject the inclusion of properties with costs of $35,000 or more, and with a total price falling outside a calculated per property total cost in a range of reasonableness.

Several days after the lawsuit was filed, the auditor’s report noted that the land bank’s board of directors dissolved the Approval Committee.

The Land Bank, in response to the report’s assertion about the committee, said Wednesday that its authority is now vested in the executive director.

Among other problems the report found: “A clear lack of oversight for citywide demolitions” as the Land Bank and city “operate with different policies and procedures for demolitions ranging from the qualifying of vendors, the handling of (requests for proposals).”

Meanwhile, Land Bank salaries have climbed from $2.6 million in 2014 to more than $5 million, according to a funding request to the city last year.

The audit also highlights a request soliciting bids for debris removal, open hole completion and site finalization at 19 properties. Despite structures at those sites having been razed in July, 10 “had no open hole inspection” and nine were still open eight months after the first inspection. Also: “only a portion of demolition costs have been posted to the Land Bank’s electronic records as incurred, and we believe those costs represent the asbestos survey only,” the Auditor General’s Office wrote.

The 19 properties “present a clear and present danger to the community,” the report read. “We are concerned that there may be additional sites across the city in this same hazardous condition, which puts all the residents of Detroit at risk.”

In a statement Wednesday, Land Bank Authority Board Chair Erica Ward Gerson said she was “very disappointed that the Auditor General’s report today was full of errors and misinformation.”

“It is normally the process of an auditor general to give a draft response to the department for this very reason — to avoid obvious factual inaccuracies,” she said.

She added that an extensive auditing process by the Michigan State Housing Development Authority “found no cases of charging excessive administrative fees.” Meanwhile, oversight has increased “to dramatically upgrade compliance and oversight activities,” and costs are “necessary to assure full compliance with all city ordinances, state and federal laws and regulations.”

A preliminary audit by the Auditor General’s Office released in April 2016 flagged potential conflicts of interest between the city and executive leadership of the Detroit Building Authority. The report said the authority and Detroit violated terms of a joint property management agreement as well as state law “by creating and allowing a conflict of interest” in executive leadership. It criticized David Manardo, then-director of the DBA, who also was the city’s group executive for operations. Tyrone Clifton took over in May as head of the building authority.

In October, Duggan announced federally funded demolition efforts in Detroit had resumed following a two-month suspension after the ongoing state review turned up “mistakes” and “errors.” In light of the Michigan State Housing Development Authority review, the U.S. Treasury Department had temporarily suspended federally funded demolition in Detroit while the city and land bank met with state housing and Treasury officials to resolve the issues.

Duggan this year announced an state review of the program’s billing practices revealed $7.3 million in what the state contends are improper costs. Of that total, $6 million — mainly tied to a controversial set-price demolition pilot in 2014 — is being contested and will be settled in arbitration. The mayor said the city will pay back $1.3 million — about $1.2 million of which is tied to costs previously flagged as ineligible last year in an independent audit the land bank commissioned.

Duggan said he’s “lost sleep” over mistakes made as the program ramped up.

“Voters of this city will decide whether the speed with which we’ve been taking houses out of these neighborhoods justifies the mistakes that were made,” he said last month. “We made mistakes trying to do the right thing and the people of Detroit will judge whether that’s excusable or not.”