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Whistle-Blowers Claim City Misused Housing Money

Jen Sorensen

Riddle: What does the city of Dallas have in common with Westchester County, New York? This is a hard one.

They're a county. We're a city. They're Yankees. We're not. Their median home value is $559,800, according to the census. Ours is $128,800. Getting tired of this? OK, I'll tell you.

We just got hit by exactly the same kind of lawsuit Westchester County got hit with in 2006 alleging they had lied more than 1,000 times to the federal government in order to fraudulently collect hundreds of millions of dollars in federal housing money. In 2009, after a federal judge agreed the county had made false claims, Westchester settled the suit for $62.5 million.

Our situation is different in one compelling aspect. We're on the line for a ton more money. The lawyers bringing the suit are Kohn, Kohn and Colapinto of Washington, D.C., recognized as one of the nation's top firms, maybe the top one, in fact, in the representation of whistle-blowers in and out of government.

And that's what this is — a whistle-blower suit alleging that the city of Dallas made multiple false claims between 2000 and the present in order to collect major amounts of money from the Department of Housing and Urban Development.

The suit alleges that Dallas City Hall falsely portrayed itself as using federal money to combat segregation when in fact it was using it to further segregation.

That's not exactly why the suit says Dallas broke the law. Dallas broke the law, according to the lawsuit, because it lied in violation of the False Claims Act.

The False Claims Act can be enforced criminally (off to the calaboose) or civilly (write a big check). On the civil side, it can be enforced by ordinary citizens or whistle-blowers. Qui tam, lawyers call that.

Let's say your neighbor owns a small business that has a contract with the post office to shred and dispose of unclaimed mail in an environmentally responsible manner. You know he's dumping the stuff in the river. You can bring a lawsuit against him on behalf of the post office.

If you can prove he's doing it, and if you can prove that nobody would ever have found out if it hadn't been for you, you can demand a cut of whatever settlement or jury award he winds up having to pay to the post office.

In our case, the whistle-blowers are two developers, Curtis Lockey and Craig MacKenzie, who have claimed they lost $30 million in 2007 when the city squelched their major renovation project at 1600 Pacific Ave. downtown. They say the city got mad at them because they wanted to obey federal law and put affordable or low-rent apartments in their project. The project was to be paid for in part by federal money that's supposed to go for affordable housing.

In fact, Lockey and MacKenzie claim they discovered a major kink at City Hall. They say the city was desperate to pump up downtown living by converting empty office towers to apartments, but the city wanted downtown to be fancy and affluent, not modest and diverse.

Lockey and MacKenzie say they had conversations and even saw paper in which the city was offering developers federal affordable housing money but requiring them to break the law by not providing the required amount of affordable housing.

Do they have a grudge? Yeah, they have a $30 million grudge. Most of us couldn't afford to have a grudge a 10th that size. You see a guy with a $30 million grudge coming at you down the street, get out the way.

They took their complaint about their own deal to the U.S. Department of Housing and Urban Development a year ago. They're still waiting to hear what HUD has to say about it.

Now, in a totally separate matter, they have emerged as the qui tam whistle-blowers in this lawsuit, unsealed just last week by a federal judge. The suit is based on issues far beyond their personal situation and paints a portrait of Dallas that should make us all very uncomfortable.

Here is a city that describes itself without the least hint of a blush as divided into North Dallas and South Dallas. White and black.

The city's only daily newspaper proudly publishes a series of articles on its editorial page about the need to spruce up southern Dallas. City Hall brags about how much affordable housing it has steered into southern Dallas.

Maybe even more troubling, the city's African-American leadership demands that city resources be divvied up better north and south. Black leadership sabotages and tries to run off major economic development in southern Dallas because the developers are white and belong in North Dallas. Must have gotten lost.

OK, just in case you and I are getting lost, too, allow me to pause and point out what's wrong with this picture, according to the federal officials who hand out housing money.

