Audit questions Houston’s use of affordable housing funds

Houston housing

Houston’s housing department kept inadequate records on its local affordable housing fund, spent more than half of the fund’s expenditures on personnel or administration, and supported projects with a “tenuous relationship to affordable housing,” according to an audit released by the controller’s office Thursday.

The audit for fiscal years 2015 and 2016 echoes a Houston Chronicle investigation into the same fund that showed the city collected $130 million in local taxes over the last decade to provide housing for low-income families, but produced fewer than 500 homes that remain tied to city subsidy rules.

The Chronicle found nearly half of the $96 million spent since fiscal 2007 went toward such expenses as administrative overhead or federal fines. Repeated questions from the newspaper about financial discrepancies led the city to discover $46 million was available for new projects as of this spring, tens of millions more than officials thought.

Much of that money accumulated in fiscal years 2015 and 2016, the audit shows, when the city took in $41 million in local taxes dedicated to affordable housing, but spent just $19 million, even as Houston grapples with an affordable housing crisis.

Among the controller’s chief findings is that the city spent $2.4 million in January 2016, to spur development in a northeast Houston subdivision, Leland Woods, without evidence work was performed.

“It’s critical that the funds that we have are being used for the intended purpose,” City Controller Chris Brown said. “From an internal controls perspective, that’s a little disturbing, because it’s such a large number.”

Leland Woods’ redevelopment authority, also a public entity, had yet to spend the $2.4 million as of January, the audit found.

Clark Lord, a Bracewell attorney who represents the Leland Woods entities, said that is because the authority is waiting for a development deal to close.

“Why have the funds been sitting there so long? It’s not mismanagement,” Lord said. “It’s simply that the funds were there to induce a developer to purchase that land. Land development takes time.”

The city’s Chief Development Officer Andy Icken acknowledged the process has moved more slowly than he hoped.

“This has been a labor of love or torture. It’s not the most prospective area of the city to build homes in,” said Icken, who manages the economic development zones that finance the local housing fund and oversaw the housing department at the time of the $2.4 million payment to Leland Woods.

The housing department also lacked records to explain a $51,000 payment related to Leland Woods.

“That should never have been paid without the proper justification,” said Housing Director Tom McCasland, who was appointed last July, after the close of the audit period.

Housing advocates questioned the department’s spending and record-keeping practices, as well as the local housing fund’s high administrative expenditures.

“It was quite alarming to see that it was over 50 percent that was allocated specifically toward administrative costs. With the need for housing in the city of Houston … this should not be used as a slush fund for the city to balance its administrative budget,” said Chrishelle Palay, Houston co-director of the Texas Low Income Housing Information Service.

Tiffany Hogue, policy director for the Texas Organizing Project, agreed, saying the report confirms advocates’ broad belief that the local housing dollars must be subject to stronger rules.

“We’re at a real crossroads and need get our act together in terms of what is our housing strategy,” she said. “We can blink our eyes and in another decade have a completely gentrified city core and low-income families are struggling to figure out how to make it from the suburbs into the city to work. I hope the report and the (Chronicle) investigation help put a lot more urgency to figuring it out.”

The controller’s office finished its audit nearly two months ago, emails show, but waited to release the report because Icken took an abnormally long time to reply to the findings, to the extent officials discussed publishing the audit without responses from city officials.

“Releasing the audit in this form – while not ideal – will ensure that we are upholding our duty to the public to report our findings in as timely and transparent a manner as possible,” City Auditor Courtney Smith wrote in a memo to the controller last Friday.

Icken, in a memo to Mayor Sylvester Turner last week, said the delay was intentional.

“To ensure that you have full knowledge of the findings, recommendations, and management responses to resolve issues, I have delayed the submission of the signed acknowledgment until you have been fully briefed,” Icken wrote.

Icken, in the same memo, said the local affordable housing fund, known as 2409, accumulated a $46 million balance in part because the housing department was concentrating on spending federal disaster recovery grants.

“In late 2014, it was recognized that a longer-term strategy for 2409 funds was essential and has been under development consistent with Mayor Turner’s Complete Communities plan and other city needs,” Icken added.

In a March interview with the Chronicle, however, Icken said that he and other city officials had not been fully aware of the growing balance in the fund.

