oversight

Selected Aspects of the Operation of the St. Louis Housing Authority

Published by the Government Accountability Office on 1971-04-21.

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

Selected Aspects. Of The Operation
Of The St. Louis Housing Authority
                                   8-   118718



Department of Housing and
  Urban Development




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




    B-118718



    Dear       Mr.   Clay:                                      il.
                                                                I’

           The General         Accounting      Office    has examined          into selected       aspects
    of the operation       of the St. Louig@ousing              Authority,      which   develops,      owns,
    and operates      low-rent      public    housing     projects       in St. Louis,    Missouri.
    The review      was made       in accordance         with your request           of February       13,
    1970, and subsequent          discussions        with you and your staff.

               The results      of our examination      are summarized            in the digest,                                                    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 contents    of the report.

             We did not obtain       written   comments     on the matters         discussed                                                   in
    this report      from    the Department      of Housing     and Urban      Development,
    the St. Louis       Housing   Authority,    the St. Louis     Housing      Authority’s
    board     of commissioners,         or the St, Louis    Civic   Alliance.       This fact
    should     be taken    into consideration      in any use made        of the information
    presented,

             We trust         that      the       information             furnished                      will      serve       the   purpose    of
    your   request.

                                                                                      Sincerely                  yours,




                                                                                      Comptroller                        General
                                                                                      of the United                      States

/   The Honorable     William                     L.   Clay
    House  of Representatives




                             50TH       ANNIVERSARY                    1921-          1971
COMPTRGLLERGEKERALrS REPORT TO                             SELECTED ASPECTS OF
THE HONORABLE,ULLIXti L. CLAY                            I THE OPERATION OF THE ST. LOUIS pf@'3-
ZlOlJSE OF REPRESENTATIVES                                 HOUSING AUTHORITY
                                                           Department of Housing and Urban
                                                           Development B-118718   23
                                                       P
 DIGEST
------

WHYTHE REVIEW WASMADE

       In October 7969, the tenants of low-rent         public housing in St. Louis,
       Missouri,     ended a g-month rent strike against the St. Louis Housing Au-
       thority    (hereinafter   referred   to as the Authority).      The strike settle-
       ment agreement provided        for management of the projects     by a newly formed
       coalition     including tenants, community leaders,        and Teamsters Union offi-
       cials,    known as the St. Louis Civic Alliance        for Housing (hereinafter    re-
       ferred to as the Alliance),        and for the appointment     of a new board of
       commissioners of the Authority.          Two members of the board were to be


        At the request of Congressman William L. Clay, the General Accounting
        Office (GAO) reviewed seven areas of the Authority's     operations in rela-
        tion to requirements   established   by the Department of Housing and Urban
        Development (HUD).    (See pp. 4 to 7.) The areas are discussed under
        italic  subheadings in the following    section.

        The Authority   as of June 1970 had about 8,000 housing units,   in operation
        or under construction,    for which HUD was providing most of the funds.

        GAO did not obtain written    comments on the matters discussed in this               re-
        port from HUD, the Authority,    the Authority's  board of commissioners,               or
        the Alliance.


FINDINGS AND COiKLUSIONS

       Arrangements     between Au-bhority    and AZZiance

        The management of low-rent           public housing by the Alliance        contemplated
        by the rent strike settlement           agreement did not materialize.          An Alliance
        report in April 1970 indicated             that a management contract      was being pre-
        pared.   Alliance     officials,      however, advised GAO that the management idea
        had been abandoned.          The Authority's     board of commissioners      said that it
        was unaware of this and informed GAO that a written                agreement was needed
        which would define the roles of all parties              involved    in St. Louis public
        housing.     HUD officials       stated that they considered       the Authority's
        board of commissioners to be the official              body operating    St. Louis public
        housing.     (See pp. 8 to 14.)

 Tear
 --~-- Sheet

                                                                APRIL21,1971
                                               1
                                                                                        .
                                                                                  .
Turnkey     housing     prejects

The developers    of the Authority's       25 "turnkey"    housing projects    were se-
lected before the Alliance       was formed.       (Turnkey housing refers to proj-
ects constructed    by a private     developer    on his own site for subsequent
purchase by a local housing authority.)             GAO found that four members
and/or executives    of the Alliance       had an interest     in six of the 25 turn-
key projects   as either project      developers     or consultants    to the devel-
opers.   Those six projects      were initiated      and received    HUD approval   prior
to the formation    of the Alliance.        The Authority    had awarded a contract
for one of the projects      in July 1969. The final         price for the remaining
projects   had not been negotiated       at the time of GAO's review.         (See pp.
15 to 25.)

Tenants     appointed     to board
As a condition      for ending the rent strike,     two tenants were appointed to
the Authority's       board of commissioners    in October 7969. These tenants
were appointed about 2 months after the Missouri attorney            general had
expressed the opinion that such appointments          were contrary    to Missouri
law. The HUD General Counsel, in November 1969, issued a legal opinion
indicating     that HUD had no objection     to, and indeed encouraged,     the ap-
pointment of tenants as commissioners when permissible            under State and
local law.       (See pp. 26 to 31.)

The rental rate charged one of the tenants on the board of commissioners
was reduced at the time new rent schedules were put into effect,    on the
basis of the tenant's  statement that he had no income. This action was
subsequent to his appointment   to the board of commissioners.   (See PP.
32 to 35.)

Dismissal     of employees

In February 1970, the Authority        terminated    the services     of 103 employees,
who were selected by a private        management consultant       employed by the
Alliance.    The consultant    could provide no documentation          to support the
manner of selection.      He informed GAO that the criteria           used were primar-
ily economic as he had been directed          by the Alliance     to reduce the Au-
thority's   payroll  as much as possible.         By March 31, 1970, 31 of the ter-
minated employees had been rehired         by the Authority.        HUD had no require-
ments for housing authority       personnel practices      other than that housing
authorities   follow personnel policies        compatible with local practice.
(See pp. 36 to 39.)

Rents withheZd
Rents amounting to $769,205 were not paid during the rent strike.              During
the first   3 months of the strike,       some of the tenant strikers   paid rent
to strike leaders,    who deposited     the funds in bank accounts.     Through
court action,   the Authority    obtained $108,017 of those funds.       Subse-
quently,   the strike leaders collected       additional  rentals  of $112,907,
1   1
i
              which were returned    to the tenants when the strike ended.      The applica-
1             tion of rents attached by the court and rent credits      and adjustments
I             required  by the strike settlement    agreement reduced the rent owed to the
I
I             Authority  after the strike to $344,600.      (See pp. 40 to 46.)
I
I
I             Status   of delinquent     rents
/
              As of March 37, 1970, rents totaling            $698,600 were owed to the Authority,
              including    $537,100 owed by resident        tenants and $161,500 owed by tenants
              who had vacated.        The Authority    took no significant        aCtions to collect
              delinquent     rents from the end of the rent strike             in October 1969 until
              June 1970 because of the delay caused by the computation and application
              of various rent credits       required     by the strike settlement          agreement.     In
              June 1970, the Authority        began filing     lawsuits     against resident      tenants
              for collection      of rents not paid by tenants subsequent to the rent
              strike.     Tenants who had vacated were told that, unless they paid, their
              accounts would be given to a collection             agency.      The collection     agency's
              fee is 50 percent of the amount collected.                Neither the Alliance        nor HUD
              has taken an active role in the collection              of delinquent      rents owed to
              the Authority.        (See pp. 47 to 52.)

              Modernization    program

              In January 1970, HUD approved the Authority's              plan for a $1.1 million
              modernization    program prepared by the' Alliance.            Funds were made avail-
              able from unexpended money previously          provided by HUD for another pro-
              gram, contingent     upon the Authority's      agreement to terminate      work on the
              other program at the earliest      practicable       date.

               In fiscal year 1970, HUD allocated     another $5 million   in modernization
               funds for the Authority.     The $5 million   was not made available   because
               a physical security   program had not been established    for St. Louis public
               housing.   (See pp. 53 to 59.)




I




        Tear Sheet


I

                                                    3
                         Contents

                                                                 Page

DIGEST                                                             1

CHAPTER

   1      INTRODUCTION                                             4

   2      ARRANGEMENTS BETWEEN THE ST. LOUIS HOUSING
          AUTHORITY AND THE CIVIC ALLIANCE FOR HOUS-
          ING FOR THE MANAGEMENT OF PUBLIC HOUSING IN
          ST. LOUIS                                                8
              Status of the proposed management con-
                  tract                                            8
              Alliance     involvement    in housing opera-
                  tions                                           10
              Commissioners'       undated letters   of res-
                  ignation                                        13

   3      COMPLIANCE WITH HUD REGULATIONS ON POSSIBLE
          CONFLICTS OF INTEREST REGARDING TURNKEY
          HOUSING PROPOSALS                                       15
              Selection   of turnkey     developers               16
              Involvement    of Alliance      members and ex-
                 ecutives  in turnkey      projects               17
              Turnkey developer      consultants    also serv-
                 ing as consultants      to board of cormnis-
                 sioners                                         24

  4       PUBLIC HOUSING TENANTS ON THE AUTHORITY~S
          BOARD OF COMMISSIONERS AND THE STATUS
          OF THEIR RENTS                                          26
              Inclusion    of two tenants  on the Author-
                 kty's  board of commissioners                    27
              Rent status and income eligibility      of
              tenant-commissioners                                32

   5      DISMISSAL   OF EMPLOYEES                               36

  6       DISPOSITION OF AND ACCOUNTING FOR RENT MONEY
          NOT PAID DURING THE TENANT RENT STRIKE                 40
CHAPTER                                                    Page
                  Withheld rent deposited in banks          41
                  Rent money held by strike leaders         42
                  Status of rents owed for strike period    44
  7       STATUSOFDELINQUENTRENTALS                         47
              Efforts taken to collect delinquent
                rentals                                     49
              Collection  of delinquent rentals owed by
                vacated tenants                             50
  8       APPROVALAND USE OF MODERNIZATIONFUNDS             53
             Modernization programs after the rent
               strike                                       54
             Modernization programs before the rent
               strike                                       57
  9       SCOPEOF REVIEW                                   60
                              ABBREVIATIONS
CPA   Certified      Public   Accountant
GAO   General Accounting        Office
HUD   Department of Housing and Urban Development
. COMPTROLLERGENERAL'S REPORT TO                         SELECTED ASPECTS OF
  THE HONORABLEWILLIAM L. CLAY                           THE OPERATION OF THE ST. LOUIS
  HOUSE OF REPRESENTATIVES                               HOUSING AUTHORITY
                                                         Department of Housing and Urban
                                                         Development B-118718

 DIGEST
 ------

 WHYTHE REVIEW WASMADE
      In October 1969, the tenants of low-rent         public housing in St. Louis,
      Missouri,     ended a g-month rent strike against the St. Louis Housing Au-
      thority    (hereinafter   referred   to as the Authority).      The strike settle-
      ment agreement provided        for management of the projects     by a newly formed
      coalition     including tenants,    community leaders,     and Teamsters Union offi-
      cials,    known as the St. Louis Civic Alliance        for Housing (hereinafter    re-
      ferred to as the Alliance),        and for the appointment     of a new board of
      commissioners of the Authority.          Two members of the board were to be
      tenants of low-rent     public housing.

      At the request of Congressman William L, Clay, the General Accounting
      Office  (GAO) reviewed seven areas of the Authority's    operations in rela-
      tion to requirements   established   by the Department of Housing and Urban
      Development (HUD). (See pp. 4 to 7.) The areas are discussed under
      italic  subheadings in the following    section.

      The Authority   as of June 1970 had about 8,000 housing units,   in operation
      or under construction,    for which HUD was providing most of the funds.

      GAO did not obtain written    comments on the matters discussed in this               re-
      port from HUD, the Authority,    the Authority's  board of commissioners,               or
      the Alliance.


 FINDINGS AND CONGLUSIONS

      Arrangements    between Authority     and AZZiance

      The management of low-rent           public housing by the Alliance        contemplated
      by the rent strike settlement            agreement did not materialize.         An Alliance
      report in April 1970 indicated             that a management contract     was being pre-
      pared.   Alliance     officials,      however, advised GAO that the management idea
      had been abandoned.          The Authority's     board of commissioners      said that it
      was unaware of this and informed GAO that a written                agreement was needed
      which would define the roles of all parties              involved    in St. Louis public
      housing.     HUD officials       stated that they considered       the Authority's
      board of commissioners to be the official              body operating    St. Louis public
      housing.     (See pp. 8 to 14.)




