oversight

Review of Certain Aspects of the Linda Pollin Memorial Housing Project in Washington, D.C.

Published by the Government Accountability Office on 1971-12-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                              COMPTROLLER      GENERAL     OF      THE      UNITED    STATES
                                             WASHINGTON.    D.C.         20548




          B-118718

     LJ# Dear Mrs. Green:
    ,T<
                  In accordance with your request of April 30, 1971, we
          have examined into certain         aspects of the development,              con-
          struction,     and management of the ,*_____,I___,.
                                                     Linda Pollin          Memorial
                                                             ” _,-_,”_.-. b”,.
                                                                            _..,..
                                                                               _.     Housing
          project.      As a result  of subsequent discussions                 with your of-
          fice,     an agreement was reached that our report would discuss
      ”   (1) the reasons for the current          financial      difficulties        of the
          project     and (2) the actions being taken to improve the finan-
          cial position      of the project.

                During our examination    we interviewed  officials   and re-
          viewed records at the Department of Housing and Urban Develop-
          ment (HUD) headquarters,     the HUD Washington, D.C., Area Office,
      ,% the Government,National     Mortgage Association     (GNMA), and the 1”‘:
      “/’ Linda Pollin Memorial Housing Corporation.

          BACKGROUND

                The project was financed by a 40-year mortgage loan for
          $4,848,400 and was approved for mortgage insurance by HUD pur-
          suant to the below-market-interest-rate         (BMIR) program autho-
          rized by section  221(d)(3)     of the National    Housing Act, as
          amended (12 U.S.C, 1715 lJ.

                 The BMIR program provides rental      and cooperative    housing
          for
          thoselow-     and moderate-income
                ully-“.*“~
                   charged  ~-g”priTa’fi     families
                                            “may;t.,   at rents lower than
                                                       Under this program HUD
          insures a mortgage loan, made by a private         lending institu-
          tion at the market rate of interest,       to finance the purchase
          of the project   site and the construction      of the project.
          Upon completion   of the construction    work and its acceptance
          by HUD, the HUD-insured mortgage loan is purchased by GNMA
          and the interest    rate is reduced to the below-market       rate of
          3 percent.    A mortgage loan under the BMIR program has a maxi-
          mum repayment period of 40 years.

                  The project     is located in the southeast        area ofJashing-
                                                                                  I , .“,
          t-&g.        ? at   828   Bellevue   Street  SE.   It  was  constructed
          during the period 1965-67 and is a garden-type                complex, con-
          sisting    of 20 four-story        buildings  containing    a total   of 332


                                      50TH   ANNIVERSARY                   1921-     1971
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        B-118718



        dwelling   units:          55 one-bedroom units,    165 two-bedroom                        units,
        80 three-bedroom           units,  and 32 four-bedroom   units.                         il./, .I : ’

                The project            was built          and is operated by the Linda   N-----~I.“.Pollin
                                                                                                    .,I,_,_   _
    /   Memorial    Housing             Corporation,           a nonprofit   corp~,,r.ation, chartered
         ~---~-~~~                  _*“,_,,_
                                         “~,, ” j,,m..---*“‘“:
                                                         .”
        by_a,*.
        C.- .,the Dlstr.ic,t
                   .~,,,,,,,Ic-,/‘-Y
                                ”     of Columbga.             The president   of the corporation
        is Mr. Abe Pollin,                 a prominent Washington,            D.C., contractor.
        The project,             which was conceived as a memorial to Mr. Pollin’s
        deceased daughter,                 was intended to provide a high percentage                        of
        large apartments                for low- and moderate-income              families      with a
        a large number of children.

                The results         of our examination            are summarized           below.

        REASONSFOR CURRENT FINANCIAL DIFFICULTIES

                On February 10, 1966, HUD approved initial       unit rental
        rates for the project      that were $15 to $24 a month below HUD’s
        November 1965 estimates       of the rental  rates needed to provide
        sufficient    income to operate the project.        The approved rental
        rates resulted     in a gross rental    income of about $71,000 less
        than HUD’s estimate     of the needed rental     income.

               HUD officials     told us that HUD’s approval of the lower
        rental   rates had been based on the mortgagor’s       plan to have
        the tenants participate       in the maintenance of the project,
        which would have resulted        in a reduction  in maintenance ex-
        pense.     The mortgagor’s    reason for establishing    the initial
        rental   at the lower rates was that the lower rates were in
        keeping with its primary purpose for the project;           i.e.,    the
        best possible      housing for large families    at the lowest possible
        rents.

               After   the project     operations   began in June 1967, the mort-
        gagor realized       that the rents being charged were inadequate to
        meet costs,      and, in October 1967, HUD approved a request for a
        rental    increase.       In July 1968 HUD approved a second request
        for a rental      increase.      About 3 months after     the second in-
        crease in rental        rates,   the mortgagor--for    the first    time--
        defaulted     on the mortgage payment which was about $23,400 a
        month.      At that time the project       was loo-percent     occupied.   In

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    -   B-118718


        April  1969 HUD approved a third  request for a rental    increase.
        The rental  rates at that time closely   approximated  those origi-
        nally estimated by HUD to be needed.