“The facts are we didn’t know it, and I’m not going to hide it as anything else,” he saidat the time. “I’m glad you helped us find this.”

Turner did not take office until 2016 and unveiled Complete Communities, his housing and community development initiative, this spring.

The controller’s audit comes two months after Turner promised a series of reforms in response to the Chronicle’s investigation, including attaching tougher rules to subsidies, providing annual financial reports on the fund and developing a definition of affordability, which the city currently lacks.

McCasland said he briefed the mayor on a draft definition of affordability two weeks ago and plans to solicit broader comment in the coming weeks, before City Council votes on how to spend the city’s $46 million in available local housing funds.

“If you’re going to give a definition of substance,” McCasland said, “you have to strike the balance between providing some clear guidelines without boxing yourself in so tightly that you can’t spend the money.”

This story originally appeared 7/6/2017 in the Houston Chronicle.

Coalition Wants Tax Abatements To Require Help For Houston Economy

Jobs presser

A coalition of groups wants the City of Houston to require more jobs when it awards tax abatements. A new study from the Texas Organizing Project says Houston is missing an opportunity by not requiring more from companies getting tax breaks.

The Mayor’s Office of Economic Development works to attract business owners into relocating or expanding their companies in Houston. One of the tools used is tax abatements. But a new report from the Texas Organizing Project says in 39 tax deals over a dozen years, the city hasn’t required much in return. Raymond Brackens with TOP says the city should include specific requirements to help communities.

“Based on the findings on this report, that means passing a strong financial policies ordinance that requires all developers receiving tax breaks from the city (to) pay family-sustaining wages, and include affordable housing on residential development.”

According to the Mayor’s Office of Economic Development website, projects that qualify for a tax abatement must retain or create at least 25 permanent jobs throughout the years of the agreement. But Laura Perez-Boston with TOP says the job creation requirement often is not enforced.

“And more than half — 56 percent of the projects — include no commitment to create even one job.”

Perez-Boston says if they don’t create jobs, most abatements are just a windfall for the private sector. We reached out to the mayor’s office, but didn’t hear back by deadline.

This story originally appeared 7/6/2017 on Houston Public Media.

Tax Breaks for What?: A Community Report on the City of Houston’s Economic Development Deals

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On July 6, 2017, Houston4All partners from the Texas Organizing Project, SEIU Texas, the Sankofa Research Institute, the Texas Gulf Coast Area Labor Federation, and the Workers’ Defense Project gathered at the River Oaks District shopping center to release a report on Houston’s tax incentive programs. Also present were representatives from Rice University, IUPAT88, Texas Low-Income Housing and Information Services, LiUNA, Harris County Commissioner Ellis’ office, the Harris County Labor Assembly, and Houston Unido.

The report “Tax Breaks for What?: A Community Report on the City of Houston’s Economic Development Deals” looks at the 39 projects that received tax breaks through the Chapter 380 and tax abatement programs between 2004 – 2016. The report asks what is the return on investment for struggling families and neighborhoods for these tax giveaways and what are the City’s values and priorities that these projects narrate.

Key findings include:

  • Lack of proactive strategic economic development goals
  • No regular reporting neither on basic compliance nor measures of equity
  • Cost per job promised: $74,971 (approximately 10x higher than Dallas and Austin’s cost per job promised)
  • The majority (56%) of projects do not include a promise to create even 1 new job
  • The City failed to include basic job standards such as higher wages or benefits for project employees, local hire and second chance hiring
  • Of the 5,480 housing units, the City did not require developers to set aside even one unit as affordable housing
  • The City failed to estimate the projected incentive value for more than 1 in 4 subsidized projects
  • No overarching requirement for public hearings in advance of a council vote on a project
  • Multiple community-initiated lawsuits involving city-subsidized developments
  • Weak enforcement

The report also includes:

  • Public policy recommendations for the City of Houston
  • Best practices from around the Lone Star State in economic development
  • A community report card
  • An overview of the 380 and tax abatement programs
  • A spreadsheet of basic information on all 39 projects; and
  • An interactive map of the 39 projects with details on the incentive value, recipient, new jobs promised and other information

Learn more about the city-subsidized projects with this interactive map built by January Advisors.