                                             1
                                                                                           .
Turnkey      housing     projects

The developers    of the Authority's       25 "turnkey"    housing projects  were se-
lected before the Alliance       was formed.       (Turnkey housing refers to proj-
ects constructed    by a private     developer    on his own site for subsequent
purchase by a local housing authority.)             GAO found that four members
and/or executives     of the Alliance      had an interest     in six of the 25 turn-
key projects    as either project     developers     or consultants   to the devel-
opers.   Those six projects      were initiated      and received HUD approval     prior
to the formation    of the Alliance.        The Authority    had awarded a contract
for one of the projects     in July 1969. The final          price for the remaining
projects    had not been negotiated      at the time of GAO's review.       (See pp.
 15 to 25.)

Tenants      appointed      to board
As a condition     for ending the rent strike,     two tenants were appointed      to
the Authority's      board of commissioners    in October 1969. These tenants
were appointed about 2 months after the Missouri attorney            general had
expressed the opinion that such appointments          were contrary    to Missouri
law. The HUD General Counsel, in November 1969, issued a legal opinion
indicating    that HUD had no objection     to, and indeed encouraged,      the ap-
pointment of tenants as commissioners when permissible            under State and
local law.      (See pp. 26 to 31.)

The rental  rate charged one of the tenants on the board of commissioners
was reduced at the time new rent schedules were put into effect,      on the
basis of the tenant's   statement that he had no income.    This action was
subsequent to his appointment    to the board of commissioners.   (See Pp.
32 to 35.)

Dismissal.     of empi?oyees

In February 1970, the Authority        terminated    the services    of 103 employees,
who were selected by a private        management consultant       employed by the
Alliance.    The consultant    could provide no documentation          to support the
manner of selection.      He informed GAO that the criteria          used were primar-
ily economic as he had been directed          by the Alliance     to reduce the Au-
thority's   payroll  as much as possible.         By March 31, 1970, 31 of the ter-
minated employees had been rehired by the Authority.               HUD had no require-
ments for housing authority       personnel practices      other than that housing
authorities   follow personnel policies        compatible with local practice.
(See pp. 36 to 39.)

Rents withheld

Rents amounting to $769,205 were not paid during the rent strike.              During
the first   3 months of the strike,       some of the tenant strikers    paid rent
to strike   leaders,  who deposited     the funds in bank accounts.     Through
court action,    the Authority   obtained $108,017 of those funds.        Subse-
quently,  the strike   leaders collected      additional  rentals  of $112,907,


                                       2
which were returned    to the tenants when the strike ended.      The applica-
tion of rents attached by the court and rent credits      and adjustments
required  by the strike settlement    agreement reduced the rent owed to the
Authority  after the strike to $344,600.      (See pp. 40 to 46.)

Status   of delinquent     rents

As of March 31, 1970, rents totaling           $698,600 were owed to the Authority,
including    $537,100 owed by resident        tenants and $161,500 owed by tenants
who had vacated.        The Authority    took no significant       actions to collect
delinquent     rents from the end of the rent strike in October 1969 until
June 1970 because of the delay caused by the computation                  and application
of various rent credits       required     by the strike settlement         agreement.     In
June 1970, the Authority        began filing     lawsuits    against resident     tenants
for collection      of rents not paid by tenants subsequent to the rent
strike.     Tenants who had vacated were told that, unless they paid, their
accounts would be given to a collection            agency.      The collection     agency's
fee is 50 percent of the amount collected.               Neither the Alliance       nor HUD
has taken an active role in the collection              of delinquent     rents owed to
the Authority.        (See pp. 47 to 52.)

Modernization    program

In January 1970, HUD approved the Authority's              plan for a $1.1 million
modernization    program prepared by the Alliance.             Funds were made avail-
able from unexpended money previously          provided     by HUD for another pro-
gram, contingent     upon the Authority's     agreement to terminate       work on the
other program at the earliest      practicable       date.

In fiscal  year 1970, HUD allocated    another $5 million   in modernization
funds for the Authority.     The $5 million   was not made available    because
a physical security   program had not been established    for St. Louis public
housing.   (See pp. 53 to 59.)
                                  CHAPTER 1

                                INTRODUCTION

       The General Accounting         Office     has reviewed    selected      as-
pects of the operation          of the St. Louis Housing Authority,
St. Louis,    Missouri,     following       a rent strike    by tenants      of
low-rent   housing projects         owned by the Authority.           The Hous-
ing Act of 1937,        as amended     (42   U.S.C.  1401),   authorizes      the
Department     of Housing and Urban Development             (HUD) to conduct
a program of housing assistance              under which local govern-
ments establish      independent       legal entities--known        as local
housing authorities--to          develop,     own, and operate      low-rent
public   housing projects.

      Our review was made in response to a request by Con-
gressman William   L. Clay in a letter to us dated February 13,
1970.   At a meeting with the Congressman on March 2, 1970,
we agreed to examine into the:

       1. Contractual   arrangements   between the Authority      and
          the St. Louis Civic Alliance      for Housing,   a coalition
          including   community leaders    and Teamsters Union of-
          ficials.

       2. Compliance       with HUD requirements      dealing with con-
          flicts      of interest    on turnkey   housing proposals,
          particularly        the proposal    for the James House proj-
          ect,

      3. Inclusion  of two public      housing         tenants   on the board
         of commissioners       of the Authority          and the rent status
         and income eligibility       of these         two members.

      4. Compliance    with HUD regulations  in the dismissal   of
         about 100 employees of the Authority      and the subse-
         quent rehiring     of some of them.

      5. Disposition     of rent moneys withheld           by some tenants
         of the Authority's      low-rent  public         housing projects
         during     a g-month rent strike.



                                        4
        6. Action being taken              to collect        delinquent       rents        owed
           by the tenants.

        7. Amounts       of modernization funds received by the Au-
           -rhority      from HUD and the use being made of such
           funds.

       The scope        of our review         is   described       in chapter         9.

        In an attempt         to have rents reduced               and conditions           im-
proved,     some of the tenants            of the Authority's              low-rent        pub-
lic housing        projects       withheld      rent payments         during      the pe-
riod February         1, 1969, to October             29, 1969.         In June 1969,
attempts      to settle       the rent strike           reached an impasse and
the Mayor of St. Louis requested                     Mr. Harold       J. Gibbons,          pres-
ident     of Teamsters        Joint     Council      No. 13, to help solve the
public     housing      dilemma by heading            a civic      fund-raising          com-
mittee.       Mr. Gibbons expressed               the belief       that the fund-
raising     approach would not provide                  a solution;        however,        he
did initiate         a series       of meetings       with Teamsters           Union staff
members to evaluate             the entire        St. Louis public           housing       sit-
uation.       Subsequently          a HUD task force           surveyed      the Author-
ity's     operations        and held discussions             with Teamsters          offi-
cials.      The task force reported                 to HUD that it was impressed
with the expertise            of the Teamsters            representatives           and rec-
ommended that management and operation                         of the St. Louis pub-
lic housing        program be turned            over to the Teamsters.

        In August 1969, the strike                 leaders    urged Mr. Gibbons          to
assume leadership            in the settlement           of the strike.
Mr. Gibbons accepted              the strike       leaders'     invitation       and ini-
tiated      a series      of meetings       with community          leaders    to de-
velop a coalition            designed      to settle       the strike       and super-
vise the St. Louis housing                 operations.        On October       10, 1969,
a coalition        was formed which adopted the name St. Louis
Civic     Alliance      for Housing.         The Alliance         included     in its
membership        prominent      professional,         business,       and religious
leaders;       tenants      of public      housing;      and labor union officials,
including        Teamsters      officials.        The Alliance         accepted     a
strike      settlement       program negotiated           by Mr. Gibbons with the
rent strike         leaders     and the Authority's           new board of com-
missioners.
                                                                                    .


       A memorandum of intent           and understanding          dated Octo-
ber 29, 1969, which incorporated               the agreements negotiated,
was executed by Mr. Gibbons,             the strike       leaders,     and the
commissioners        of the Authority.         It showed that the Author-
ity's    previous     board of commissioners           had resigned      and that
on October 28, 1969, the Mayor of St. Louis appointed                        the
new commissioners,         who had been recommended by the Alliance.
The memorandum included         a reduced schedule of rents and pro-
vided for the formation         of a tenant affairs            board, consist-
ing of a tenant representative              from each of the Authority's
low-rent      housing projects,       to promote tenant participation
in the management of the public               housing.       Other provisions
of the memorandum were as follows:

       1. The Authority     would enter into a management contract
          with the Alliance      for the administration,      management,
          and improvement     of the physical     environment   of the
          housing projects.

       2. Two members of the Authority's   board              of commission-
          ers would henceforth be tenants.

       3. All withheld   rents in custody of strike   leaders
          would be returned    to the tenants for payment to the
          Authority.

       4. For tenants     who had resided        in conventional       public
          housing since February          1,  1969,  when    the  rent   strike
          began, rent credits         would be given,      represented       by
          the difference     between rent paid under the present
          rent schedule     (effective       October 1, 1968) and the
          preceding    rent schedule.

       5. The Authority  would drop the more than 500 lawsuits
          filed  against the tenants  during the rent strike
          and would assume all court costs.

       6. All tenants who were in arrears  in their  rent pay-
          ments would be allowed to pay the arrearages    over a
          2-year period.

       7. After     determination    of the amount due from each ten-
          ant,    a committee on withheld     rents,  appointed by the
          rent    strike    chairman of each project,   would

                                        6
           determine     the hardship  cases and work out repayment
           schedules     for each tenant.

       8. The Authority    would provide     necessary office   space,
          equipment,    and materials    for the tenant affairs
          board and its operations.

       9. Training   would be provided    to the tenants   of one or
          more of the projects    which would result     in the estab-
          lishment   of a tenant management corporation,       or cor-
          porations,   to assume all administrative      and finan-
          cial responsibilities     of the projects.

       The Alliance's    operating        guidelines       dated November 10,
1969, showed that the aim of the Alliance                   was to find solu-
tions to the problems facing           the Authority          through      organi-
zation and technical       investigation,          including       direct     super-
vision   of the Authority.         The Alliance         established        21 com-
mittees   to review various        areas of the Authority's                opera-
tions.    Teamsters representatives             were assigned as techni-
cians to nine of the committees              and as advisors           or resource
persons to five of the committees.                 The president          of the
Alliance    (Mr. Gibbons),     the    executive        assistant       to  the pres-
ident (Mr. Arthur     E. Klein),        and the acting          director      of the
Alliance    (Mr. Terence K. McCormack) were Teamsters officials.

       The initial     year's operating  budget of the Alliance  was
$350,000 for which funds were to be solicited         from the com-
munity.    Its headquarters     was in rented   space in the Team-
sters   Council    Plaza in St. Louis.
                                   CHAPTER 2

    ARRANGEMENTS BETWEEN THE ST. LOUIS HOUSING AUTHORITY

    AND THE'CIVIC       ALLIANCE FOR HOUSING FOR THE MANAGEMENT

                    OF PUBLIC HOUSING IN ST. LOUIS

        The Authority        has no contract         with the Alliance         for the
Alliance's        management of public           housing in St. Louis.            Al-
though a contract           for the Alliance          to manage the Authority's
housing projects          was agreed to in the October 1969 settle-
ment of the rent strike,               Alliance     officials       informed us that
the idea had been abandoned because of legal obstacles                            to
such a contract.           A HUD attorney         advised us that such a con-
tract     could involve        conflicts       of interest       since certain
Alliance      officials      are developers         of, or consultants         to de-
velopers      of, turnkey       housing projects           for the Authority.
Turnkey projects          are housing projects             constructed      by a pri-
vate developer          on its own site for subsequent                 purchase by a
local housing authority.

        .Members of the Authority's           new board of commissioners
-(hereinafter        referred     to as the Board) and officials     of the
 Alliance     advised us that the Alliance          was functioning   only
 in an advisory         capacity.      Our review showed, however,    that
 Alliance     officials       had attended    both open and closed meet-
 ings of the Board and that the Board had adopted all the
 Alliance's       recommendations       of record.    No minutes have been
 kept of closed meetings            since February    1970.

       In addition,    the Authority's       records   showed that there
had been extensive       Alliance    involvement     in housing opera-
tions and that each member of the new Board had signed an
undated letter      of resignation      and submitted    it to the Alli-
ance.

STATUS OF THE PROPOSED
MANAGEMENT CONTRACT

      On April   15, 1970, the Alliance      issued a report    on the
management of its public     housing activities.      The report
stated that the proposed contract       for the management of pub-
lic housing    in St. Louis was not sufficiently      finalized    for

                                         8
submission     to HUD for     approval    as unforeseen       problems    and
exigencies     had arisen     requiring    changes.

