Duggan: Concerns will be 'sorted out' in federal review of Motor City Match

Detroit — Mayor Mike Duggan said his administration has "largely worked out" problems flagged in a federal review of record keeping and spending for a grant-funded program designed to support entrepreneurs. 

The mayor's comments come a day after The Detroit News reported the city suspended use of federal funds for the Motor City Match program after being requested to do so last month by the Housing and Urban Development Department. The city now must address audit findings that suggest the program was not adequately targeting low- to moderate-income areas.

Mayor Mike Duggan

"HUD is working with us very well to make sure there's full compliance," Duggan told The News after speaking at an event Wednesday in Spirit Plaza. "It's going to be sorted out very quickly."

The September report came after the federal agency's May 2018 monitoring of Detroit's Community Development Block Grant records. 

The mayor on Wednesday deferred questions on the specific findings or what has been worked out to Arthur Jemison, who is Detroit's chief of services and infrastructure.

Jemison said Wednesday that the city is working with HUD on how funding allocations for the program are classified and to revise its past documentation to meet HUD guidelines.

With a new program like Motor City Match, Jemison contends it's "not unusual" for it to take time to reach consensus on some issues. 

"We take our relationship with HUD very seriously, and when you're working on a unique thing, there's going to be some back and forth about the right way to document it according to our reading of the rules," he said. 

HUD will analyze the city’s response before determining the eligibility or appropriateness of Detroit's use of the funds, Jim Cunningham, deputy regional administrator of HUD's regional office based in Chicago told The News.

“Following a routine monitoring of Detroit’s block grant program, we recommended the city improve its record-keeping and documentation procedures to ensure federal taxpayer dollars are tracked appropriately," he said Wednesday. "HUD and the City of Detroit are working closely together to address these findings so, together, we can make certain lower-income Detroit residents get the full benefit of these funds.”

Cunningham said the goal is for Detroit to achieve compliance in its administration of the CDBG program. HUD has "various methods of corrective actions for non-compliance" with program rules and "will take appropriate corrective actions when program violations are found," he said. 

To date, the city said it has funded $7 million to businesses through the program, resulting in 57 opened businesses and 85 others in various stages of development. 

The next round of winners for the program funded with the city-approved dollars will be in August. 

Duggan launched Motor City Match in 2015 to jump-start entrepreneurship in the city.

The mayor said Wednesday that he initially sat with HUD officials in Washington, D.C., five years ago and told them 'here's what I'd like to do with the money.' The program, he said, was designed with their assistance.

"They said, 'it's eligible, it hasn't been done before,'" Duggan said. "So we set it up with their input. Now, they've looked at it and said 'why don't we do the funding a different way.' And I think we're very close to a resolution that will make everyone very happy."

The program is funded through federal Community Development Block Grant dollars. The city provides the CDBG funds to the Economic Development Corp. to carry out Motor City Match's activities by providing financial and technical assistance to potential and existing small businesses.

In May 2018, HUD conducted what it calls routine monitoring of the city’s CDBG funding — including Motor City Match — to ensure it was complying with eligibility and national objective requirements. Prior to that, the last monitoring was in 2015, according to HUD. 

In the fall, HUD issued the report showing there were insufficient records to show whether the program met its objective to target low-to-moderate income areas.

It also found that the city lacked records to show economic development underwriting and public benefit standard requirements for the program. According to HUD, the city also provided CDBG funds directly to for-profits without performing required financial underwriting.

The city responded the Motor City Match assistance was exempt from the requirements because for-profits qualified under the CDBG regulations as "microenterprise" businesses.

HUD, in a third finding, said that the city did not maintain sufficient oversight to ensure costs complied with CDBG-eligible activity.

Also under review is a March 2017 payment for $153,000. HUD said only $20,000 of the total was directly tied to assisting 10 businesses. The rest was used for administration, project assessment and outreach and engagement.

Detroit City Council President Pro Tem Mary Sheffield said Wednesday that she'd not heard of the concerns from HUD involving the program prior to The News' report and is awaiting additional findings. 

The chief concern, she said, is ensuring that CDBG funds are benefiting low-income areas and low-income individuals, as intended.

"I'm going to wait until the audit is done, see the actual findings of the audit and then I want to see what corrective actions the administration is going to take in fixing those," she said. "And if it's not sufficient, then I'll move from there."

As the city works with HUD to address the report findings, officials plan to request by the end of July a vendor to help the city administer the program. The city also hopes to shift the focus of the program to business expansion and technical assistance.

City officials met with HUD officials this month and will again in about two weeks. 

Donald Rencher, director of Detroit's Housing and Revitalization Department, has said his department has started to provide responses to HUD's findings.

The city has requested until Dec. 15 to give a final response to HUD. It also plans to continue the Motor City Match program beyond the initial five-year run.

In March, the City Council approved the Housing and Revitalization Department's request for $800,000 in funding for the Motor City Match program from its general fund. The plan is to continue the program with a mix of CDBG funds and general fund dollars.

Motor City Match is the latest cornerstone initiative of the Duggan administration to come under federal scrutiny in recent years.

The city’s massive blight elimination program remains at the center of a federal criminal investigation after concerns were raised in 2015 over bidding practices and soaring costs. The program also has been the subject of state and local audits and reviews.

In April, a former employee of a prominent demolition contractor and an ex-building authority employee pleaded guilty to accepting bribes and rigging bids to demolish homes in the city.

Meanwhile, Duggan’s ties to a program run by Wayne State University and the prospect of preferential treatment are the subject of a probe launched this spring by Detroit’s Office of Inspector General.