Audit: Federal program lacks safeguards in blight fight
Washington — A watchdog agency has found that the federal fund that includes a national blight removal program has no competitive requirements for contracts awarded with taxpayer dollars — standard safeguards meant to reduce fraud and guard against favoritism.
The Special Inspector General for the Troubled Asset Relief Program is urging the U.S. Treasury Department to apply uniform federal procurement standards going forward to ensure that contracts for demolition and other programs in the Hardest Hit Fund are awarded through processes that promote competition and ensure stewardship of public money.
It’s unclear whether the new audit could influence the ongoing federal investigation into Detroit’s troubled demolition program, which has been under scrutiny amid concerns over bidding practices and soaring costs.
Last year, a federal grand jury was evaluating the city’s blight program and whether federal money was misappropriated as the city spent millions to take down homes after the housing market crash. No one has been charged in the probe, and the target of the investigation is not publicly known.
Michigan and Detroit housing officials say they have policies in place to ensure federally funded blight contracts are reviewed and awarded in a competitive manner.
“The Detroit Land Bank believes in a competitive process and all demolition work done using HHF funds is, and will continue to be, competitively bid,” said Saskia Thompson, executive director of the Detroit Land Bank Authority, in a statement.
The SIGTARP report, published Thursday, says that competition in the $9.6 billion Hardest Hit Fund is “critical to protecting federal taxpayers,” considering the fund has contracted with 19 state housing finance agencies to disperse millions of dollars worth of contracts.
“Competition saves taxpayer dollars, while a lack of competition can lead to overcharging and waste,” the report says.
Special Inspector General Christy Goldsmith Romero said, except for one sentence of guidance for the blight program added by Treasury officials in 2016, the department has no requirements for competition for contracts awarded with Hardest Hit funds.
“Given that HHF operates much like a grant program, and has the same vulnerabilities of a grant program, taxpayers should receive the same federal protections against fraud, waste and abuse that exists with grants,” Romero said in a statement.
The audit says officials can’t count on state laws or individual agency policies to protect taxpayers because, in some cases, state standards or oversight don’t apply or aren’t enforced.
In one example, the nonprofit company that runs the Hardest Hit program in California said it has no written purchase or procurement policies. In Nevada, state procurement laws don’t apply to the contractor running the HHF program.
A 2016 audit by Romero’s office found that 94 percent of the Treasury’s federal funding committed to blight – nearly $590 million at the time – had no federal or state agency requirement for competition in soliciting work.
That audit found that Michigan’s Hardest Hit program “provides a general timeline for creating and publishing ‘bid packets,’ with no requirements that address competition.”
The nonprofit entity created to administer Michigan’s Hardest Hit program has a section of its manual today that says its blight partners “must conduct contractor review through a competitive bid process,” said Misty Miller, a spokeswoman for the Michigan State Housing Development Authority.
The manual says all bids must have more than one contractor submitting to a specific request for proposals.After the 2016 audit, officials added a requirement that blight partners must provide justification for cases in which the lowest bidder isn’t selected or if only one contractor responds to an RFP, Miller said.
To increase competition, the nonprofit, known as the Michigan Homeowner Assistance Nonprofit Housing Corp., also added a limit on the maximum number of structures per bid pack to be 50 properties or fewer and, last year, prohibited flat-rate pricing.
In 2016, the housing organization also began requiring blight partners to sign off on a statement attesting in part that contractors performing demolition work were reviewed and selected “through a fair and open competitive process,” Miller said.
In a written response included with this week’s audit, a Treasury official said adopting new standards for competition in the Hardest Hit Fund would be a “significant change at this very late stage of the program.”
Treasury created the Hardest Hit Fund in 2010, and Congress recently extended it through 2021 when lawmakers authorized an additional $2 billion for the fund in 2016.
Hardest Hit has allocated $761 million to Michigan, including $381 million for blight demolition. Detroit has been allocated more than $258.6 million for demolitions and has roughly $105 million left to spend, according to the Detroit Land Bank Authority.
Duggan said this week that he will rework the city’s demolition program, which initially sought to demolish 40,000 houses over five years. The city has taken down 14,000 structures under the program.
“I feel really bad about all the people that got into trouble because I tried to push them to do 8,000 a year,” Duggan said in his state of the city address. “But the truth is with our contractor capacity, we can’t do it.”
Last year, Duggan disclosed that the city’s program had been suspended by the Treasury Department from August to October as officials met to draw up new controls and practices to address problems.
The grand jury last year was looking into potential violations of federal wire fraud and antitrust laws that prevent bid-rigging and unfair competition for federal funds. The FBI’s Office in Detroit also acknowledged it was investigating the city’s program.
Investigators from the FBI and Romero’s office had sent contractors subpoenas for records and communications with city agencies and Duggan’s office including those related to the Hardest Hit Fund’s blight elimination program.
The city’s building authority and land bank turned over more than 250,000 pages of emails and attachments to federal authorities.
Duggan said last year no one from his office has been questioned or subpoenaed in regards to the grand jury evaluation of the city’s demolition program. The Detroit Land Bank said it was cooperating with investigators.
Last year, Romero issued an audit flagging “skyrocketing” costs for blight demolition in Michigan and Ohio, though the Michigan State Housing Development Authority disputed the methodology used in her report.