        On June 22, 1970, we met with Messrs. Arthur           E. klein
and Terence K. McCormack, Alliance           executives,    to discuss
Alliance    activities     and the status of the proposed manage-
ment contract,         They stated that the Alliance     was no longer
interested     in obtaining     a management contract    and that the
idea had been abandoned.          They said that the management idea
was a philosophical        concept which was discussed      when the Al-
liance was being formed but that it was later            discovered     that
there were many legal problems to such an arrangement.

      The commissioners      of the Authority     informed      us that
they were not aware that the Alliance          no longer anticipated
the obtaining    of a management contract.          They stated that
the Authority    and the Alliance    were working       from day to day
as though there were a formal contract           and that they under-
stood the Alliance     attorneys   were in the process of writing
such a contract.     They said that,     in their      opinion,    there
must be a written    agreement to define       the roles of all par-
ties involved    in St. Louis public     housing.

       An Assistant        Counsel for HUD advised us that HUD proba-
bly would not approve a contract             with the Alliance         for the
management of public          housing in St. Louis since Alliance
members were involved          as turnkey    housing developers          for the
Authority.       He said that HUD had no legal basis for ruling
on a possible       conflict     of interest     under the current         ar-
rangement,      since it would be difficult           to establish       that
the Alliance       controlled     the Authority,      but that a conflict
of interest      would exist      through Alliance       participation         in
turnkey    projects      if the Alliance      did in fact control          the
Authority.
ALLIANCE INVOLVEMENT
IN HOiJSING OPERATIONS

        The initial    meeting of the new board of commissioners
 of the Authority      was held on November 2, 1969.           The Board
agreed that the Authority          would enter into an agreement
with the Alliance       for the management of public         housing
projects    in St. Louis.       At this meeting Messrs. Arthur           E,
Klein and Terence K. McCormac'k, Alliance            executives,      were
retained    for a period      of a year as dollar-a-year         consultants
to the Board.       Mr. Klein had informed        the Board that he and
Mr. McCormac'k were consultants          to developers    of three turn-
'key housing projects        of the Authority.

        In a second meeting on November 12, 1969, the Board ap-
proved the guidelines        for the operation    of the Alliance.
Board actions     in this meeting and in subsequent       meetings
show extensive      Alliance    involvement   in housing operations as
follows:

       1. The Board'authorized       Messrs. Klein and McCormack
          to prepare and execute letters          of authorization
          which would permit Alliance        officials     to review
          Authority     records and documents,        to meet and inter-
          view its staff,      and to have access to all its hous-
          ing projects.

       2. The Board authorized         Mr. Klein to reorganize         the
          Authority's      office  and field     staffs,    to designate
          and assign certain       of the Authority's         staff  to new
          positions      and responsibilities,        and to deal di-
          rectly     with the Authority's       employees in implement-
          ing revised      methods and procedures.

       3, The Board authorized    Mr. Klein to institute     a pur-
          chase order system providing      that no material   or
          obligation  for outside   maintenance   services   could
          be incurred   by anyone except those designated       in
          advance by Mr. Klein.

       4. The Board questioned    the legal relationship        between
          the Alliance    and the Board and questioned       whether
          the Board could legally     authorize    the Alliance
          staff   to implement decisions     before a contract      for

                                     10
   management of public          housing in St. Louis had been
   entered     into by the Alliance          and the Board.      In a
   letter     dated December 24, 1969, an Alliance             attor-
   ney stated that he had prepared              a tentative    draft
   of a management contract            which had been submitted
   to the rent strikers'          attorney     and to Mr. Klein for
   review.       The attorney     stated that he considered
   such a contract        to be legal      in all respects     if en-
   tered into by the Board.             The Board accepted the
   letter     as legal advice providing          firm ground for
   proceeding      with authorizing        the Alliance     to execute
   its program for management of the Authority's                  hous-
   ing projects       as outlined      and approved by Alliance
   directors.

5. The Board approved all the Alliance              tas'k force com-
   mittees'    reports    that were approved previously          by
   the Alliance's      executive     committee and board of
   directors     and authorized      the Alliance      to proceed on
   the recommendations        contained    therein.

6. Mr. Klein presented          to the Board a list        of the Au-
   thority's      employees to be terminated.            The list
   had been previously          submitted   to and approved by
   the Alliance      directors.        The Board unanimously       ac-
   cepted the recommended list            of terminations.        (See
   chapter    5.)

7. Mr. McCormack reported        to the Board that a tenant
   affairs    team had been formed and that Mr. Jim Pace,
   a Teamsters official,       had been assigned     to coordi-
   nate all existing      tenant   committees.    The Board au-
   thorized    Mr. McCormack, working with the team, to
   proceed with a program for modernizing          the Author-
   ity's    housing projects     where practical.

8, Mr. McCormack presented       to the Board a letter         that
   he had drafted     to the HUD regional      office      at Fort
   Worth, Texas, enumerating       the specifics        of the mod-
   ernization   program,    along with a copy of the operat-
   ing budget for the Authority.        He told the Board
   that he was going to the HUD regional            office    and
   wanted to ta'ke along the letter,       the budget,        and
   other data.     The Board approved his request.

                              11
 9. All meetings held by the new Board through                 Febru-
    ary 10, 1970, had been closed meetings and were
    conducted      at the Alliance      headquarters      with vari-
    ous Alliance       representatives       in attendance.      Dis-
    cussions     by the Board on February          3, 1970, included
    suggestions      that in the future         the Board would con-
    duct a closed special           or executive     meeting first
    for ticklish       subjects     and then have an open meet-
    ing.     Certain     items would be left        off the agenda
    -for,the   open meeting and held over for the next ex-
    ecutive    session.       The Board decided on February           10,
    1970, that closed meetings would be held on alter-
    nate weeks at the Alliance            headquarters     where
    Messrs, Klein and McCormack would be available                   and
    that no minutes would be kept of the closed meet-
    ings.

10.    On February      10, 1970, the Board members discussed
       their    undated resignation        letters     signed at the
       time of their       appointments      and requested        clarifica-
       tion of the conditions          under which the letters
       could be effected.          The Authority's        attorney        sug-
       gested that the letters          be considered        as agreements
      to cooperate       rather    than resignations.            Mr. Klein
       reminded the Board that,          under the terms and con-
       ditions     of the rent strike        settlement,       the commis-
       sioners     had given their      undated letters          of resigna-
       tion to the Alliance          to be used only at the direc-
       tion of the Alliance's          board of directors           after
       consultation      with the tenant affairs           board,

11.   On April       7, 1970, the Board accepted the resigna-
      tions of Messrs. Klein and McCormack as Board con-
      sultants.         The resignations        were offered      after    the
      HUD regional          office    ruled on February        27, 1970,
      that their        participation       as both consultants         to
      the Board and to developers                of turnkey    housing
      projects       for the Authority         was a violation       of the
      conflict-of-interest            provisions      of Missouri      State
      law,




                                  12
COMMISSIONERS' UNDATED
LETTERS OF RESIGNATION

       We discussed   the undated letters    of resignation      signed
by the members of the Board with Alliance         executives,      the
commissioners,     and HUD officials.     None of these people ex-
pressed concern that the letters       gave the Alliance      undue
influence    in the management of the Authority.

      The Alliance      executives     said   the   letters   were required

       --to ensure     that the commissioners   would comply with
          the terms    of the strike settlement   agreement,

       --as a protection    to the community since the commis-
          sioners were untried    and could improperly administer
          the Authoriy,  and

      --to prevent     the commissioners        from dispensing       with
          the services    of the Alliance       and the tenant       affairs
          board,

        The Alliance      executives    stated that the Alliance          acts
only in an advisory          capacity,   makes no decisions        for the
Authority,      and that     the Board can accept,       reject,     or modify
Alliance    suggestions.         They  said   that  the  closed    meetings
with the Board are educational              sessions held for the pur-
pose of better       informing      and preparing     the members of the
Board for their        duties    and that no official       decisions     are
made during these meetings.

        The commissioners     said that they did not object         to the
Alliance    having the resignation       letters    and that they
viewed the administration         of the Authority     as a team effort
with responsibility       shared by the commissioners,        the Alli-
ance, and the tenants.         According     to them, any commissioner
who impeded the harmony of the team should be removed.
They stated that Mr. Gibbons had assured them that the res-
ignation    letters   could only be exercised        by the Alliance's
board of directors      and the tenant affairs        board., not by any
one individual.

      The commissioners    told us that they were initially  un-
der the impression    that the Board would be a rubber-stamp

                                       13
 organization    to approve the          Alliance*s      activities   but that
 they were taking    a far more          active     role in housing affairs
 than originally    contemplated.             They said that the Alliance
 participation    was strictly         on an advisory         basis and that
 the Alliance    had not tried         to dominate the Board.

       The HUD representatives           stated that they had no offi-
 cial knowledge     that the Alliance          held the commissioners'
undated letters       of resignation.          The HUD Acting Assistant
Regional    Counsel for Housing Assistance              said that there was
no law or HUD policy         prohibiting       such an arrangement     and
that a commissioner        technically       remained in office,     even if
he resigned    during his appointed            tequntil      a new commis-
 sioner was appointed        by the mayor of the city.

         Concerning   the undated resignation            letters       submitted
 by the commissioners        upon their      appointment        to the Alliance,
we note that Missouri          law provides      that city housing author-
 ity commissioners       can be appointed        and removed only by the
mayor of the city.          The law provides        further       that the mayor
can remove a commissioner           for reasons of inefficiency,                 ne-
glect of duty, or misconduct             in office      after     charges
against     the commissioner      have been presented             in a hearing.
 In light     of all the facts and circumstances,                 there could be
some question       as to whether such resignations                would be
binding     if dated and accepted by the mayor, and the commis-
sioner involved       objected    to such acceptance            and demanded a
hearing.       The commissioners       informed us, however,             that they
felt    that any commissioner        who impeded the harmony of the
team should be removed.

        Representatives         of the HUD regional        office      advised us
that they were familiar            with the Alliance's           operating
guidelines         but did not know the extent          of authority         actu-
ally vested in the Alliance.                They said that         the HUD re-
gional     office     considered     the Authority's       board of connnis-
sioners     to be the official          body operating       St. Louis public
housing and that the Alliance               involvement     was acceptable
in an advisory         capacity    only.      They informed       us that the
regional       office   had conducted       no official     business with the
Alliance       and that they had told Alliance             officials       that HUD
would deal only with official               Board-approved        matters.



                                       14
                                    CHAPTER 3

                  COMPLIANCE WITH HUD REGULATIONS ON

                     POSSIBLE CONFLICTS OF INTEREST

                  REGARDING TURNKEY HOUSING PROPOSALS

        The Alliance       was not        involved     in the selection        of de-
velopers       for the Authority's             25 turnkey      housing projects
since the developers            were      selected    before the Alliance          was
formed.        Developers      and/or       developer      consultants    for six of
these projects,         however,        later     became Alliance       members and
executives.         We noted at         the time of our review that the
final     price had not been            negotiated       for five of these six
projects.         HUD regulations           regarding      conflict    of interest
in these turnkey          projects        apply only to officers          and employ-
ees of the Authority.

         HUD regulations        regarding      turnkey      housing projects       out-
line specific         steps to be followed           by a local housing au-
thority      in establishing         a turnkey      project.       The process is
initiated        by advertising        in newspapers and other news media
for proposals         by developers.          The regulations         require   that
the advertisement           provide      a general     description       of the proj-
ect , including        the number of units           and rooms, type of hous-
ing, and the type of location                 desired.       After    a developer     is
selected       through    evaluation       of the proposals          by the housing
authority        and HUD, the project          progresses       through     11 addi-
tional     steps leading        to the start        of construction,          These
steps include         obtaining      independent       appraisals       of the value
of the land and estimates                of the construction          costs,   conduct-
ing price negotiations,              and executing        (with HUD approval)         a
contract       between the local housing authority                   and the devel-
oper.

         The regulations    require     that two independent      land ap-
-praisals    and two independent        construction    cost estimates    be
 obtained    by the housing authority           and be used in the evalua-
 tion of a developer's        proposal.       If there is no substantial
 variance    (10 percent    or more> in the two land appraisals,
 HUD may establish       as the maximum price the average of the
 two land appraisals.         Construction       costs must not be greater


                                             15
than the midpoint         of the two independent         cost estimates.
HUD may require        additional       cost estimates    to permit a valid
determination     of cost 'I*** whenever there is a difference
between the first         two cost estimates        so substantial    or dif-
ficult    of reconciliation          *Jc*".   If the developer's     proposed
price is substantially            above the midpoint      of the two ap-
proved cost estimates,            the authority     is required    to advise
the developer     to reduce his price or withdraw.

