Scathing HUD Report Illustrates the Staggering Hypocrisy of Dallas City Staff

In the past, Dallas City Hall has employed the CM bookkeeping system for keeping track of federal funds. CM. Get t?
In the past, Dallas City Hall has employed the CM bookkeeping system for keeping track of federal funds. CM. Get t?
Alvaro Diaz Rubio
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In multiple court hearings last May, Assistant City Attorney Melissa Miles complained that the city just couldn’t quite trust West Dallas landlord Khraish Khraish, who was selling many of his rental houses to his tenants.

The city didn’t know if the deeds were kosher. The city was afraid he might be making too much money. The city needed to be able to inspect his properties even more closely than city ordinances allowed.

According to a scathing report issued at the end of last week by the U.S. Department of Housing and Urban Development (copy below), Khraish would have had to get up very early in the morning to be half as reckless, irresponsible or just plain half-assed as the city is in the conduct of its own housing-related programs.

Full stop caveat: In writing about things like this now, I feel I have to say something. Everything that follows is about Dallas City Hall pre-T.C. Broadnax, the new city manager. Broadnax has already offloaded many of the old-regime personnel responsible for what follows.

But the old regime isn’t over yet. This new HUD report illustrates the staggering hypocrisy of Dallas city staff taking a stick to Khraish when what it really needed to do was take a broom and a scouring pad to its own premises.

For example, before the city expended so much effort trying to hyper-inspect the Khraish-owned properties in West Dallas, it could have devoted some extra effort to inspecting its own vast real estate responsibilities.

From the HUD report about the city’s housing programs: “No detailed inspections supporting construction progress … detailed inspection reports are not being maintained … the city cannot confirm that units constructed under its program were built in accordance with the plans … contractors and developers could use lower quality materials and building components to increase their profit margins ... the city cannot confirm that homebuyers of existing units are purchasing an eligible property.”

That’s a sampling. The HUD report goes on and on in agonizing detail. Let’s take the question of greediness and too much profit that Miles wanted to lay on Khraish.

There are federal guidelines for how much rent a low-income apartment developer can charge after accepting a big, fat check, often in the multimillion-dollar range, from a city-sponsored subsidy program. The rent must not be so low that the developer can’t make money. But it cannot be so high that poor people won’t be able to afford it — pretty much the point of subsidies.

In one sample instance, HUD found a project where the federal rules would have allowed the developer to charge $469 a month per unit, giving him a net operating income on the building of $26,470 a year. But the city had juiced that net income up to $64,414 a year for the developer, putting the apartment rents up to $921 a month.

This guy gets a federal subsidy administered by the city to build the place. The purpose of the subsidy is to provide housing for people who can afford less than five bills a month rent. But the city lets him increase his income by 120 percent by charging rents at almost twice the federal standard.

Who gets deals like that? Does the city just hand them out randomly to any developer who shows up? Well, although the HUD report doesn’t quite connect all those dots for you, I can. For that, let’s turn to the issue of the city selling houses to tenants, making them first-time homeowners, which is what Khraish is doing with his privately owned, low-income properties in West Dallas.

In order to make a person of modest means a homeowner, you have to give him a mortgage, right? And you can’t give him a mortgage unless you are reasonably sure he can pay it back. Otherwise, you will have to kick him out eventually. If you don’t intend to kick him out, it’s not a mortgage. It’s a gift.

Another sample instance HUD describes in its report is a case in which a city-subsidized developer sold a house to a person whose total income was $375 a month — not enough for even a very low mortgage payment, let alone food and clothing. So how did that developer explain the transaction?

“An inquiry was made of city staff,” the report states, “and the monitors were advised that the property was ‘gifted’ to the household due to their special situation.”

Oh. So it really was a gift. But wait a minute: Who gets to give away houses, especially when the houses are either built or acquired with city and federal money carrying all kinds of legal requirements for eligibility, cost, profit and so on?

Diane Ragsdale. That’s who. The former Dallas City Council member is one of the bigger operators now in southern Dallas, and it is her entity that apparently gifts houses to people. Or let’s put it this way: When HUD comes looking for the income documentation to prove that the person to whom the house was sold was able to qualify for the mortgage, there is no documentation, and there is no mortgage. It was a gift.

The gifted house brought to my mind another chapter involving former council member Ragsdale. In the second one, the city broke with long-established protocol and sent its subsidy check for a land purchase directly to Ragsdale in her name instead of sending it to the title company to be turned over to the sellers of the land at the closing.

The check was for $291,500. But at the closing, the check Ragsdale wrote to the sellers was for $223,688. So where did the other $67,812 go? When someone finally asked, Ragsdale explained the 67 grand went to “expenses.”

Usually no one asks and none of this ever gets noticed or reported because apparently none of it ever gets recorded. The HUD report said basic data for the city’s housing operations cannot be found in the two databases where that information is supposed to be entered on an ongoing basis. The report found that the city employees involved in those operations don’t know how to enter the data. The report also found that “it does not appear there is sufficient supervisory oversight of data entry to ensure quality and accuracy.”

Not keeping the books. Don’t know how to keep the books. Nobody looks at the books. Problem?

How much money are we talking about? The number people keep throwing around is $29.9 million because that’s how much money the Dallas city auditor found missing in an audit of various city housing programs last year. What people may forget is that the audit was of only a sampling of the city’s housing programs. It was by no means comprehensive.

This is what the city got from Lelah for the $4.5 million.
This is what the city got from Lelah for the $4.5 million.
Jim Schutze

We may also forget that HUD-subsidized housing programs represent the smaller part of the HUD money flowing through city coffers every year for neighborhood improvement, after-school programs, you name it. Why would we assume the city employees who run those other HUD programs know how to keep the books any better than the ones working on housing?

The amazing thing is how resilient this stuff is. People get caught making Cookie Monster sounds with the cookie jar absolutely stuck on their heads, and it makes no difference. The city just keeps delivering cookies.

Three years ago, I wrote about a guy named Yigal Lelah, who was gifted with $4.5 million in HUD and city money for a project called Patriot’s Crossing in southern Dallas across the street from the Veterans Administration hospital — a high-end residential and mixed-use development for affluent people who like living near veterans' hospitals. Sadly, as it turned out, affluent people don’t like living near veterans' hospitals. Who knew? All of that money went straight down the toilet, much of it in outlandish consulting fees.

Lelah is back in action at City Hall, partnering with a former highly placed city housing official in a company called Neighborhood Builders CDC. The HUD report released last week found that Lelah’s latest contract with the city, to build both rent-subsidized and homeownership units, has a few holes:

“The agreement does not identify the number of units for each activity nor a budget for each activity. The agreement does not specifically identify how the affordability requirements … will be enforced. The agreement does not spell out the specific requirements for converting rental units to home ownership through their sale to pre-existing tenants.”

Otherwise, tight as a drum.

The last and, for me, most galling detail in the HUD report was about HUD-paid programs to convert tenants into homeowners — the thing Khraish is doing in West Dallas on his own hook with his own money and his own property. The city gets money from HUD to do it. And, indeed, HUD found instances in which the city had sold houses to people under the program.

But not to the tenants. Nobody knows where the tenants went. HUD found that the people who own the houses now never had been tenants. Apparently the city knew somebody else it liked better. You know what kind of investigator it would take to sort out that one? I’d bring in a genealogist.

And then we had Miles in court, tsk-tsking about how the city didn’t know if it could trust Khraish. You know, I’m starting to think when the old pre-Broadnax Dallas City Hall didn’t trust you, maybe it was a badge of honor. 

HUD Letter by Schutze on Scribd

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