 

There's not supposed to be a North Dallas.

You know what's even more shocking? There's not supposed to be a South Dallas, either. That's called segregation.

I'm not even talking about social policy here. I'm talking about the dictionary. Line down the middle. White folks over here. Black folks over there. Segregation. A bad thing. Not a good thing. They don't give you money to promote segregation. They give you money to promote desegregation. Can you believe we still have these conversations?

In order for a local government entity to get its hands on federal housing money, it is required to formally certify every time it does so that it is doing something called "affirmatively furthering fair housing." The feds even have an abbreviation for it — AFFH. If you take the money, you have to certify you are using it to AFFH. You have to swear you are an AFFHer.

AFFH is all about desegregation. Westchester County tried to argue it had used the money to promote economic diversity and that should be enough. The judge said in an order, "an interpretation of 'affirmatively further fair housing' that excludes consideration of race would be an absurd result."

They didn't fight the Civil War to end poverty. They fought it to end slavery. All of the civil rights-oriented law since then has been about racism. In order to AFFH, you have to promote desegregation.

So let me give you one small example of how Dallas City Hall has used the federal government's money. In the late 1990s the city borrowed $25 million in Section 108 housing money from HUD at very low interest, then lent it out again to downtown developers. The city used other federal money, called community development block grant or "CDBG" money, to make the payments on its loan from HUD.

Borrow money from the feds. Use the feds' own money to pay the feds back. Sweet, eh?

Lorlee Bartos, who was on the CDBG board at the time, complained to the city that the loan payments were eating up a lot of the CDBG money, which was supposed to go to people in need.

"I said, 'You are developing downtown on the backs of the poor,'" she told me last week.

Not to worry, the city told her. The developers will have to pay back it back to the CDBG fund with interest, and meanwhile they are required to provide affordable housing in their projects.

But in fact, as the developments were completed, the city let them out of their loans for 60 cents on the dollar and then ruled that they were no longer required to provide affordable units.

The CDBG fund got stiffed. It never got its money back. All that federal money produced next-to-nothing in the way of rent-controlled units. And it turns out the city should have required the developers to provide affordable units anyway because the requirement was still in deed restrictions that ran for 15 years no matter what happened to the loans.

In other words, the city in effect leaned over backward to make sure the federal housing money it was taking would not produce affordable housing downtown. If we were to do an abbreviation for that, it would be AFSBGAFM — affirmatively furthering segregation by giving away federal money.

This is one relatively small example. The lawsuit goes into the whole Don Hill federal corruption trial saga, in which the city was cramming affordable housing into black neighborhoods while it built nothing in white areas. Please.

Someone is going to say, "But that's what former Dallas City Councilman Don Hill, an African-American elected leader, wanted the city to do. He wanted the new affordable units to be built in his district, which is black."

Yeah? I ask one question. Where does Hill live now? In the pen. The big house. Up the river for 18 years. And let's not forget the other African-American leaders who fought to shut down the white guy who wanted to bring 65,000 new jobs to their part of town. They haven't joined Mr. Hill yet, but they have FBI agents kicking their doors right and left.

Line down the middle. White. Black. Bad.

That's what this lawsuit says. It paints a big bull's-eye on City Hall. The top estimate I have heard for potential damages — usually figured at three times the actual amounts involved — is north of a billion dollars. Way north.

I asked City Hall to comment on all this. They did not grace me with a message one way or the other.

Federal Judge Reed O'Connor has had this thing on his desk for months. Selected for the federal bench in 2007 by Senators John Cornyn and Kay Bailey Hutchison and nominated by George W. Bush, O'Connor could have kicked the whole thing. Instead, last week he granted a motion for trial.

 

If it makes it to trial, this will be far more interesting, at least for me, than the federal City Hall corruption trial that sent Hill to prison.

Why? Because it will involve way more subpoenas going out to people on the north side of town. I call that "affirmatively furthering diversity of subpoenas" or AFDS.


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