        The HUD Low-Rent Housing Manual,        section   on turnkey
housing,    provides    a sample contract    to be used by local                       hous-
ing authorities.        It contains  the following      conflict-of-
interest    provisions:

       "No member, officer,    or employee of the Purchaser
       during his tenure or for one year thereafter      shall
       have any interest,   direct  or indirect, in this
       Agreement or the proceeds thereof."

         The annual contributions                contract        executed between HUD
and a local housing authority                    under which HUD contributes
to the cost of development                 of housing projects,               includes
similar     conflict-of-interest              provisions.            The annual con-
tributions      contract        provides       that,     if any present           or former
member, officer,           or employee of a local housing authority
acquires     or had acquired,            prior       to the beginning           of his
tenure,     any interest         in a project          of the authority            and if
the interest        is immediately          disclosed          to the authority,          the
authority     may waive the conflict-of-interest                         prohibition,
The member, officer,             or employee,          however, may not partici-
pate in any action            by the authority             relating      to his interest.

SELECTION OF TURNKEY DEVELOPERS

       HUD, as of May 13, 1970, had allocated        3,444 turnkey
housing units    to the Authority,    which accepted 25 proposals
from developers    for the construction      of 2,997 units.     HUD's
files   for each of the 25 projects      showed that the proposals
had been accepted by the Authority        before October 1969 when
the Alliance    was formed.     The HUD Fort Worth Regional      Of-
fice approved 18 of these proposals        for construction    of
1,809 units.



                                            16
INVOLVEMENT OF ALLIANCE MEMBERS
AND EXECUTIVES IN TURNKEY PROJECTS

        The Authority's    records     show that                 four members and ex-
ecutives    of the Alliance      were involved                   in six of the turnkey
projects    to the extent     indicated    below.

Project     MO l-10      (James    House--      155 units         for   the   elderly)

        This project       was initiated        on June 12, 1967, when the
minister      of the St. James A. M. E. Church sent a letter                           to
the executive        director      of the Authority            stating      that the
church desired         to initiate       and manage a turnkey               project    for
the elderly.         On the same date,           the    Reliance       Construction
Company submitted          a proposal       for construction            of the project
as a joint       venture     with the church.            The proposal          was sub-
mitted     through     Mr. Arthur      E. Klein,        a consultant,          who in
October 1969 became executive                 assistant        to the president          of
the Alliance.          The Authority        forwarded        the proposal         to the
HUD Fort Worth Regional             Office,     which approved            it on Octo-
ber 13, 1967.

       The Reliance          initial       proposal     was for 150 units.         On
November 20, 1967, Mr. Klein,                     on behalf   of Reliance,       sub-
mitted    an alternate           proposal       for 155 units     estimated      to cost
$2,620,065,        including         land.      This amount was below two in-
dependent      construction            estimates      of $2,702,386     and
$2,716,906,       net of actual             land cost of $118,839.           The alter-
nate proposal         of Reliance           was approved     by HUD prior      to the
formation      of the Alliance.                On June 30, 1969, however,           Re-
liance    relinquished           all rights        as developer      to the St. James
A. M. E. Church and remained                    only as the general        contractor
for the project.             On    July     1,  1969,   the  Authority     awarded    a
contract      to St. James A. M. E. Church in the amount of
$2,620,065       for the construction               of 155 housing      units.

Project     MO l-19      (397 units       for        the   elderly)

        In a letter     dated December 13, 1967, Mr. Arthur           E.
Klein,    acting    for Jack Dubinsky     and Sons and H. B. Deal Con-
struction      Company, a joint    venture,    submitted   a proposal      to
the Authority       for the construction     of 398 housing      units   for
the elderly      at a unit    cost of $16,950.      The proposal      was ap-
proved by HUD on September         26, 1968.      On April  25, 1969,

                                                17
Mr. Klein submitted       a revised    proposal    for the construction
of the project    at a total      cost of $6,868,100       for 397 units,
or a unit price of $17,300.           The proposal     showed that the
increase    of $350 in the unit price was caused by inflation,
higher   interest  rates,     and the inclusion       of air conditioning
in the project,

        The revised        proposal    cost of $6,868,100         included
$549,895 for the land and $6,318,205                   for construction.           The
two independent          land appraisals       for the project         were only
$472,500 and $485,000.               By letter     dated June 3, 1969, the
HUD regional        office     advised the Authority          that the maximum
land value that would be approved for the project                        was
$478,750,      the average of the two independent                 appraisals.
In a negotiation           conference     held at the HUD regional            office
on July 1, 1969, however,              the maximum price for the land
was set at $509,000.              The minutes of the negotiation              con-
ference do not show why the maximum price for the land was
set higher       than the average of the two independent                   apprais-
als.      A HUD representative           who attended      the conference
told us that he could not recall                 the reason for the differ-
ence.      This action was taken prior              to the formation        of the
Alliance.

         The two independent          construction     cost estimates         ob-
tained     by the Authority         were $5,760,440       and $5,584,434
which were considerably             lower than the developer's            proposed
cost of $6,318,205.             In August 1969, both estimators              reaf-
firmed their       estimates.         On August 29, 1969, the Authority
forwarded     these estimates          to the HUD regional        office,      stated
that the Authority           disagreed     with the independent          estimates,
and requested        that the developer's          proposed construction
costs be included          in a letter       of intent   until    the estimates
could be updated on the basis of final                  drawings.        The Au-
thority's     letter     stated that the proposed price,               which in-
cluded air conditioning,             was below the price of other proj-
ects without       air conditioning.

      We were informed        by Authority      representatives       that the
HUD regional     office    agreed that the independent            estimates
were understated        and suggested      that additional       estimates     be
secured at the developer's          expense.       Two additional       indepen-
dent estimates      dated April     18 and 20, 1970, in the amounts
of $5,594,961     and $5,541,026,        were still     substantially       lower

                                          18
than the developer's        proposed cost.       On May 18, 1970, the
developer    again requested      HUD's regional      office  to consent
to have its proposed cost incorporated             into a letter     of in-
tent on the basis that estimates            based on final    drawings
would substantiate       the proposed cost.        Authority    personnel
stated that the HUD regional         office    had advised the developer
to prepare     its plans in detail       and have the Authority        se-
cure additional      cost estimates      at the developer's      expense.

        The developer       forwarded     to the Authority   updated draw-
ings for the project           and agreed to pay for the additional
cost estimates.         The third      set of independent    estimates
dated June 26 and July 2, 1970, in the amounts of $6,261,378
and $7,718,853,       were an average of about $672,000 higher
than the developer's           proposed cost of $6,318,205.         On
July 10, 1970, the Authority             forwarded    these estimates  to
the HUD regional        office     along with a summary of the project
history    and requested        HUD to decide what further       steps
should be ttiken on the project.               As of July 31, 1970, HUD
had not replied       to the Authority's         request.

Project    MO l-20    (201 units     for        the   elderly)

       The initial      proposal    for the project           was submitted     to
the Authority       by Mr. Arthur      E. Klein,       consultant      to the de-
veloper--   the Council Plaza Redevelopment                 Corporation--on
February    27, 1968.       The proposal      was for the construction
of 121 units       at a cost of $2,057,000,            or $17,000 a unit.
On September 25, 1968, the Authority                 notified      the developer
that it had approved the project,                On October 31, 1968,
Mr. Klein submitted         a revised     proposal       for 200 units      at a
cost of $3,400,000,         or $17,000 a unit.             Under this revised
proposal,     all individual       apartment     kitchens       were eliminated
and replaced       with a central      dining    facility       to permit an in-
crease in the number of units.

        In a letter    dated October 27, 1969, Mr. Terence K,
McCormac'k, on behalf         of the developer,      submitted    a third
proposal    for 201 units at a cost of $3,517,500,               or
$17,500 a unit,       including       $175,000 for the land.
Mr. McCormac'k, a Teamsters official,              was also the acting
director    of the Alliance.           The letter   stated that the in-
creased cost had been caused by the inclusion                  of 'kitchen
equipment,     increased      financing     costs, and an anticipated      in-
crease in the cost of labor and materials.
                                           19
        The developer      of this project--Council        Plaza Redevelop-
ment Corporation       --submitted     a developer's    statement    of dis-
closure     of interest     to the St. Louis Land Clearance Author-
ity.      The statement     showed that the corporation         was owned
by various     Teamsters Union locals.           Mr. Harold J. Gibbons,
president     of the Teamsters Joint Council No. 13, who later
became president         of the Alliance,     was president     of the cor-
poration.

       On December 8, 1969, a negotiation       conference      was held
for this project,     The minutes of the conference          showed that
a cost for the project     could not be negotiated         because the
land appraisals    and construction     cost estimates      had not been
received   but that HUD appeared to consider          the developer's
cost of $3,517,500    to be acceptable.       The land appraisals
and the construction    estimates   received    after    the conference
are compared with the developer's        October 27, 1969, pro-
posal below.

                                              Land          Construction

      Developer's   proposal   of
        October 27, 1969                   $175,000          $3,342,500
      Appraisal   1                         100,500
      Appraisal   2                         173,000
      Cost estimate    1                                      3,096,OOO
      Cost estimate    2                                      3,434,027

        As of April    27, 1970,    a cost     had not    been negotiated
for    this project.

Project MO l-24 (29 units      for        general     occupancy
and 96 units  for the elderly)

       The initial       proposal    for this project     was submitted   to
the Authority         by the developer     on June 24, 1968, for the
construction        of 104 units at a cost of $1,819,888.            The de-
veloper's      statement     of disclosure    of interest    showed that
the developer         was a partnership     composed of Mr. James E.
Hurt, Jr. and R. Jerome Williams,             M.D., each owning a 50-
percent     interest.       On December 6, 1968, the HUD regional         of-
fice approved the proposed project.



                                     20
       In September 1969, the developer    submitted    a revised
proposal   for 125 units at a cost of $2,275,700.
Dr. Williams    became a member of the Alliance      in October
1969.

        On April     13, 1970, the developer       advised the Authority
that,    because of the lapse of time since the proposal                was
submitted,       the cost estimates       would have to be revised.         On
July 9, 1970, the developer             submitted  a revised     cost esti-
mate of $2,371,050.          A cost for the project          had not been
negotiated       as of September 16, 1970, because independent
construction        cost estimates      had not been received.        On
July 2, 1970, however,          the HUD regional      office    and the de-
veloper    arrived      at a negotiated     cost of $110,000 for the
land which is comparable           to the average of the independent
land appraisals         of $98,500 and $125,000,

Project    MO 1-26      (24 units     for        general   occupancy)

       Initially       this project         was to consist         of 20 units      lo-
cated on land owned by the St. Louis Land Clearance                             Author-
ity.     In September 1968, five developers                    responded      to the
St. Louis Housing Authority's                  request     for proposals        for the
construction         of the project.           After    reviewing      the proposals,
the Authority's         housing development             section     considered
three of the proposals              to be acceptable,           those of Harold
Garner and Associates;              Vanguard Bond and Mortgage Co., Inc.;
and Reliance         Construction       Company but preferred             the proposal
submitted        by Harold Garner and Associates.                    In a joint     meet-
ing of the St. Louis Housing Authority                       and the St. Louis
Land Clearance Authority               on October 10, 1968, however,                the
proposal       of the Reliance         Construction        Company was selected
for recommendation           to the housing authority's                board of com-
missioners        for approval.         On November 4, 1968, the Author-
ityDs executive          director      notified      the board of commissioners
that the Authority's             staff    recommended that the Reliance
proposal       be accepted.

        On November 19, 1968, however,    the Authority    notified
Vanguard Bond and Mortgage Co., Inc,,        that its proposal      had
been approved by the board of commissioners         during a Novem-
ber 18, 1968, meeting.      Vanguard proposed the construction
of the project     at a cost of $359,540 or $17,977 a unit.
Neither    the Authority's   files nor the minutes of the

                                            21
meeting indicated     the basis for the approval     of Vanguard's
proposal.    An  Authority  official    advised us that  the former
Board, which was replaced       in October 1969, did not advise
the staff  as to its reasons for selection       of the Vanguard
proposal.

       The developer's   statement   of disclosure   of interest
showed that the president      of Vanguard was Dr. Jerome
Williams,    who became a member of the Alliance       in October
1969.     In March 1969, the developer     submitted   a revised  pro-
posal for construction      of 24 units   at a total   estimated
cost of $451,293 or $18,804 a unit.         HUD approved the project
on May 8, 1969.

       The Authority's  files showed that              a feasibility        con-
ference was held at the HUD Fort Worth                 Regional      Office    on
April   10, 1970, and that a land price               of $19,300,       estab-
lished   by the St. Louis Land Clearance               Authority      as owner
of the land, was accepted by HUD.