               In July 1970 HUD approved a fourth    request for a rental
        increase;   however, in August 1970 certain     of the tenants filed
        a law suit contesting    the increase.    The court ruled in June
        1971 that the rent increase was justified;       the tenants ap-
        pealed the ruling.     As of October 1971 a decision has not been
        rendered regarding    the tenants’   appeal of the court ruling.

              Officials  of GNMA told us that the mortgagor was charging
        rents at the rates approved by HUD in July 1970 and that the
        net increase was being deposited     in an escrow account pending
        outcome of the tenants’    appeal of the court ruling.    The offi-
        cials told us also that,     if the appeals court upholds the
        lower court’s   decision,  the funds in escrow would be applied
        toward the mortgage payments in arrears.

               The financial   statements    of the project     for the fiscal
        year ended April     1970 showed that the project’s         expenses, ex-
        clusive   of mortgage payments,. had exceeded HUD’s November 1965
        estimate   of the annual costs by about $145,000.            Most of the
        increase was in the operating        expenses category,      as shown
        below.
                                      HUD’s         Expenditures
                                  November 1965      for fiscal        Increase
                                    estimated        year ended            or
        Operating    expenses      annual costs      April   1970 decrease(-)

        Heating fuel                $27,056          $     1,196    $-25,860
        Janitor     expenses
           (materials)                1,328                6,231       4,903
        Electricity                  24,900               45,085      20,185
        Water                        11,952               17,220       5,268
        Gas                                               28,327      28,327
        Garbage and. rubbish
           removal                    2,822               11,083       8,261
        Payroll                      24,000              111,289      87,289
        Exterminating                    830                  840          10
        Miscellaneous                                      5,289       5.289

            Total                   $92,888          $226,560       $133 ?672

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        B-118718



              The project’s     payroll    expenses accounted for a substan-
        tial  part of the above increase.           Our review showed that the
        large increase      in payroll    expenses had resulted   mainly from
        HUD’s underestimating       the number of personnel needed to oper-
        ate and maintain      the project.      Although most of the increase
        in payroll   was related       to maintenance activities,   the mort-
        gagor had to provide security          personnel for the project,     which
        was not included in HUD’s November 1965 estimate           of payroll
        expenses.

        ACTION TAKEN TO IMPROVE
        PROJECT’S FINANCIAL POSITION

               Because of the mortgagor’s        belief   that the project    could
        become financially      self-sufficient      and because of its desire
        to maintain    control    of the project,       GNMA agreed to the mort-
        gagor’s request of February 1969 to modify the mortgage con-
        tract   to defer the monthly payments of loan principal            from
        December 1968 to December 1969.           Pursuant to the agreement,
        the deferred    principal     would be paid over the remaining        life
        of the mortgage starting         with the January 1970 mortgage pay-
        merit,

                In August 1970 the mortgagor requested             an additional     mod-
        ification      of the mortgage following        default    on several.monthly
        mortgage payments.          We were advised by officials          of GMNA that,
        after     reviewing    the financial     statements     of the Linda Pollin
        Memorial Housing Corporation           in August 1970, they were of the
        opinion that the project’s           payroll   costs were excessive and
        that the mortgagor’s         request for a second modi fication           of the
        mortgage contract         should be denied.      However, the mortgagor
        again pleaded its case with HUD and GNMA. An agreement was
        reached in December 1970 that all foreclosure                 actions would be
        held in abeyance to permit the mortgagor suffi cient time to
        reduce its payroll         costs and, at the same time, demonstrate              its
        ability      to make monthly payments equal to the current               monthly
        installments       for interest    on the loan, insurance,          taxes, and
        $6,550 to be applied to delinquent             mortgage payments,

             We were informed by GNMA that the monthly payments had
        been made through November 1971 and that the project’s payroll

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         B-118718


         costs had been reduced.      As of November 1971 the delinquent
         mortgage payments totaled     about $122,000.

               A GNMA analysis    of the project’s     April   1971 financial
         statements  showed that project       expenses still     exceeded avail-
         able income by about $5,800 a month.           GNMA officials    told us
         that the overall   financial    position    of the project    would im-
         prove if the rental    charges, which had been placed in escrow
         because ,of the tenants’     law suit,   were determined by the ap-
         peals court to be justified.        These   rental   charges amount to
         about $3,100 a month.

                GNMA officials  told us also that the mortgagor had peti-
         tioned the court for relief       of the project’s heavy tax burden.
         The mortgagor estimates     that,   if this action is successful,  the
         project’s   tax expense will be reduced by about $70,000 a year,
         or $5,800 a month.

               Favorable rulings   by the courts in these       matters would
         enable the project    to meet current  obligations      with available
         income.
                                        - - - -

               The persons and agencies involved     in the matters dis-
         cussed in this report   have not been given the opportunity      to
         review and comment on the report;    therefore    this fact should
         be considered   in any use made of this report.

               We plan to make no further     distribution    of this report
         unless copies are specifically     requested,     and then we shall
         make distribution    only after  your agreement has been obtained
         or public announcement has been made by you concerning          the con-
         tents of the report.




                                             Comptroller  General
                                             of the United States

         The Honorable Edith Green
         House of Representatives