Investigation of Detroit land bank raises concern over excess spending, contamination

Detroit — The Detroit Land Bank Authority and the city's Demolition Department wasted time, resources and taxpayer dollars to determine if topsoil used by a now-banned demolition contractor was safe and failed to notify residents of the potential contamination, an investigative report found.

The Office of Inspector General Ellen Ha received a request from the land bank on June 9, 2020, alleging Chicago-based McDonagh demolition did not provide documentation for topsoil used at a number of demolition sites as required under rules of the city's federally funded demolition program.

Subsequent testing by AKT Peerless, a Detroit firm contracted early in the federal program to monitor backfill materials used to fill in holes where houses once stood, determined dirt used at 81 of McDonagh's 89 sites contained unacceptable levels of mercury, arsenic, chromium or lead. 

Despite AKT's findings, the DLBA spent nearly $100,000 to hire ASTI Environmental, a Brighton-based environmental and engineering firm, and the Dickinson Wright law firm to conduct a separate analysis of whether the soil was acceptable, the investigation notes. ASTI determined that 23 of the 89 sites were contaminated, according to the land bank.

The state Department of Environment, Great Lakes, and Energy is reviewing the dueling tests results.

The city, Ha's office contends, made a conscious decision not to directly notify residents in the neighborhoods around the sites.

"What we are questioning is the process by which this was done," Ha told The News on Tuesday. "It all points to waste. We want this to be an example of where you should not go because it could get you in trouble."

Ha, in the report, notes the process followed was "suspect." Unlike other contractors out of compliance with topsoil, McDonagh — a company formerly admonished for violations and ultimately removed from the federal program for failure to comply — didn't have to pay the testing cost because the DLBA footed the bill. 

The land bank said the OIG's assumption that the issue could have been resolved by ordering McDonagh to remediate the sites from the outset is a "fatal flaw." McDonagh didn't agree with AKT's findings and it's unlikely the company would have voluntarily removed and replaced dirt at all of the sites — an undertaking estimated to cost between $600,000 to $1.2 million, the land bank argued in its response. 

Timothy Devine, general counsel for the land bank, said if the state concludes that 70% of the sites have no public health issue because ASTI Environmental's conclusion of only 23 sites being contaminated is correct then "stripping it all off and replacing it ... would have been at least arguably wasteful."

The IG's report asserts that the land bank wasted city resources by not taking AKT's original environmental results at face value.

The soil issues prompted the land bank to scrutinize the set of standards applied since the $265 million program's inception in spring 2014 and used for the demolition of more than 15,000 properties, the inspector general said. 

Devine told the OIG it was important to bring ASTI in to help the land bank and Demolition Department "define a path that prioritized public health and environmental standards," including whether soil classifications used in the program are "appropriate."

The OIG questioned why ASTI — a firm unfamiliar with the city's program requirements  — would be hired to determine the suitability of topsoil. AKT, it notes, has been involved in determining whether the soil meets program requirements since the program started.

Alyssa Strickland, a land bank spokeswoman, said AKT "misapplied the contractual and legal standards," to the McDonagh sites but "we don't believe they failed at any earlier point in the (demolition) process."

Katie Bach, a spokesperson for the Michigan State Housing Development Authority, said the when DLBA told Michigan Homeowner Assistance Nonprofit Housing Corporation that McDonagh was failing their tests, the MHA pushed for testing at all of the contractor’s sites. She added that the MHA was not actively involved in the decision to hire a third-party organization and felt that the dirt organization that Detroit has used for many years, AKT Peerless, "should have been actively involved in the discussion of dirt quality."

As of Tuesday, 23 McDonagh properties have been remediated, the inspector general report said.

In a statement, the land bank said Tuesday it reported the issue to the OIG's office for investigation and did so to protect public health.

"As the report notes, there is no public health issue," it reads. "The DLBA stands by its successful engagement with EGLE to pursue the science in the interest of public health."

McDonagh first became a pre-qualified bidder for the city's federally funded demolition program in July 2018. Overall, the firm was awarded $17 million in demolition contracts, the report notes. 

In February 2019, Detroit's Building Department issued a stop-work order and corrective plan for the company. It was forced to excavate properties that were identified to have unacceptable materials used as fill dirt.

At that time, the firm was barred from abating or tearing down any of its other contracted properties. By March 2019, the company was issued a notice of termination for refusing to correct the problems. 