Project   MO 1-27   (33 units    for        general   occupancy)

       By a letter   dated January 24, 1969, Mr. Terence
McCormack, consultant        to the Reliance   Construction   Company,
submitted   a proposal     to the Authority    for the construction
of 33 units     at a cost of $602,250.       On May 8, 1969, the HUD
regional   office   approved the proposed project.

        On May 1, 1970, the developer          notified    the Authority
that a citizens'       organization      in the construction     area ob-
jected    to the proposed project          and that it had no further
interest     in developing      the project.      An Authority    official
told us that the community objected              to the project    because
the developer       was Caucasian and the community feared that
whites might live        in the project.       As of June 30, 1970, the
Authority      had not notified     HUD that the developer       was no
longer    interested     in the project.



     The chairman of the board of commissioners           advised us
in a letter    dated July 17, 1970, that the Board had discussed
with Authority     officials  the involvement    of Messrs. Klein
and McCormac'k, Alliance     executives,   in the turnkey     projects.

                                       22
The letter    stated that Authority               staff     members had assured
the Board that Mr. Klein,              Mr. McCormac'k, and other members
of the Alliance      had not gained any privileged                   information
from the Authority's         files      pertaining        to turnkey      projects
and that the Board had found no instances                       where Alliance
members had received         any consideration              above or beyond the
scope of turnkey       regulations         as they are lcnown to the Au-
thority.    The letter       stated also that the director                   of devel-
opment had assured the Board that neither                       Mr. Klein nor
Mr. McCormac'k had exerted             any influence         or pressure      to fur-
ther their   particular         turnkey      projects       and had initiated       no
other turnkey     projects        after    their     involvement      with the Al-
liance.




                                          23
TTJ-RNKEYDEVELOPER CONSULTANTS ALSO SERVING
AS CONSULTANTS TO BOARD OF COMMISSIONERS

        As previously     stated,       the new board of commissioners,
during    its initial     meeting on November 2, 1969, appointed
Messrs. Klein and McCormac'k, Alliance                executives,      to act as
consultants      to the Board for an annual remuneration                 of a
dollar.      Mr. Klein advised the Board that he and
Mr. McCormack would accept the positions                  only if the Board
was fully      advised of their        participation      in turnkey     projects
of the Authority.         The final        price for two of the projects
had not been negotiated           at that time.        The Board unanimously
resolved     that Messrs. Klein and McCormack be retained                   as
consultants      for a period        of a year without       prejudice    to
their    continued    consulting        on the three projects.
Messrs. Klein and McCormack agreed that they would not ac-
cept any other private           clients      whose projects      would be af-
fected by actions       of the Authority.

        The Authority's     chief attorney    in a letter        dated Feb-
ruary 18, 1970, advised the HUD regional              office     of these
appointments     and stated that HUD auditors          had indicated       the
appointments     involved    a conflict    of interest       under the pro-
visions    of the annual contributions        contract.        The chief
attorney    requested     HUD to determine    whether a conflict          of
interest    was involved     and, if so, to provide          a waiver of
the contract     provisions     so that Messrs. Klein and McCormaclc
could continue       as Board consultants.

        In a letter       dated February       27, 1970, the HUD Assistant
Regional     Administrator         for Housing Assistance            advised the
Authority      that,     as consultants       of the Authority,
Messrs. Klein and McCormac'k were prohibited                      by Missouri       law
from serving         as developer      consultants      for the turnkey          proj-
ects and that HUD could not waive the contract                        provisions
to permit them to serve as consultants                    to both the Authority
and the turnkey          developers.       The letter       stated that such a
waiver would set a precedent               for actions       detrimental       to the
public    interest       over which HUD would have no control                  and
would not measure up to the standard                  of conduct which is ex-
pected,    required,       and considered        appropriate       for housing
authority      officials      and employees.



                                          24
      Messrs. Klein and McCormack tendered        their   resignations
as Board consultants     and the Board accepted them during a
meeting on April     7, 1970.   No significant    actions    were tdken
by the Board on the Authority's       turrikey projects     during    the
tenure of Messrs. Klein and McCormac'k as Board consultants.




                                   25
                                     CHA??TER 4

                      PUBLIC HOUSING TENANTS ON THE

              AUTHORITY'S       BOARD OF COMMISSIONERS AND

                         THE STATUS OF THEIR RENTS

        The board of commissioners              of the Authority           included
two members who were tenants               in the Authority's            low-rent
housing      projects.        These tenants       were appointed         as commis-
sioners      about 2 months after          the attorney        general       of Mis-
souri had expressed            the opinion      that tenants        of low-rent
housing      projects     are not eligible         to be appointed           as commis-
sioners      of a local       housing   authority      created      under provi-
sions of Missouri           law.     We were informed        by the board of
commissioners          of the Authority       that the attorney            general's
opinion      did not have the effect            of law and the legality              of
this    action      would have to be decided           by the courts.            HUD
was aware of the State attorney                 general's      opinion       and did
not object        to, nor did its *regulations            forbid,      the appoint-
ment of the tenants            to the Authority's         board of commission-
ers.

        The Authority     lowered   the rental       rate of $37 a month
charged to one of these tenants            to the minimum monthly
rental      of $20 after    his appointment       as a commissioner.        The
rental      rate of $37 had been established             on the basis of the
Authority's      estimate     of the tenant's      annual     income but was
reduced on the basis of the tenant's               statements       that he had
no annual income.           The other tenant's         rental    was based on
her income which was supported           by documentary          evidence  and
was not reduced        by the Authority      after     she was appointed     as
a commissioner.


1
 Income    as defined     by the Authority     is not confined    to earn-
 ings.     It includes      income from all    sources, e.g.,   with-
 drawal    from savings,       welfare grants,   and the subsistence
 portion     of scholarships.




                                          26
INCLUSION OF TWO TENANTS ON THE
AUTHORITY'S BOARD OF COMMISSIONELRS

       One of the conditions   presented      by the rent strike
leaders   for ending the rent strike       was the appointment         of a
new board of commissioners.       Another     condition     required     that
two members of the Board would henceforth             be tenants     of pub-
lic housing    if such membership   would not be held to be un-
lawful   by any court of competent     jurisdiction.

       On October   28, 1969, the Mayor of               St. Louis appointed
the following     members to the Authority's                new board of com-
missioners.

      1. Mrs. Thelma Green--tenant
      2. Mr. Clarence  Swarm--tenant
      3. Rev. Donald Register
      4. Rev. Carl Dudley
      5. Mr. Frank Boykin

       Missouri    State law provisions    relative      to the eligi-
bility    and qualification    for housing    authority     commissioners
are included     in sections  99.050 and 99.060 of the "Revised
Statutes    of the State of Missouri,      1959."       The law states:
in part,    as follows:

      Section   99.050 --"the    mayor shall    appoint    five per-
      sons who shall     be taxpayers     who have resided           in
      said city    for five years prior      to such appoint-
      ment as commissioners       of the authority      created         for
      said city    ***.    No commissioner     of an authority
      may be an officer       or employee of the city        or
      county for which the authority         is created       ***.'I

      Section     99.060 --"No commissioner            or employee
      of an authority        shall    acquire    any interest         di-
      rect or indirect         in any housing        project     ***.
      If any cormnissioner         or employee of an authority
      owns or controls         an interest      direct      or indirect
      in any property        included      or planned       to be in-
      cluded    in any housing        project,     he immediately
      shall   disclose     the same in writing            to the au-
      thority     and such disclosure          shall    be entered


                                         27
      upon the minutes       of the authority.            Failure     so to
      disclose    such interest     shall      constitute       misconduct
      in office.      Upon such disclosure           such commissioner
      or employee     shall    not participate         in any action       by
      the authority     affecting     such property."

         On March 6, 1969, the final          day for introduction     of new
legislation         in the 75th General Assembly         of the State of
Missouri       (1969),    a bill  was introduced      that would specifi-
cally     allow     the appointment     of public   housing    tenants as
housing       authority    commissioners.       The bill   was not acted
upon by the legislature.

        On August 11, 1969, the attorney          general            of the State
of Missouri       issued an opinion,      in response     to         a request     from
a Missouri       State senator,      on whether  a tenant            of a housing
authority      created    under Missouri     law could be            one of the
commissioners        of the authority.       The attorney            general   re-
plied     to the request      as follows:

      "Section     99.060,    may be summarized      as prohibiting
      a commissioner       from exercising     his authority        and
      judgment     on any matter    in which he has an interest
      in the housing       project.     As a tenant,     his inter-
      est would encompass the entire           operation     of the
      project    from the amount of rent to the state of
      repair    and sanitation.       We see no area, as a prac-
      tical    matter,   where the tenant      does not have an
      interest     in the housing     project.

      We believe      that the phrase           'interest       direct     or in-
      direct     in any housing        project'        applies      to the re-
      lationship     a commissioner          has which would affect
      his official        actions    because of his determination
      of matters     affecting       himself        as a tenant        and is
      not limited       to contracts       for services           or materi-
      als to be furnished           by him or his interest               in
      property     of the project.           Section        99.060,     spe-
      cifically     prohibits       a commissioner           having any in-
      terest     in any project       property         or project       con-
      tract     but goes further        and prohibits           his having
      any interest        in a housing       project.          This 'inter-
      est' proscribed          by the statutes          demonstrates         a


                                           28
.   .

                 legislative       intent to prohibit    a commissioner   from
                 having an interest       in the project      as a tenant
                 which in turn could affect          his actions   as commis-
                 sioner      in any way."

                 The attorney        general's      opinion     concluded       with    the     fol-
        lowing     statement.

                 "It   is the opinion    of this office      that a tenant  is
                 not eligible     to be appointed     to the office    of com-
                 missioner    in a municipal    housing    project  created
                 under provisions     of Chapter    99, RSMo1959."

                The board of commissioners           of the Authority     advised   us
        that the attorney         general's    opinion    was merely    one man's
        opinion    and did not have the effect             of law.    The commis-
        sioners    advised    us that,      in their   opinion,    tenant  partici-
        pation    was necessary       for public     housing    to succeed and, if
        necessary,     applicable       laws should be changed.

               The HUD Acting      Assistant      Regional       Counsel     for Housing
        Assistance,    Fort   Worth     Regional      Office,     provided      us with a
        copy of the following         legal    opinion       (No. 204 dated November
        28, 1969) by the HUD General Counsel relative                      to the appoint-
        ment of public      housing     tenants     to serve as housing           authority
        commissioners.

                 "***    Although       this     Department      has not as yet es-
                 tablished       an official        policy      on this      subject,     I
                 think     it is fair         to state that HUD has no objec-
                 tion to, and indeed encourages,                    the appointment
                 of tenants        as housing       authority       commissioners         to
                 the extent        it is permissible            under applicable
                 state and local            law.    Such appointments            would
                 seem beneficial            to both the tenants            and the hous-
                 ing authority          in that tenants          would have a repre-
                 sentative       to voice their          concerns      in decisions
                 affecting       them and the authority               would be given a
                 direct      conduit      to ascertain        tenant     thinking      on im-
                 portant      issues      and to explain         to the tenants         the
                 authority's         reasoning      in the actions           it takes.




                                                     29
      "To date, no decided                case on this question                has
      been brought         to our attention,                although       Opin-
      ions have been rendered                  by the Attorney             General
      in California           (finding        such appointment             to be
      permissible)         and in Missouri                (where ?-he oppo-
      site holding         was made while             construing         an al-
      most identical            statute).         I should add that at
      the present        time tenants           are serving          on the
      housing      authority         boards in New Haven, Hartford,
      and Norwalk,         Connecticut;           Cambridge         and Boston,
      Massachusetts;            Catskill,       New York; Muskegon
      Heights,      Michigan;         Chicago,        Illinois;        and Co-
      lumbia,     Missouri.           The last-mentioned               appoint-
      ment, made approximately                  a year prior           to the
      rent adverse Attorney                  General's        Opinion,      and
      the subsequent            announcement          that,      as part of
      the settlement           of the lengthy              St. Louis rent
      strike,      two tenants          will    be named to the city's
      housing      authority,         make it seem likely                that the
      validity       of the Opinion            expressed         by the Mis-
      souri    Attorney        General will          be tested         in court.

      "There    is no general             Federal     government         conflict
       of interest        policy      that would have applicability
       to this question            of appointing         tenants        as commis-
       sioners.       There is also no provision                    of Federal
      Housing     law which would seem to bear on this                            issue.
      Some local        officials,         however,      have felt        that it
       is necessary         to have the involved               local     housing
      authoriq        waive,       and HUD approve           the waiver         of,
      the conflict          of interest        provision         (section       515)
      of the Annual Contributions                   Contract        (ACC) be-
      tween the housing              authority      and HUD.          (Section
      515 provides          that the housing           authority         shall
      not enter       into any contract,             subcontract,           or
      arrangement        in which a member has direct                     or
      indirect      interest).           It is this Department's
      position      that we will           readily     waive section
      515 in cases in which local                  officials         think
      that such action             is necessary."

