Money Isn't All We Stand to Lose in Seamy HUD/City Hall Relationship

Inch by grudging inch the door creaks slowly open on the seamy codependency between the U.S. Department of Housing and Urban Development and Dallas City Hall. If ever two outfits deserved each other, it’s this fine pair. But you and I don’t deserve either one of them, nor can we afford the mess they’ve made for us.

For decades HUD has been sluicing vast amounts of federal tax money into city coffers with almost no practical oversight or control, no way to know how the money has been spent, who got it, what they did with it. The mechanisms by which HUD gave the money to Dallas and how Dallas spent it have been largely opaque.

But whenever some small window has opened briefly on the process, the glimpse that one could catch with a quick eye has been of large sums given to political insiders with little or no real record-keeping. Over the last year, two serious investigations have closed in like pincers, one locally and the other in Washington, each exposing a different dimension of the same sleazy deal.

We told you here in March that Dallas City Auditor Craig Kinton had published a tough straight-up analysis of the way Dallas spends federal housing dollars. A limited sample of federally supported Dallas housing programs was enough to turn up $29.9 million in projects without adequate record-keeping or basic oversight.

So negligently managed were they that Kinton was unable to offer even an opinion about where the money went. I mentioned windows. Two years ago I told you about a project in southern Dallas called Patriot’s Crossing in which the city had reimbursed the developer for what he claimed were land expenses. The city used HUD money to give the developer an average of $13 a square foot for land worth between $1 and $5 a foot.

In that case, the developer had padded his so-called land expenses with fat “consulting fees” paid without any back-up documentation. Nothing was built, and the land eventually came back to the city at a loss of millions.

Later in 2014, City Council member Philip Kingston noticed a reader comment appended to a column by me here in the Observer  in which the commenter, who sounded like a knowledgeable insider, said that the HUD Office of Inspector General (OIG) had sent people to City Hall to sift through records. Kingston demanded to know more. After an extremely arduous process, he was able to get the city manager to admit that Dallas was in trouble.

In fact Dallas had been obligated to pay back roughly $800,000 to HUD in a one-year period to cover HUD-funded projects for which it had not maintained adequate accounting, oversight, inspection or control policies.

Another little window opened during that period. I told you about a HUD-funded project being developed by former Dallas City Council member Diane Ragsdale. The city had broken with longstanding practice and sent a check for $291,500 directly to Ragsdale, again to cover so-called land expenses, instead of following normal practice which would be to send the check to the title company to be dispensed to the sellers at the closing.

At that closing, Ragsdale paid only $223,688 for the land, leaving a delta of $67,812. When the OIG asked where that money went, the city, which doesn’t have enough energy or time to maintain actual books on this stuff, went into extreme high-energy mode, not to say high dudgeon, defending Ragsdale by saying that she needed that money for other expenses. The OIG told the city to give it back, and the city did.

We started out talking here about two investigations. The other blade of the pincer this year has been a national investigation of HUD’s spending habits by the HUD OIG, an independent auditing arm roughly parallel to our own city auditor. Like Kinton, the OIG is independent enough to tell the truth.

We have no way of knowing if the things the HUD OIG turned up in Dallas two years ago inspired it to look for similar problems nationwide. But, as I recounted here two weeks ago, that’s exactly what they found: Far from being an exception to the rule, Dallas was the rule. HUD money leaks out of other city halls around the nation just as fast as it does here, for the obvious reason that nobody’s watching those tills, either.

Years ago a guy who had just retired from the Dallas City Auditor’s Office described for me an informal principle of public accounting: If you put a bunch of cash in an unlocked drawer, he said, and then you make sure everybody knows that you are never going to count that drawer again, you must assume that the money is already stolen the minute you turn your back. It’s called “free money.”

So that brings us to the free money principle of today. I told you three days ago about a document I had received indicating that there is now a federal law enforcement investigation underway into that $29.9 million in unaccounted spending that I first told you about last March. Yesterday The Dallas Morning News, which also has reported this story before, reported it again. I’m not sure why they did it again except to show that they finally had gotten their hands on a document similar to the one I had seen before the holiday.

Fine. But one element in their piece, a quote from outgoing City Manager A.C. Gonzalez, stuck out like a sore thumb. Gonzalez told the News: “There is always the possibility of us having to pay money back if they find something that hasn't met all their requirements.”

Not always.

Right after that piece came out, I had an off-the-record conversation with a person who has been a close observer for years of the relationship between HUD and City Hall. So far, he said, HUD staff and City Hall staff have been able to dismiss all of these matters more or less as accounting errors — technical problems, at worst, resolved by shifting numbers from one column to another.

This may be different, he said. Here’s why.

My partner in conversation said this, and I paraphrase: Yes, Gonzalez can be right and it can all be resolved with repayments, if Gonzalez is able to take HUD officials out into the city and point out to them a group of real estate projects that look like they could be worth $29.9 million. And, remember, that was only the money from the small sample the city auditor looked at, so Gonzalez might have to come up with a lot more real estate than that to cover all the HUD money that the city can’t account for.

But let’s say he does that. He says: “Here’s the real estate. Sorry we screwed up the books, but there it is. There’s what your money paid for.”

Then, yes, my source said, that’s probably a bookkeeping problem that can be resolved. But remember those little windows I talked about above. In those cases, there wasn’t enough real estate to cover the money, because the money didn’t go for what it was supposed to go for.

If City Hall can’t come up with the right amount of new development, if there isn’t an obvious right correlation between the product and the price, then we may no longer be in the accounting department. We may be down the street in the police department.

We’re talking about public money. Tax money. Not free money. If that money did not wind up in the right hands, then public officials have a duty to find out and tell us whose hands it did wind up in. Names and faces.

Paying it back is a great idea, but paying it back doesn’t end the matter. If I rob a liquor store and the cops catch me, I can’t just give the money back and go home.

Then there is this to consider. The potential cost of running these programs this sloppily can be much higher than the dollars lost. I have a story coming up in next week’s paper about efforts to stabilize West Dallas and to protect long-established communities there from being uprooted by a wildfire of gentrification. In working on that story, I discovered a truly wonderful amount of smart creative thinking going on among West Dallas leaders who want to harness gentrification as a source of strength and as an ally.

But all of that thinking assumes that government really does what it’s supposed to do, that the money is spent the right way and goes to the right things and people.

The people I spoke with for the West Dallas story have great ideas and high hopes for saving their neighborhoods and bringing security and well-being to their community. They need help. They have a right to expect help from their government.

The real risk in the mess unfolding at HUD and City Hall is that it will be taken as an excuse to simply abandon the role of government in helping communities, as proof that community itself is a pipe dream. That is the thing we cannot allow to happen.