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Grand jury focusing on Detroit’s demolition program

Robert Snell, and Christine Ferretti

Detroit — A federal grand jury is focused on Mayor Mike Duggan’s demolition program and whether federal money was misappropriated while Detroit spent almost $200 million to demolish homes after the city’s bankruptcy, The Detroit News has learned.

The grand jury marks a new phase in the federal investigation and as many as 30 contractors and city agencies are believed to have been subpoenaed to testify or provide documents, according to sources familiar with the investigation and a copy of subpoenas obtained by The News.

Detroit’s demolition program already was under investigation by the FBI and Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, after it came under scrutiny over bidding and soaring costs in 2015.

The specter of criminal charges and another public corruption scandal at Detroit City Hall, less than four years after former Mayor Kwame Kilpatrick was sentenced in a racketeering and bribery scheme, has clouded Duggan’s first term in office and re-election bid this fall.

“This could signal a broadening of the investigation,” said Peter Henning, a Wayne State University law professor and former federal prosecutor, of the involvement of a grand jury. “To ask for records related to a government official, prosecutors have to be very careful because you don’t want to impugn an elected official.”

The target of the investigation is unclear.

The grand jury is weighing potential violations of federal wire fraud and antitrust laws that prevent bid-rigging and unfair competition for federal funds, according to a source familiar with the investigation. In this case, Detroit has spent almost $200 million in mostly federal funds earmarked to help cities like Detroit demolish thousands of homes hardest hit by the Great Recession. The city has taken down more than 11,670 under the program.

The grand jury investigation has been underway for approximately one month and investigators have sent contractors subpoenas demanding they provide copies of communications with various city agencies and Duggan’s office, according to a subpoena obtained by The News.

One grand jury subpoena sent to a contractor demanded all financial records regarding demolition work completed or bid on under the federal Hardest hit Fund and the Hardest Hit Blight Elimination Program since Jan. 1, 2014, when Duggan took office.

The subpoena sought all communications the contractor had with Duggan’s office as well as the Detroit Building Authority and the Detroit Land Bank, which oversee the city’s demolition program. The subpoena also sought communications with the Michigan State Housing Development Authority, Michigan Homeowner Assistance Nonprofit Housing Corp. and Michigan Blight Elimination Team, among others.

"We have fully cooperated with this investigation from the very beginning and will continue to do so," said Alexis Wiley, Duggan's chief of staff.

“The mayor's position always has been that if anyone has done something wrong, they should be punished.”

On behalf of the land bank, spokesman Craig Fahle added: “We have pledged our full cooperation.”

The U.S. Attorney’s Office declined comment Tuesday.

MHA and MSHDA have not been subpoenaed by the grand jury, state housing authority spokeswoman Katie Bach confirmed in an email Tuesday.

The subpoena does not necessarily mean investigators are focusing on any specific person, Henning said.

“They are casting a wide net,” Henning said. “If the public thinks corruption has been cleaned up, in fact, corruption is always present. Greed never goes away.

“It has to be a concern that perhaps no lessons were learned from the Kilpatrick investigation. The people who were caught are thought to be the ones who didn’t do a good job covering it up. People think ‘I can avoid this. I’m a lot smarter than everyone else.’ ”

The subpoena sought communications involving several contractors, including: Homrich, ADR Consulting, MCM Management Corp., Bierlein Companies, Atwell and Atwell/DCR. The agent also requested communications to or from “City of Detroit Board members,” an apparent reference to Detroit City Council.

The demolition program, overseen by the Detroit Land Bank, is the mayor’s cornerstone program aimed at revitalizing city neighborhoods. The program has been heavily scrutinized due to escalating costs and pricing.

Duggan has conceded the program has had its “mistakes” but said everything was done with the best of intentions.

At issue during the demolition program’s history is a controversial 2014 set-price pilot program for bulk demolitions that emerged after city officials met with a group of contractors.

Three of the four local contractors participating in negotiations — Adamo Group, Homrich and MCM — were the sole bidders after the project was publicly offered. They were awarded the work.

Duggan has said the move was designed to attract firms able to handle big bundles of demolitions as the city moved with urgency to raze homes and meet a deadline to draw down federal dollars earmarked for the program. The effort was discontinued shortly after.

“We were acting with urgency. In retrospect, we were trying to do too much too fast,” Duggan told The News in an interview last year. “I wish we had taken more time in doing it, but we were trying to do the right thing. We were trying to get these houses down.”

Officials have said 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 pricing for bulk demolitions — 52 cents per cubic square foot — was crafted to increase production and attract large national contractors.

The Rev. Charles Williams II, who is president of the National Action Network’s Michigan chapter, has been among those critical of the demolition program following claims of improper bidding. On Tuesday, he said confirmation of the grand jury is “a big concern.”

“I certainly hope as the investigation goes and the grand jury goes, we begin to get some answers ...,” he said. “Residents deserve answers. We deserve to know what’s happening with the money.”

According to a SIGTARP report, demolition costs soared in Detroit from $11,515 per property in early 2014 to a peak of $18,118 in the first quarter of 2016. But by the second quarter of that year, they had dropped to $17,622. In the fourth quarter of 2016, costs were down to $13,516 per property, the report notes.

The administration has said there was nothing unusual or improper about the set-price contract initiative, which was 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.

Overall, 1,453 houses were demolished during the pilot program. Homrich completed 593, Adamo 607 and MCM did 253.

The firms have received additional money for demolishing more homes, according to an analysis of city data.

To date, the city has spent $169.7 million in mostly federal funds demolishing approximately 11,670 properties, according to a Detroit News analysis. Five companies have received the bulk of the money, according to city data. They are:

■Adamo Group: $43,837,294.81

■Homrich: $35,223,447.63

■DMC Consultants: $17,666,208.64

■Rickman Enterprise Group: $16,762,876.00

■Able Demolition: $15,651,926.01

Representatives for ADR, Homrich, MCM, Bierlein and Atwell did not respond to messages left Tuesday. An attorney for Adamo also could not be reached.