     The Acting         Assistant       Regional  Counsel  informed   us that
HUD headquarters         was well       aware that tenants    had been


                                             30
appointed    to the Authority's          board of commissioners             and
that it had voiced       no objections.           He stated         that, as indi-
cated by the HUD General         Counsel's         opinion,       there is no gen-
eral Federal     Government     conflict-of-interest               policy   that
would have applicability         to this question             of appointing      ten-
ants as commissioners       and that there            is no provision         of the
Federal   housing    law which bears on this               issue.

       Section     515 of the annual contributions              contract    be-
tween HUD and the Authority           provides      that the Authority
not enter into any contract,            subcontract,       or arrangement        in
which a member has a direct           or indirect       interest.        The HUD
Acting    Assistant    Regional     Counsel    in June 1970 advised           us
that the Authority       had not requested         HUD approval        of a
waiver    of section    515 but that,if        such a request         had been
made,   the    waiver  would    undoubtedly     have    been    approved    in ac-
cordance     with the HUD General        Counsel's      opinion.

     Public   Law 91-509, however,             dated December 31, 1970,
amended section   1 of the Housing             Act of 1937 by adding:

       “It    is the sense of the Congress         that no person
       should be barred        from serving    on the board of
       directors     or similar      governing  body of a local
       public    housing    agency because of his tenancy        in
       a low-rent     housing     project,"




                                          31
RENT STATUS AND INCOME
ELIGIBILITY OF
TENANT-COMMISSIONERS

      The Authority's       records revealed    the following   infor-
mation relative       to the rent status and income eligibility
of the two public       housing tenants    on the Authority's     board
of commissioners.

Mr. Clarence     Swarm

        Mr. Swarm and his wife have been residents               of the Coch-
ran low-rent       housing project       since November 18, 1960.       Ac-
cording     to information        in the Authority's      records Mr. Swarm
has not provided          documentation     of his income as required      by
Authority      regulations      since his initial      occupancy of the
project.       According      to his "application      for admission,"   his
annual income from self-employment                was shown as $2,000.     The
Authority      accepted,      as evidence    of his income, a statement
from a local minister           that Mr. Swarm and his wife lived        on
a yearly      budget of $2,000.

       In the first      reexamination        for continued      occupancy--and
to establish      a rental     rate in January 1962--and            in subse-
quent reexaminations         through     1966, the Authority         was unable
to obtain    documentation        of the Swarm's annual income in ac-
cordance with its established              procedures.      Mr. Swarm re-
peatedly    advised Authority        officials      that he was self-
employed and could not furnish              documentation      to support his
income but signed statements             that were generally          identical
to the following       one.

      "1, Clarence L. Swarm, hereby state I supplement
      my expenses such as Rent, Food, etc.,               from the
      sale of Personal Property,           Equipment,     Items (In-
      ventory),    which I owned before I moved into the
      Project.     I do not file      Income Tax return.          The
      above statement       is true and complete to the best
      of my knowledge.        I fully     understand     any false
      statement    given by me can result           in the cancel-
      lation    of my exiting     lease."

     In each instance,  the Authority             arbitrarily     established
the Swarms' annual income at $1,820.               An Authority      official

                                       32
advised     us that the $1,820 was the standard          figure    used by
the Authority       as the annual income of self-employed            persons
when required       documentation      of annual income could not be
furnished.       He stated     also that the $1,820 was less than
the maximum income limit           for continued   occupancy    and was
below the maximum income for the minimum monthly                rental
rate.      He advised    us further     that the Swarms had been
charged minimum rental          rates   for their  unit  since their      ini-
tial   occupancy     in 1960.

      The Authority   records      show that,during           the period Jan-
uary 1962 through    May 1968, the Authority              tried    various
means of determining     the source and extent              of the Swarms'
income,   including  contacting        the welfare       agency to deter-
mine if it had an application            or registration         on the Swarms,
but always with negative        results.

       On April  15, 1968, Mr. Swarm refused   to sign a new
lease because it showed the Swarms' annual income was
$1,820 as estimated    by the Authority.    At the time Mr. Swarm
stated   his income for the year was zero.

        The Authority      omitted   the amount ($1,820)     of annual
income when it retyped           the Swarms' lease dated May 21, 1968,
and Mr. Swarm signed the lease on June 12, 1968.                The new
lease increased        the Swarms' rental      rate from $45 a month to
$50, which was the minimum rental            rate charged by the Au-
thority    at that time and which the Swarms continued             to pay
monthly    until    February     1969 when the tenant    rent strike
started.

        In accordance       with the rent strike           settlement     agree-
ment of October          29, 1969, the Authority           established      a re-
duced rent schedule           retroactive      to October       1, 1969.     Basi-
cally,    this     reduced rent schedule           set the maximum annual
rentals     at 25 percent        of a tenants       adjusted     annual income
and established          a minimum rental        rate of $20 a month.           On
November 13, 1969, the Authority                 adjusted     the Swarms'
monthly     rental     rate from $50 to $37 in accordance                with the
reduced rent schedule.              In establishing        the $37 rent rate,
however,      the Authority        again based it on an estimated             an-
nual income of $1,820 which Mr. Swarm had previously                         pro-
tested.       On November 21, 1969, Mr. Swarm again protested
the use of the $1,820 annual income determination                        and


                                        33
insisted  that he had no income. Therefore  the Authority re-
duced the Swarms' monthly rent to $20 which was the minimum
rate on the new rent schedule and changed the records to
show Mr. Swarms' annual income as zero.

        The chief of the Authority's              rental     and occupancy sec-
tion informed       us that the $1,820 estimated               annual income
had not directly          affected     the rent charged the Swarms prior
to implementation          of the reduced rent schedule in November
1969 but that the estimated                $1,820 income did directly           af-
fect the rental         rate charged under the new rent schedule as
indicated      above.      She stated       that,  when Mr. Swarm com-
plained      about the estimated           $1,820 income on November 21,
1969, she could not say that Mr. Swarm should pay an addi-
tional    $17 a month on the basis of her opinion                   alone,    since
the Authority       had no documentation            to support that he had
any income.        She indicated         that she did not believe          that
Mr. Swarm had 'Ino income,"              since he and his wife rode public
transportation        daily,      they appeared to be well fed, and
they paid their         rent.       She stated that she re-set          Mr. Swarm's
rent at $20 on the basis that to exist he must have had at
least an annual income of $1,007 which was the maximum in-
come allowable        for the minimum rental             rate of $20.

         On June 9, 1970, the Authority           reviewed Mr. Swarm's
 file    to determine     if his rent should be adjusted             under the
provisions       of section     213 of the Housing and Urban Develop-
ment Act of 1969.           Under this law, a tenant with no income
would be entitled         to free rent; however,           the Authority     did
not reduce Mr. Swarm's monthly rent.                 The chief of the
rental      and occupancy section         stated that there was no basis
for changing       the rental      rate and that,      although    the Author-
ity did not know the amount of Mr. Swarm's income, it had no
verification       that his income was zero.            This official       stated
also that common sense and observation                 of Mr. Swarm's ap-
pearance indicated          that he had some income and that,             if he
actually      had no income, he should have applied              for welfare
and old age assistance,            and such income, if received,            would
result      in a rental     higher    than the $20 rate currently
charged.

     Mr. Swarm paid no rent during  the tenant strike,   and
as of October 31, 1969, he owed back rents totaling    $465.
As of June 10, 1970, Mr. Swarm had paid a rental    of $20 for

                                       34
each month since the end of the rent strike,          and the amount
of the back rent owed had been reduced to $55 by rent cred-
its required  by the strike    settlement    agreement and cash
payments made by Mr. Swarm. The rent credits           granted to
Mr. Swarm at the end of the rent strike        were reviewed   by us
and found to be accurate    and in accordance      with the provi-
sions of the rent strike    settlement    agreement.

Mrs.   Thelma Green

      Mrs. Green has been a resident       of the Carr Square low-
rent housing project      since March 2, 1943.    Authority   records
show Mrs. Green's     income consists   entirely  of welfare    pay-
ments and child-support       payments.  Mrs. Green provided     doc-
umentation  showing her annual income and the Authority          veri-
fied it in accordance with the established        procedures.

      The monthly rental      charged to Mrs. Green from February
1969 through June 1969 was $60 in accordance             with rent
schedules    in effect   at that time and from July 1969 through
November 1969 was $68 in accordance with revised               rent
schedules    based on income information        obtained    from
Mrs. Green in April      1969 during an annual reexamination         of
her file   for continued    occupancy.     This annual reexamination
showed that Mrs. Green's annual income at that time was
$1,392.    In November 1969, Mrs. Green's rental            rate was re-
duced, retroactive     to October 1969, to $24 per month on the
basis of her annual income, verified          in April    1969, in ac-
cordance with the revised        rent schedule which was a condi-
tion of the rent strike       settlement   agreement.
       Mrs. Green paid no rent during the rent strike,                and as
of October 31, 1969, she owed back rents totaling                 $581.    Ac-
cording    to Authority    records,    Mrs. Green has paid the rental
charge of $24 each month since the end of the rent strike
and her back rent has been reduced to zero by rent credits
required     by the strike    settlement    agreement and cash pay-
ments made by Mrs. Green.           The credits   applied      to the bal-
ance owed by Mrs. Green at the end of the rent strike                   were
reviewed     by us and found to be accurate        and computed in ac-
cordance with conditions         of the rent strike       settlement
agreement,




                                     35
                                 CHAPTER 5

                        DISMISSAL    OF EMPLOYEES

        On February   6, 1970, the Authority         notified      PO3 of its
employees that their        services    would be terminated         as of
February    20, 1970.     These dismissals       were recommended by a
management consultant        as part of a program designed to re-
duce costs and improve efficiency             of the Authority.        HUD
had no specific     regulations      regarding     housing authority       em-
ployment policies,      but the 2-week termination            notice was in
compliance    with the Authority's         personnel    procedures.       As
of April    20, 1970, 31 of the terminated           employees had been
rehired    by the Authority.

        The management consultant        was not employed by the Au-
thority    but 'had been hired by the Alliance        as part of the
staff    assigned      to a task force committee for housing author==
ity staff      review.     This committee was established     by the
Alliance     to perform:

      "Complete    evaluation      of organizational        structure
      of the Housing Authority          regarding     lines    of au-
      thority,    operational      procedures     and where respon-
      sibility    begins and ends within          the staff      struc-
      ture . ..and to further       evaluate    the quality       of
      persons involved        in day-to-day     tenant relation-
      ships and ascertain        the competencies        and social
      concerns of all personnel."

        Three Alliance       members were assigned      to the commit-
tee--a     religious     leader,    a bank executive,     and an educator.
The committee was assigned            a staff   composed of the manage-
ment consultant,         a building    maintenance    specialist,  a rep-
resentative        of the tenant affairs       board, and the AuthorityQs
director       of personnel.

       The management consultant         submitted   recommendations
 for reducing     the number of employees of the Authority           in a
December 11, 1969, letter         to the Alliance.       The committee
endorsed the recommendations          during a meeting on Decem-
ber 16, 1969, but only the chairman             (the only member of the
committee     present),    a staff member, the acting       director    of
the Alliance,       and the consultant      were at the meeting.       The

                                     36
 board of directors   of the Alliance     accepted the recommenda-
 tions on December '22, 1969, and on February       3, 1970,
 Mr. Arthur  E. Klein presented     the recommendations    to the
 Authorityss   board of commissioners    which unanimously    ac-
 cepted tha.

        The managemen t consultant's                 Petter     of December 11,
1969, also contained             a number of recommended organizational
and staff       changes for the Authority.                   The fetter        showed that
the Authority's          staffing        included      excessive      layers of man-
agement and diffused              lines of authority            which resulted          in
slow and poor decisions                and excessive        paper work.            The con-
sultant      recommended the (1) abolition                  of the housing and
social      service    divisions,          (2) assignment        of additional          re-
sponsibilities         to the project            managers,      (3) centralization
of the accounting,            credit,       and collections         activities,         (4)
elimination        of maintenance           specialists       and the use, instead,
of general-purpose            maintenance         men, and (5) consolidation
of project        management into five project                  groupings        rather
than the then-existing               nine separate         project      offices.        The
consultant        proposed also that the Authority's                     staff      be re-
duced by 129 positions,                including       61 office     positions         and 68
maintenance        and custodial          positions,       at an estimated           annual
savings of $902,000.

