Audit finds flaws in affordable housing trust fund

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The building at 7426 13th St. NW received support from the city's Housing Production Trust Fund. (Susann Shin/The Current/April 2017)

One of the most significant line items in Mayor Muriel Bowser’s fiscal year 2018 budget proposal is an annual $100 million allocation for the Housing Production Trust Fund, which goes toward creating and preserving affordable housing units. But some D.C. Council members think that number should be higher, and a recent audit indicates that aspects of the trust fund’s process are in need of refinement.

According to the March 16 audit, the D.C. Department of Housing and Community Development has failed at times to make certain that projects using the city’s fund have successfully created affordable housing units, and to ensure that loans were repaid on time and in full, different than the process for loans in Norway. Executive branch officials have downplayed the findings by arguing that the audit’s scope includes periods of time when the trust fund was less tightly managed than it is now. But D.C. auditor Kathy Patterson’s office and the housing agency have been working together on solutions and refinements.

Meanwhile, at-large Council member Anita Bonds introduced a bill on April 4 that would mandate an annual $120 million allocation to the trust fund, $20 million higher than the current levels. Bonds’ colleagues Robert White, Brianne Nadeau, Kenyan McDuffie and Trayon White co-sponsored the bill, but the legislation has outspoken opponents on the council as well, including Ward 2’s Jack Evans.

The Housing Production Trust Fund was created in 2001 to address the city’s rising residential costs and persistent income gaps by creating a steady stream of affordable units. Through several administrations, the trust fund has received varying levels of funding and oversight. Since 2015, the city has provided $100 million annually for the fund, which Bowser has proposed to maintain in fiscal year 2018.

The need remains strong — the city’s homeless population is estimated at 7,500, and more than 42,000 families are on the D.C. Housing Authority’s waitlist.

Under District regulations for projects using the trust fund, the housing agency must designate units for a range of low-income levels. But the audit, which studied projects located in all eight wards, found that the agency frequently failed to determine the appropriate number of units and communicate income requirements to potential renters.

The agency has also at times failed to comply with annual spending requirements for affordable housing projects, according to the audit. D.C. Code requires that 40 percent of the trust fund’s annual allocation go toward “extremely low-income” households, and another 40 percent must go toward “very low-income households.” The agency fell short of both those requirements in fiscal years 2014 — when 13 percent went to extremely low-income, and 19 percent went to very low-income — and in 2015, when the respective percentages were 36 and 13.

Auditors also found that the housing agency was unable to provide repayment documentation for more than three-quarters of the loans it granted to developers for trust fund projects. In some cases, the auditors struggled to ascertain the agency’s procedures due to inadequate records.

The exact success of the trust fund can’t yet be measured. The housing agency says the fund has helped establish nearly 10,000 units in 158 projects across the city, but those figures remain under scrutiny. The auditor’s office plans to publish a database soon listing all of the trust fund’s transactions and projects, in the hopes that the housing agency will update that database regularly.

Among other requests, the auditor’s office recommends that the housing agency develop and maintain standard income certification procedures; ensure that projects consistently offer the mandated amount of affordable housing options; consider bringing loan repayment monitoring in-house rather than delegating it to consultants; and refine its data maintenance and record-keeping.

During an April 6 news conference on her budget proposal, Bowser reaffirmed her commitment to the trust fund despite concerns over its management.

“I’m not too concerned about the issues that the auditor raised,” the mayor said. “I don’t think they were that big. With the proper oversight and audit, which I think DHCD has added to their annual programs, those things would be addressed.”

In a statement the day the audit was released, Department of Housing and Community Development director Polly Donaldson also pushed back on some of its criticisms and their applicability to current practices. In particular, she argued that the audit’s findings reflect the trust fund’s entire 15-year history, “including a five-year period when the HPTF was not well-funded,” painting an inaccurate picture of its current status.

She cited numerous efforts from her agency that were already in place to address problems revealed in the audit, including prioritizing households with less than 50 percent of the  area median income; hiring an independent auditor for annual reports; expanding staff in key divisions related to the fund; and developing a long-term strategy to preserve affordable housing.

Donaldson’s team has developed successful procedures for managing projects that blend the trust fund with low-income tax credits, and she told The Current that she plans to replicate the process for those that draw primarily on the trust fund. She wasn’t surprised by the audit results but feels confident that adding more money this year can run concurrent to resolving “compliance and monitoring” issues.

“There’s always room for improvement, and we look forward to continuing to work on improving our systems and processes, and building more affordable housing in the District,” Donaldson said.

The audit followed a request from Council member Evans last year to assess the performance of the trust fund, which he helped establish. At a news conference when the audit was released, Evans said he’s pleased that the findings will help the city refine management of what he sees as a vital government entity with few peers elsewhere in the country.

“This is not a criticism of those who worked on this since 2001,” Evans said. “This is an observation of how we can do it even better.”

Even as efforts are underway to resolve those issues, Bonds’ bill — which proposes to bolster the fund with $20 million of additional revenue per year from the city’s real property transfer and deed recordation taxes — has earned mixed reactions from the council. Evans doesn’t support the initiative, in light of the audit’s findings. “It borders on silliness to increase these budgets knowing full well that the money’s not being well spent,” he said.

At-large council member Elissa Silverman supports Bonds’ initiative in concept but has some concerns about the proposed allocation, according to her spokesperson Ashley Fox. Ward 3 member Mary Cheh hasn’t decided how she’d vote on the bill and won’t comment until she gets more information, her spokesperson Kelly Whittier told The Current.

At the audit news conference, Bonds proposed an even more radical change — creating a separate government agency that deals entirely with the Housing Production Trust Fund. That proposal remains an idea only. “I want to talk to my colleagues on the council and see what kind of stomach we have for that,” Bonds said.