Washington Post "Expose" on HUD's HOME Program

The Washington Post has published an investigative report on HUD's HOME program which reveals some problems with oversight of the developments.

Nationwide, nearly 700 projects awarded $400 million have been idling for years, a Washington Post investigation found. Some have languished for a decade or longer even as much of the country struggles with record-high foreclosures and a dramatic loss of affordable housing.

You can see a Wikipedia summary of the HOME program here  and the HUD page here for some background information.

The HOME Program is one of many programs under the HUD umbrella of programs.  Unlike, say, Section 811 and Section 202 which are supportive housing programs for, respectively, persons with disabilities and older adults, and are directly supervised by HUD, the HOME Program is a block grant program that is left largely to the discretion of local communities, much like the Community Development Block Grant (CDBG) program.  It is the local community that decides how the money will be used (home purchase or rehab, rental construction or rehab, and some other activities), and are supposed to provide the initial oversight.  So to a large degree, mismanagement of HOME funding is largely a reflection on the local community rather than HUD.  That does not absolve HUD of its ultimate responsibility, of course. 

The Post appeares to focus only on the rental housing portion in the examples it cites. There does not seem to be national data showing the overall percentages, but HUD has helpfully provided dashboard reports on local and state HOME programs and in Wisconsin, the vast majority of the funding is used for homebuyer assistance and homeownership rehabilitation.  Even in the City of Milwaukee, only 34% of the cumulative funds since 1992 has been used for rental housing.  The totals are far less elsewhere in the state.  A sampling across the country shows that in many places, the HOME Funds are used maily for homeownership-related activities although, in some regions, the funds are used mostly for rental housing.

This kind of investigative reporting is always difficult because often one is accusing someone of something, and if  all the ducks are not in a row, the reporter will look bad.  In this case, the Washington Post article set off some alarm bells because they did not release a list of developments that were supposedly stalled.  This seems to indicate that the Post may not be confident of their overall data and was cherry-picking the examples.  Hard to blame them-even if the article was 99.99% factually correct, just that .01% (such as, say, one project the Post said was stalled turned out to be fully occuped) can cast doubt on the whole article.  They provided a graphic of the number of projects and dollar amounts across the states, but it seems to require a CRAY computer to run.  Even so, information is limited to "3 projects in Metropolitan Milwaukee area, $1 million" with no further details.

HUD analyzed the Post's claims on the number of delayed and stalled projects and responded:

This claim is false and reflects significant factual errors. Initially, the Post reviewed data on all 28,000 HOME developments that were pending as of late last year. The Post’s total of approximately 700 projects that showed signs of delay actually represents only about 2.5% of the total HOME projects, not one in seven. In addition, the Post’s analysis of these specific projects is not borne out by the facts, which demonstrate that many of the “delayed” projects counted by the Post are not delayed at all. HUD has so far analyzed about 70% of 797 projects that appear to meet the Post’s criteria for delayed projects. 132 of these projects, more than 16% of the 797 total, were not in fact delayed, but simply were not reported as complete. Another 165, or 20.7%, have been completed since last November. Only 169 projects, less than 30% of those reviewed by HUD so far, genuinely appear delayed, and 109 of those (almost 65%) are delayed due to market conditions, such as unavailability of financing and inability to sell completed units. Overall, at least 300 of the 797 “delayed” projects, more than 37%, are actually completed and occupied.

HUD also responded that they have taken more vigorous action since 2009 to prevent misuse of HOME funds.

In today's development world, it's increasingly rare to have funding from just one source.  Very often developers have to do what some have called "lasagna funding" meaning that multiple funding sources are needed to make a project work.  HUD, the developer, or even the local HOME Partner may not have control of the timeline and the delays.

For example, suppose a local developer wanted to develop a new apartment or rehabilitate an older building.  The HOME Partner might allocate some HOME funds but not enough to cover the whole development. 

HUD’s money typically doesn’t cover all construction costs. The program is meant to provide partial funding for developers who are expected to draw additional financing from banks and other sources.

So the developer goes looking elsewhere for more funding.  Maybe a bank is willing to provide a conventional loan, but the developer can't quite make the numbers work.  So the developer applies for tax credits from the state housing finance authority.  But it's a very competitive process, and the developer might not succeed the first time.  So maybe some tinkering is done with the proposal to increase the potential score in the application, and then resubmitted for the next round.

It can be months, if not years, before the actual groundbreaking happens.  Then throw in the bad economy and all of sudden the tax credits are worth less, or maybe investors are reluctant to jump in.  Nevertheless, the Partner could think that this is a really good development at a great location, and is willing to stick it out for longer rather than re-allocating the funds.  So the development is "stalled" but that doesn't mean it will fail.

That doesn't excuse, of course, the fact that there have been misuse and abuse of funds in some places, and HUD should respond appropriately when those occurences are identified.  Clearly some changes will need to take place for better oversight, but the local partners have to do their part as well.  You can see a Q& A with the reporter, Debbie Cenziper, here which has this:

Unfortunately, HUD often doesn't know when construction projects stall or die. The agency relies on local housing agencies to accurately report on the status of projects. In case after case, we found that local authorities weren't alerting HUD when construction projects ran aground. We found empty lots and abandoned buildings all over the country.

Keep in mind, however, that for all the potential problems identified in the article, there are many, many more succes stories associated with the HOME program.