        The management consultant       informed   us that he had been
responsible    for the final     recommendations      regarding       the dis-
missal of the employees.         He stated that he had been directed
by the Alliance      to recommend changes which would reduce the
Authority's    payroll    as much as possible,       hopefully,       up to
$1.5 million    a year and that Alliance         executives       had es-
pressed disappointment       when his recommendations           resulted    in
a reduction    of only $902,000.        He said that the Alliance           had
given him no instructions        as to individual       employees who
should be discharged       or retained.

         The consultant         informed    us that he had determined         the
 number of positions            to be eliminated      by analysis      of each
*job, considering           its physical     and mental aspects and its
 contribution        to organization        and planning.     He provided       no
 documentation         to indicate       how he had selected      individual
 employees to be terminated               or the positions     to be eliminated.
 During discussions            with us, however, he made the following
 statements      relative       to terminations     in each area of opera-
 tions.       Administrative         people were terminated       generally

                                            39
because their       jobs were abolished.          An exception     was in the
legal    section where analysis         indicated    that the work load
required     only one attorney.         For economic reasons,          an attor-
ney with an annual salary            of $10,462 was retained         instead     of
an attorney      with an annual salary          of $20,000.      Seniority     was
not considered        in terminating      employees in administrative
positions,      but custodial      and maintenance      people were termi-
nated principally        on the basis of seniority.            The number of
skilled    craftsmen     was reduced,      and the duties      of these
craftsmen      were assumed by lower paid general maintenance                  em-
ployees with the concurrence            of the trade unions involved.

        We found that the consultant          had previously      been associ-
ated with a consulting         company.      The president      of the con-
sulting      company confirmed     the consultant's       prior   employment
and advised us that his performance              while with the company
had been very satisfactory.            In commenting on the consul-
tant's    character,   educational       background,    technical     compe-
tence, and judgment,        the president       recommended him without
reservation,

      The terminations     announced by the Board of commissioners
on February   6, 1970, reduced the number of employees from
335 to 232.     Of the 103 employees terminated,          23.3 percent
were Caucasians,       The percentages     of Caucasian employees to
total  employees before and after        the terminations     were
24.2 percent    and 24.6 percent     respectively.

      The acting  executive        director   of the Authority    told us
that fewer employees had          been dismissed    than had been recom-
mended by the consultant          because 23 employees had resigned
and thus had reduced the          number to be terminated      to 106,
He added that he and the          consultant   had reviewed    the termina-
tion list  and had further         reduced the number to be dismissed
to 103.

       On February   6, 1970, each of the 103 employees was
given 2 weeks' severance pay along with a letter         signed by
the board of commissioners      which stated that the employee
was being terminated      for economic reasons.     The employees
were not required     to remain on duty for the 2-week period
covered by the severance pay.        The 2 weeks' notice was in
accordance    with personnel   procedures   adopted by the board of
commissioners     in a meeting held January 27, 1970.       Previous

                                       38
procedures    required    a 30-day notice.          The Authority's       pro-
cedures were changed in January on the basis of a legal
opinion    of the Authority's      general    counsel that the proce-
dures could be revised        to conform with personnel            practices
of the St. Louis Land Clearance           Authority     which on Janu-
ary 2, 1970, had revised        its notice     period    from 30 days to
2 weeks.

        We found that the hthority           had placed the names of the
103 terminated       employees on a preferential          reemployment
list.     The president       of the Alliance     submitted     a Petter to
all Alliance       members that requested       their    assistance     in
finding    suitable      employment for the terminated          employees.
The personnel       section    of the Authority      made numerous efforts
to assist     these employees in finding          employment.

        As of April      20, 1970, 31 of these employees had been
rehired     by the Authority,        20 in their     previous   positions,
The Authority's        records for five of the employees showed
that they were custodians            and had been rehired       on the basis
that they were erroneously             included    in the staff   reduction.
The Authority's        personnel     director    told us that the other
15 employees (12 custodians              and three firemen)     had been
reinstated     after    project    managers and maintenance         foremen
had complained       that the cutback was too severe.             The Direc-
tor also informed         us that the number of employees to be re-
instated     had been determined          by the Alliance9s     management
consultant.       Of the 11 additional          persons rehired,       eight
were rehired      to fill     vacancies      and three to fill    temporary
positions.

        HUD regional        office     representatives         informed      us that
they had felt         for some time that the Authority                   was over-
staffed      and had considered           the staff      reduction       to be an
elimination       of unneeded positions,               They informed         us also
that HUD had not become involved                    in the hiring        and firing
of housing authority             personnel,       since HUD regulations            re-
quired only that housing authorities                     adopt and comply with
personnel      policies       comparable      to local practice,             According
to these HUD officials,              this is generally           interpreted       to
mean the practice           of the local        city government.            The Author-
ity's     personnel      director      told us that the Authority9s               per-
sonnel policy         and procedures         were based on the personnel
policy     and procedures          of the city of St. Louis.

                                           39
                                  CHAPTER 6

                  DISPOSITION     OF AND ACCOUNTING FOR

                      RENT MONEY NOT PAID DURING

                        THE TENANT RENT STRIKE

        The Authority's       records   showed that rents amounting to
$769,205 had not been paid to the Authority               by tenants     dur-
ing the period       of the strike.       This amount included       $681,193
owed by tenants who were residing             in the projects    when the
rent strike     ended and $88,012 owed by tenants who had moved
from the projects         before the rent strike      ended.    After    ap-
plication    of rent credits         and other adjustments     agreed to in
the strike    settlement,        the balance of rent due from tenants
for the strike       period was $344,609.        (See table on p. 44.)

       The Authority's      records did not show how much of the
$769,205 was withheld         by tenant strikers     as opposed to ten-
ants who were merely delinquent            or were possibly   using the
strike    as a convenient       excuse for not paying rent,       The rec-
ords indicated,       however,    that some tenants     had been making
their   rent payments (hereinafter          referred  to as withheld
rents)    to strike    leaders.      These rent payments amounted to
about $220,900.

        The memorandum of intent          and understanding       signed at
the end of the rent strike            and dated October 29, 1969, in-
cluded the following         agreements:       (1) tenants     who were in
arrears    in their     rent payments were to be allowed             2 years in
which to repay the full          amount of the rents owed, (2) a re-
payment schedule        for each tenant was to be established              after     '
completion      of an audit of strike        leaders'    finances     by a firm,
or firms,     of Certified      Public Accountants       (CPAs), (3) repay-
ment schedules were to be established               for each tenant by a
committee on withheld         rents for each project,          with committee
members to be appointed          by the rent strike        chairman in each
project,     (4) rent credits      were to be allowed to tenants            who
had resided      in the public      housing projects       since February       1,
1969, and who had paid higher rent than was charged by the
Authority     before October 1, 1968, (5) a new rent schedule
was to be established         and made retroactive         to October 1, 1969,

                                       40
.   .


        and (6) lawsuits   against          tenants   initiated     by the Authority
        during  the strike  would          be dismissed       and court costs would
        be paid by the Authority.

        WITHHELD RENT DEPOSITED
        IN BANKS

                During     the first     3 months of the strike,         rents       of ten-
        ants participating           in the strike     were collected        by the strike
        leaders      and deposited       in bank accounts      established         by the
        strike     leaders    for this     purpose.     The Authority        filed     a law-
        suit,    on April     23, 1969, petitioning         the court      to require
        the banks and strike           leaders    to pay the withheld           rents    to
        the Authority.         When the suit was filed,           the banks froze           the
        accounts      which contained        $108,580   and rejected       the rent
        strikers      demands for withdrawal          of funds.      On May 21, 1969,
        the banks placed all the money in the rent strikers'                          accounts
        into the custody         of the court.

                The Authority       received      $108,580      from the court      and re-
        corded it in a special            disbursing        fund account.       On the ba-
        sis of a CPA's audit,           as required         by the memorandum of in-
        tent and understanding,             $108,017 was applied           to rents    owed
        by tenants.        The amount of rent paid by each tenant                   to the
        strike    leaders     was determined         from lists      prepared    during    the
        CPA's audit       of strike     leaders'       finances     and from information
        supplied     by the strike        leaders.        The lists     showed the amounts
        collected     by the strike         leadkrs      at each project      by tenant
        name and apartment          number.

                In addition      to the $108,017      applied     to rents     owed by
        tenants,    refunds      totaling      $509 were made by the Authority
        for (1) amounts which the banks had erroneously                     placed    in
        the custody       of the court       and (2) the duplicate        payment of
        rent by a tenant.           The amount of rent credited           to tenants'
        accounts    for the 3-month period           and the above refunds          totaled
        $,108,526 or $54 less than the amount of funds received                       from
        the court.       The difference         of $54 resulted      because the
        moneys received        from the court       and collections       by strike
        leaders    as identified          by the CPA's audit      did not agree.

             Although    we did not attempt   to verify    the accuracy    of
        the adjustments    made to tenants  rental    accounts   or refunds
        made to tenants,    we noted that the Authority       had received

                                                   41
                                                                                            ,


complaints    from tenants which indicated               that errors might
have occurred     in distributing         the amounts received            from the
court.     For example,     a   former    tenant    of   the     Blumeyer      project
complained    that she did not receive            full     credit     for rent
money that she had paid to the rent strike                     leader in her
housing project.        The tenant stated that,              although     she had
paid the rent strike        leader $140, the Authority                had given
her credit    for only $70.          She provided      the Authority          with
canceled checks to document her claim.                   Authority       officials
told us that an additional            credit   of $70 could not be given
to the tenant,      even though it appeared that she had a valid
claim,   since the Authority          had accounted        for all but $54 of
the rent money received           from the court.         The officials
stated that the Authority            would not credit         tenants with
amounts that totaled        more than the $108,580 received                    from
the court but that this complaint              and any others received                 by
the Authority     would be referred          to the CPA firm for resolu-
tion.

RENT MONEYHELD
BY STRIKE LEADERS

       After      the Authority     filed    its lawsuit,         the strike    lead-
ers began holding         rent money collected           from     tenants    in safe-
deposit     boxes and other places.             According       to the lists      pre-
pared by the CPA firm,           the money collected.by              the strike
leaders     after    the lawsuit      was filed     totaled       $112,907.

        The October 29, 1969, memorandum of intent                    and under-
 standing     stated that all withheld             rents in the control       or
physical      custody of the strike            leaders would be returned         to
 the striking       tenants    'I*** under such circumstances            and con-
ditions      as shall be reasonably           calculated       to cause same to
be paid over to the Authority               with prompt dispatch."           A
 strike    leader advised us that these funds had been returned
to the tenants when the strike                ended.      He also informed     us
that some strike         leaders had encouraged             the tenants   to take
advantage      of the strike        settlement      conditions     which allowed
the tenants up to 2 years to repay the full                      amount of all
rents owed.

        During visits  to various   low-rent     housing projects,      we
interviewed    28 tenants  to ascertain      the difficulties      they
might have experienced     in receiving      credit    for or return    of

                                          42
amounts paid to the rent strike          leaders    after    the rent money
deposited     in the banks was attached       by the court.          Of the
28 tenants,       11 informed  us that they had paid rent to the
strike    leaders    but had experienced     no difficulties         in obtain-
ing credits       or refunds  and had heard of no difficulties             ex-
perienced     by other tenants.      Of the tenants        we interviewed,
17 advised      us that they had not paid rent to the strike
leaders.




                                       43
STATUS OF RENTS OWED
FOR STRIKE PERIOD

       An official    of the Authority       informed us that all rent
credit    computations     required    by‘ the strike   settlement  agree-
ment as outlined        on pages 6, 7, 40, and 41 were completed
and recorded       on the Authority's      records as of July 22, 1970.
After    deduction    of the required      rent credits    and the with-
held rent attached        by the court and paid to the Authority,
the rent not paid of $769,205 during the rent strike               period
was reduced to $344,609,          as summarized below.

Total rents not         paid from February  1,
   1969, through        October 31, 1969 (rent
   strike  period)                                                $769,205
Less rent funds         attached by the court
  and applied      to    rents owed by tenants                     108,017

                                                                   661,188

Less rent credits         allowed    as part of
   the rent strike        settlement     agreement:
      Rent credits      (adjusting     rents owed
         by tenants     for month of October
         1969 to level        of new rent sched-
        ule effective         October 1, 1969)        $108,871
      Rent credits      (adjusting     rents owed
         by tenants    for the period        Febru-
        ary 1 through         September 30, 1969,
         to level    of rent charged immedi-
         ately prior     to October 1, 1968)           188,075
      Credits    for cost of lawsuits
        charged to tenant accounts--cost
         to be paid by the Authority                    19,633     316,579

Balance     of rents owed during rent
   strike    due from tenants   after credits                     $344,609

      The rent strike     settlement    agreement provided      that,   af-
ter the CPA firm completed         the audit of the rent strike
leaders'    finances,   the Authority      would compute the appli-
cable rent credits      and provide     the rent strike     chairman at
each project      with a list    of tenants    in his project     whose
rent payments were in arrears.            The list   showed the net

                                      44
.   .

        amount that each tenant owed. Each rent strike           chairman
        was to appoint  a committee on withheld         rents,  These com-
        mittees  were to establish     an equitable     payment schedule for
        each tenant which would provide       for the tenant    to repay the
        net rent owed within     2 years.   As of July 1, 1970, 300 ten-
        ants had signed rent repayment agreements providing            for the
        repayment of back rents totaling        $106,340.

