Blight funds need more scrutiny, federal watchdog says

David Shepardson
Detroit News Washington Bureau

Washington – — A government report being released Tuesday criticizes the U.S. Treasury Department for not providing stronger oversight of federally funded blight removal programs in Michigan and five other states.

Christy Romero, the special inspector general who monitors the $700 billion Troubled Asset Relief Program, says Treasury needs to pay more attention to funds that were meant to help struggling homeowners avoid foreclosure and to be used for blight removal.

The report says the Obama administration has designed the blight removal program "in a way that leaves Treasury in the dark on strategies, decisions and blight elimination activity." The report said Michigan "does not even monitor or approve the contracts or even have a listing of the entities that their land banks or other entities have contracted with."

The report also said Treasury has an "oversight responsibility" to ensure that states can handle an increase in demolitions and that the department should not have a "hands off approach and involvement that limits transparency, oversight and can impact risk."

Romero issued a report in January that raised similar questions about monitoring of the program.

Treasury officials again defended their oversight of the blight eradication program, saying it is similar to how they monitor other programs. The state program is run by the Michigan State Housing Development Authority, which reimburses funds spent on demolition after receiving invoices and documentation that the work was done.

Michigan was the first state approved for blight funds from the "Hardest Hit Fund" when it was awarded $100 million in June 2013.

Last year, Michigan added another $75 million. Treasury has since approved programs in Ohio, Indiana, Illinois, South Carolina and Alabama, with a total of $372 million for the six states to tackle blight.

Of the funds, about $100 million has been set aside for Detroit, while the program was expanded to another 11 cities in Michigan — including $6 million for Lansing, $5.5 million for Jackson, $5 million for Highland Park and $2.25 million for Inkster.

The state told Treasury that as of March 31, under preliminary figures, Michigan has spent $43 million to demolish approximately 3,220 homes, a little more than $13,000 per home. Michigan also told Treasury it has committed more than $165 million for use statewide for demolishing properties.

Treasury criticized the report — and noted that it sent a team to review Michigan's report to ensure there was no waste or fraud. The report doesn't cite any examples of misspent money. During the review, Treasury reviewed documentation to make sure the funds are being spent properly.

"SIGTARP's recent report on blight elimination programs is based on a fundamental misunderstanding of how the Hardest Hit Fund is structured and intended to operate," Mark McArdle, Treasury's chief homeownership preservation officer, said Monday.

"The Hardest Hit Fund was designed to allow participating states to propose and implement innovative foreclosure prevention programs responsive to the specific needs of their communities," he said. "The report's suggestion that Treasury should manage and direct the day-to-day implementation of each of the states' programs is inconsistent with the design and intent of the HHF program."

The report also said Treasury should do a better job of assessing the economic impact of using funds to tear down homes, rather than using the funds to help struggling homeowners avoid foreclosure.

The report said a Treasury economic analysis found the impact of tearing down blighted homes in Detroit can be felt only within a 200-foot radius of the demolished property. Treasury found that removing a blighted home and cleaning up the lot and making it a green space lowered the probability that nearby properties would end up in foreclosure by 0.7 to 1.7 percentage points.

The Treasury said states are best positioned to run the programs and establish target goals.

Detroit Mayor Mike Duggan's office defended the program. His office and the Detroit Land Bank said Monday that the city is extremely transparent, posting all contracts and properties torn down on two city websites.

"Each demolition requires between 20 and 30 different documents proving the work has been done. Simply put, Detroit does not get paid unless it does the job properly," Duggan's office said earlier this year. "To meet this rigorous oversight requirement, no less than six full-time employees are solely dedicated to compliance and oversight."

The city said the Detroit Land Bank was initially awarded $52.3 million in demolition funds and has torn down 3,370 homes. It was awarded another $5 million and is planning to tear down another 528 blighted structures in the coming months.