McDonagh followed up with a proposed settlement that allowed it to backfill, seed and grade the 89 sites where it had torn down homes out of the overall group of 772 properties contracted to the firm prior to its termination.

That backfill work took place in April, May or June of 2019. The land bank discovered the missing invoices the next spring. 

McDonagh, the OIG report notes, "has a history of not complying with program requirements."

"Yet, the DLBA has spent a lot of time, effort, and money to prove that the topsoil used by McDonagh is suitable for Detroit neighborhoods," it reads. "Those actions do not seem logical given the totality of the circumstances."

Attorneys for McDonagh, in a statement emailed to The News late Tuesday, said the OIG report as it relates to the firm is "without merit." 

The statement contends the OIG didn't contact McDonagh to address concerns raised in the complaint and that McDonagh "did not place contaminated soil on any demolition site."

"McDonagh exercised all necessary due care to ensure the topsoil was safe and compliant with contract requirements when installed," it reads. "Despite the fact that the projects were completed and approved nearly two years ago, McDonagh has continued to work with the City and the DLBA to remediate various sites at their direction." 

The city's Demolition Department paid AKT $130,000 for soil testing.

Initially, the land bank and Demolition Department were contemplating not testing the sites, although MSHDA required it, the OIG report contends.

ASTI was selected by Dickinson Wright, a law firm hired by the land bank in June 2018 for various legal services. The city is not a party to the Dickinson Wright contract, but Detroit Demolition Director LaJuan Counts and Tammy Daniels, demolition director for the land bank, both signed the contract authorization. It was a no-bid contract and without input from Detroit's contracting staff, Law Department or City Council, the OIG report notes. 

As of Jan. 30, 2021, ASTI had invoiced the land bank for $30,637 in services. To date, Dickinson Wright has billed more than $69,000 for legal advice.

The land bank said the city will be made whole with a portion of $223,000 in frozen contract payments owed to McDonagh being held pending final resolution with the 89 properties. If the funding isn't sufficient the land bank will take action to recover the remaining costs from McDonagh.

The OIG report notes Counts informed Detroit Mayor Mike Duggan of the issues in June. In her interview with the OIG's office, Counts confirmed McDonagh used an unapproved dirt source at its demolition properties in violation of its contract. 

John Roach, a spokesman for Duggan, said Tuesday that the land bank's due diligence uncovered the potential soil issues. He added the land bank has consulted with state regulators "every step of the way" and the science showed there was no public health risk. 

"The OIG report basically boils down to a complaint that the Land Bank wasted money by spending too much to be sure the public health was protected," Roach wrote in a text message. "We believe that money was well spent and have full confidence the Land Bank acted properly."

EGLE Senior Geologist Steve Hoin, an expert in soils found in southeast Michigan, said the test results showed high levels of mercury, the report notes. The land bank hadn't provided Hoin details about the source of the dirt, "therefore he lacks an understanding of the soil's history." Although Hoin said there's a "slim chance of harm," the report reads.

Jill Greenberg, a spokeswoman for EGLE, said in a Tuesday email that "data collection is ongoing to determine if any remediation steps are necessary" for McDonagh's 66 remaining sites. 

The potential of issuing a press release was discussed last June by the land bank, demolition department and Duggan's office after data indicated topsoil at 11 properties "could represent potential environmental or health concerns."

Instead, the land bank agreed at the request of Duggan's office to post soil sampling data and scientific analysis on its website. The information went live in September, but Ha said the site is hard to navigate.

Detroit's City Council was informed last summer of the issue and commitment to engage experts and consult with the state, ahead of the panel's consideration of the city's $250 million blight bond initiative. 

Council was not provided a final update on test results in October. That's due to a final opinion pending from EGLE, land bank officials told the OIG.

"Any government program that uses taxpayer dollars should operate with full transparency," it reads. "In this instance, the DLBA and Demolition Department fell short."

McDonagh's issues have prevented the DLBA from closing out its participation in the federal Hardest Hit Program. The company met its April 2 deadline to replace the soil. The city's deadline to close out the program is in June.

Detroit's federal program has a history of controversy with bidding practices and soaring costs, and in recent years some city, state and congressional lawmakers raised concerns over the potential of environmental contaminants in the dirt used at city demolition sites following a number of high-profile violations by contractors.

cferretti@detroitnews.com