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.