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Dallas' City Staff Has Two Stories Why HUD Complaint Is No Big Deal, Both Stupid

The city of Dallas went to federal court earlier this week to stop a federal judge from expressing his opinion about a recent federal investigative report accusing Dallas of practicing racial segregation (the city's brief is below). Plaintiffs in a whistle-blower lawsuit will come back today with their argument urging the judge to go ahead and say what he thinks.

It's very complicated legally -- a thing called an "indicative ruling," in which the judge is being asked to look at new evidence in a case already decided against the plaintiffs and now on appeal. They want him to say whether he might have ruled differently had he known then what he knows now.

This case involves two downtown tower developers who say they reported the city to the U.S. Department of Housing and Urban Development (HUD) when their own dealings revealed to them that the city was engaged in a decade-long conspiracy to cheat HUD out of hundreds of millions of dollars. They say they told HUD Dallas was taking federal desegregation money and using it instead to build condos for rich white people downtown.

Here's the point: Federal law pays rich rewards to those who alert the federal government to government fraud, and those rewards come out of the guilty party's pocket. In some of the city's own court filings in this case, it says it could be on the hook for more than a billion dollars to developers Curtis Lockey and Craig MacKenzie if they can prove they were the ones who blew the whistle first.

We talked about this Wednesday. The judge in this case, Reed O'Connor, tossed out Lockey and MacKenzie's whistle-blower suit last year after agreeing with the city that they weren't the ones who blew the first whistle. The city said -- and the judge agreed -- that the Dallas Observer was the main whistle-blower. I am checking now to see if we get a billion dollars. If we do, I am going to suggest to management that we donate all of it to the whales, but I will offer a compromise position in which they can keep some of it if I can, too. Gotta be flexible. But I don't think it works that way.

See also: Dallas and Its Housing Authority Credit Me With Uncovering Their Housing Scam. I Wish.

Straws in the wind yesterday told me that city staff is making a couple of arguments to the mayor and city officials. First, they are telling the elected officials that they have spoken with HUD, and HUD has no desire to give Dallas a beating. All HUD will seek, they say, is a way forward, an agreement by which Dallas will do better in the future.

Based on what I have been told and have read about HUD's behavior in other similar enforcement matters, that may well be the case. It sounds like them. It's also irrelevant and not a thing from which elected officials should draw much comfort.

As I pointed out in a column a week ago, HUD has a lousy record on enforcement of its own policies, laws and contracts. In both of the recent big cases elsewhere similar to ours, HUD had to be dragged into an enforcement action kicking and screaming by private plaintiffs. There is great division within the agency about how aggressive or conciliatory it should be, especially concerning its biggest potential whip, the threat of withdrawal of all federal housing money from entities that deliberately cheat.

See also: Dallas Doesn't Have To Be the City Portrayed in the HUD Segregation Complaint

It's perfectly plausible that somebody at HUD is whispering in the city's ear not to worry. But that's exactly why Lockey and MacKenzie are in the appeals court -- to hold the agency's feet to the fire. The recent HUD investigative report finding Dallas in non-compliance with federal law is a pretty strong indication that there's a new (second-term) sheriff in town and HUD intends to get tougher on its own. But even if that's not true, Lockey and MacKenzie's case in the appeals court will give federal judges there an opportunity to force HUD's hand, as federal courts have done in other cases.

The second straw is this: The staff is telling elected officials that anybody and everybody who ever got a good look at Lockey and MacKenzie's deal saw right away it was way too sketchy. The two men wanted to renovate a tower at 1600 Pacific Ave. That deal went south in June 2009 when a downtown tax incentive board voted to kill a key subsidy, which had the effect of knocking the developers out of the box for other needed funding. Now staff is telling the City Council these guys were way shady from the get-go.

It's a lie and a libel. Lockey and MacKenzie both have distinguished resumes including projects all over the country. Lockey has been a trusted and successful partner with the city of Dallas on other projects. The city made all of these same arguments when HUD first began to investigate Lockey and MacKenzie's complaints, covering HUD up with paper in the first two years of the probe to show that Dallas did nothing wrong and these guys had a flaky deal.

Given HUD's history on matters like these, it's safe to say the agency probably started with sort of an institutional cultural bias against Lockey and MacKenzie and with a tendency to side with its own local government clients. But after combing records for four years, HUD finally ruled that the Lockey and MacKenzie deal was as good or better than many deals City Hall had treated preferentially.

The point being, all of this stuff -- "HUD loves us, Lockey and MacKenzie are flakes" -- is a song City Hall has been singing for four years. During this period, that lullaby hasn't worked on anybody in Washington. The question now is whether the staff can put the Dallas mayor and city council to sleep. You would think not, but you have to remember that they start out kind of droopy-eyed down there.

City of Dallas response to Lockey and MacKenzie motion for indicative ruling 12-17-2013 US District Judge R... by Schutze


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