Houston uses local housing funds to replace disallowed federal housing funds

Houston Chronicle reporter Mike Snyder has uncovered a move by the City of Houston to repay over $15.5 million of disallowed HUD housing funds with housing funds the city collected from local tax increment refinance zones (TIRZ).

I have been digging into the story a little to try to uncover some details. The explanatory documents filed by the City’s housing department with the City Clerk’s office states…

The Housing and Community Development Department has management responsibility for ensuring that HUD grants awarded to the City are used in compliance with appropriate federal regulations and statutes.  The city annually receives grant funds from four different HUD programs. Community Development Block Grants (CDBG), Housing Opportunities for Persons with AIDS (HOPWA), Emergency Shelter Grants (ESG) and HOME Investment Partnerships. HUD continuously monitors the grant recipients to assess compliance with its highly complex regulations and to ensure that the grant funds are being used for eligible purposes.

HUD’s monitoring of 2003, 2004 and 2005 program activities found noncompliance with HUD program regulations and disallowed certain expenditures made with HOME, HOPWA and CDBG funds. The city has worked with HUD for more than a year to resolve these findings. Through negotiation and corrective action, the city’s total exposure has been reduced considerably resulting in our obligation either to repay the following amounts or to face reduced grant awards in the future (with the HOME amount subject to further adjustment based on HUD’s review of City submittals).

CDBG $487,793

HOPWA $1,397,029

HOME $13,622,372

TOTAL $15,507,194

HUD has agreed to a five-year no interest payment schedule, with annual payments in the amount of $3,101,439. The proposed ordinance approves this payment schedule, subject to annual appropriations by City Council, and appropriates TIRZ Affordable Housing Funds for the first year’s installment, which will be applied to findings related to two multifamily home projects.

This is clearly an unfortunate situation. The City did not follow the federal regulations and therefore has to repay quite a bit of money from three federal housing block grants. There is no explanation in the materials provided to the City Council as to the nature of the City’s noncompliance with federal laws.

The City’s decision to use locally generated affordable housing funds to reimburse the federal government for the misspent federal housing funds also raises the question: Are the disallowed housing activities reasonable and appropriate to be funded with local housing funds?  We simply don’t have the information to judge.  And that is a big problem when such large sums of public funds are involved.

At the least this points to the extremely broad, and in my opinion inappropriate, state law which governs the city’s use of affordable housing funds collected from Tax Increment Refinance Zone funds. There are very few standards and little reporting required as to how these funds are utilized.

The Legislature should take steps to make the City accountable to the taxpayers and the public for how it spends TIRZ funds.