              We noted that the agreements        for 281 of the 300 tenants
        were not limited       to rents owed for the strike      period   but
        also included    rents for other months which were in arrears
        at the date the rent payment agreements were established.,
        An Authority    official      informed  us that he would not object
        to this practice       as long as the money was collected.         For
        action   taken to collect        rent owed by the tenants     who moved
        before the strike        ended, see chapter    7.

             As of June 1970, some portion           of the rent owed by ten-
        ants was paid; however,       identification       of the amount paid
        would have required     analysis       of about 5,600 tenant     ledger
        accounts which we deemed impractical.              We did examine, how-
        ever, the Authority's     tenant       ledger accounts for 48 selected
        tenants  and determined     that some portion        of the rent owed
        by the 48 tenants     had been paid, as indicated          in the follow-
        ing summary:

        Rent not paid by 48 tenants        during rent
          strike                                                         $26,839
              Less rent credits:
                  Credits  for tenants'      share of
                     money attached   by court              $4,472
                  Rent credits    per strike     settle-
                     ment agreement                          4,035

        Total     credits      per strike      settlement                  8,507

        Back rent      owed after       rent    credits                   18,332

                Less cash payments                                         5,029

        Balance      of rent     owed--June      1970                    $13,303




                                                    45
                                                                            ,

     The accounts showed that as of June 1970 nine of these
tenants had paid the amounts owed in full,   13 had made pay-
ments to reduce the amounts owed, and 26 had made no pay-
ments.

     Alliance  executives   and HUD regional   office     personnel   in-
formed us that they had not been involved       in collecting
rents owed.    A consultant   to the Secretary     of HUD, however,
was involved   in the rent strike   settlement     negotiations     when
the procedures   for payment of the rents owed were established.




                                   46
                                   CHAPTER 7

                    STATUS OF DELINQUENT RENTALS

       Records of the Authority      show that the total    amount of
delinquent    rentals owed by tenants      at September 30, 1968,
the end of the Authority's      fiscal    year, was about $69,600
and that by March 31, 1970, the amount owed had increased
to about $671,700.     This increase      was primarily  the result
of rents not paid by tenants        during the rent strike.     (See
ch. 6.1

     After making adjustment      for credits   during                  the applic-
able period,  delinquent  rentals     owed by tenants                   increased
as shown below.

                                                   Transactions
                                              10-l-68        10-l-69         Balance
                                                                             owed by
                                              9-ii-69       3-E-70           tenants

Amount owed on September           30,
  1968                                                                      $ 69,600
Rents and other charges                  $4,915,500        $1,516,700

Credits     pursuant   to strike
   settlement     agreement                  101,100            217,800
Collections                               4,373,200          1,138,OOO

Total credits      and collec-
   tions                                     4,474,300         1,355,800

Increase    in amounts     owed          $      441,200    $     160,900     602,100

Amount owed on March        31,
  1970                                                                      $671,700
        The March 31, 1970, balance of $671,700 represents         the
net of $698,600 owed to the Authority        and $26,900 which the
Authority    owed tenants  with credit  balances.     Of the $698,600
owed to the Authority,     $537,100 was owed by tenants     resid-
ing in the housing projects      and $161,500 was owed by tenants
who had moved out of the projects.


                                         47
      The Authority's       records   showed that,  on March 31, 1970,
5,647 tenants were living          in the low-rent  housing projects
and that 2,257,or       about 40 percent,     were delinquent       in their
rent payments.       Of the $537,100 owed by tenants         residing
in the projects      at March 31, 1970, $489,800 had been owed
by 1,410 tenants      for periods     in excess of : months.

       Examples of tenants who owed substantial              amounts    of
delinquent    rent at March 31, 1970, follow,

      Tenant   A

      The tenant paid no rent after March 11, 1969, when he
      paid the rent due on March 1, 1969.                 After making this
      payment 2 the tenant still              owed $73 which was due for
      the month of February             1969.     As of June 1, 1970, after
      application        of retroactive        rent and court cost credits,
      the balance owed by the tenant amounted to $1,073.                     On
      June 18, 1970, the tenant vacated the housing unit
      after     receiving     notice     that the Authority       planned to
      initiate      a lawsuit      for the delinquent       rent.

      Tenant   B

     The tenant paid no rent after August 4, 1969, when he
     paid the rent due on August 1, 1969.                   A balance of $89
     due for the month of July 1969 remained unpaid.                     As of
     April   1, 1970, the rent owed by the tenant amounted
     to $716.      On April      8, 1970, the tenant vacated the
     housing unit without           giving    notice   to the housing man-
     ager.    After    application         of credits    for retroactive
     rent,   a security      deposit,       and a portion     of the April
     1970 rent,     the balance owed was $627.27.                On June 22,
     1970, the Authority          turned this account over to a col-
     lection   agency.

      Tenant   C

     The tenant paid his March 1969 rent on March 28, 1969,
     and made no further  payments until  March 1970.      After
     the March 1969 payment, he owed $107, which represented
     rent due for the month of February   1969 and $10 for
     court costs.   As of April  1, 1970, after application      of
     rent and court cost credits   and a March 1970 rent

                                     48
       payment, he owed $1,212.15.   On June 3, 1970, the ten-
       ant agreed to pay $50.51 monthly which would result   in
       payment of the amount owed over a 2-year period,

EFFCIRTS TAKEN TCI COLLECT
DELINQUENTRENTALS

      During the rent strike,            the Authority      filed    more than
500 lawsuits    against     tenants      for collection        of delinquent
rents and possession        of the housing units.              The lawsuits
were in conformance       with the Authority's           procedures      which
had been in effect       since April        1966 and with HUD's recom-
mended rent collection         procedures.        The rent strike        settle-
ment agreement stated that the lawsuits                 would be dismissed
and that the cooperation           of the tenant affairs           board would
be enlisted  by the Authority           before filing       additional       suits.
The criteria    for filing       lawsuits     for the collection         of rent
were to be established         jointly      by the tenant affairs         board
and the Authority.

        On May 18, 1970, the acting           executive     director    of the
Authority     provided     the managers of each housing project
with new rent collection           procedures.        The procedures     pro-
vided for participation          by thetenantaffairs           board in deci-
sions regarding        time extensions      for the payment of delinquent
rentals    or lawsuits       for the collection        of the rents.       The
tenants    affairs     board was authorized         to direct     the Author-
ity as to whether to sue delinquent               tenants     or to follow
some other course which would ensure that the delinquent
rent would be immediately           paid in full.

        On May 18, 1970, the Authority's             acting     executive      di-
rector    issued a special     notice      to all public        housing resi-
dents that delinquent       rentals       due for the period October 1,
1969, through May 31, 1970, must be paid in full                      no later
than 3:30 p.m. on May 29, 1970.                The notice      stated that
failure     to pay would result       in eviction       proceedings       against
the tenant.       He also provided        each housing project          manager
with a copy of a form letter            to be sent to delinquent             ten-
ants who did not comply with the special                  notice     of May 18,
1970, and who had not contacted              the tenant affairs         board to
report    a hardship.     The form letter         provided      space for in-
sertion     of the amount owed and stated that a suit would be


                                         49
filed     against the tenant     unless the Authority         received    full
payment     of the delinquent     rent within  3 days.

        From June 2 to June 15, 1970, the Authority                mailed
 such letters     to 53 tenants.           By June 30, 1970, the Authority
had filed     lawsuits      against     20 of the 53 tenants;      however,
one of these lawsuits           was canceled because the tenant moved
out of the housing project              the day before the suit was
filed.      Of the remaining        33 tenants who received        letters,
three signed payment agreements,                two others vacated      their
premises,     and no action had been taken relative              to the other
28 tenants      as of July 1970.           These actions   were the first
significant      collection      efforts     made by the Authority        after
the rent strike        ended in October 1969.

        Alliance     and HUD regbonal   office  representatives       advised
us that they had no active         role in collecting       the delinquent
rents.       The HUD officials    stated that "Recommended Rent
Collection       Procedures SFhad been issued by the regional          of-
fice to all housing authorities          but that they were only
recommendations.

COLLECTION     OF DELINQUENT     RENTALS
OWED BY VACATED TENANTS

       A form letter     was generally   used by the Authority       to
notify    vacated  tenants    of the amount of delinquent      rents
owed and to request payment as soon as possible.             The letter
advised the vacated tenants         that their accounts would be
submitted     to a collection    agency if no response was received
within    7 days.

        We were advised by Authority     personnel    that the col-
lection    agency's   fee was 50 percent of the amount collected.
Therefore,     assuming that the Authority      is unsuccessful   in
collecting     the $161,500 owed on March 31, 1970, by vacated
tenants,    the maximum the Authority      can expect to recover
by sending the accounts to the collection          agency is $80,750.

       The acting   executive     director     of the Authority   advised
us that delinquent      accounts of $10 or more were submitted
to the collection      agency.     Vacated tenantsP      accounts which
are returned     by the collection        agency as uncollectible     are
considered   worthless     by the Authority       and are then written

                                     50
off at the end of each fiscal               quarter   with     the approval      of
the board of commissioners.

        During the fiscal  year ended September 30, 1969, the
Authority's    former board of commissioners    approved the write-
off of vacated tenants'     accounts amounting   to about $72,600.
The new board of commissioners      had not approved the write-
off of any vacated tenants'      accounts as of June 30, 1970.

      Our review of records           on vacated tenants'  accounts
submitted   to the collection          agency during  the period Octo-
ber 1, 1968, through March            31, 1970, showed:

Accounts with collection    agency            on
   g-30-68                                                              $ 21,127
Add new accounts    sent to agency             from
   lo-l-68 to g-30-69                                                     116,552

                                                                          137,679
Less   accounts     returned     as uncollectible
  by the    collection       agency                          $81,514
Agency's    collections                                       10,257          91,771

Accounts with      collection      agency     on
  g-30-69                                                                     45,908

Add new accounts sent to collection
  agency from lo-l-69 to 3-31-70                                              32,736

                                                                              78,644

Less    accounts returned    as uncollectible
  by the collection       agency                              44,799
Agency's      collections                                      9,290
Credits     for moneys attached   by court
   during rent strike                                          1,597          55,686
Accounts with      collection      agency      on
  3-31-70                                                               $ 22,958

      We were advised by Authority               personnel  that the Author-
ity had not approved the write-off                of many vacated   tenants'
accounts and had delayed  sending               many vacated tenants'

                                         51
accounts to the collection              agency after   the rent strike
ended because they were awaiting                the completion    of the com-
putation      and recording        of the rent credits      which reduced
the delinquent         rents owed by vacated tenants           as well as those
owed by resident          tenants.      As previously    stated,   the rent
credit      computations      were not completed      and recorded     on the
Authority's       records until       July 22, 1970.

        We were advised by HUD regional        office    personnel     that
HUD became involved       with the write-off       of delinquent     rents
only during    financial     audits    of the housing authorities         and
that this involvement        extended only to determining          whether
the write-off     of delinquent      rents had been approved by the
Authority's    board of commissioners.




                                     52
                                       CHAPTER8

                                APPROVAL AND USE

                            OF MODERNIZATION FUNDS

        On January 19, 1970, HUD approved the expenditure                              of
$1.1 million       by the Authority            for a modernization            program
prepared     by the Alliance          after      the tenant rent strike               ended.
The funds for the program were made available                           from unex-
pended funds previously              provided       by HUD under a rejuvenation
program.      HUD's approval          of the modernization              program was
contingent     upon the Authorityvs                agreement to terminate              work
on the other program at the earliest                       practicable      date,       On
May 19, 1970, the Authority                requested         HUD's approval         of an
additional      program estimated            to cost about $1,4--million                to
provide     security      services      for the housing projects.                   On
August 26, 1970, HUD headquarters                     advised      the Fort Worth
Regional     Office     that the proposed program was not approved
because the providing            of security          services       was not con-
sidered     by HUD to be a part of the modernization                        program
but that the regional            office     was authorized            to approve the
proposed program as an operating                    activity      of the Authority
to the extent        that it was determined                to be feasible         from an
operational       and financial         standpoint.

        Prior to the tenant rent strike,     the Authority   had re-
quested HUD's approval     of an extensive     modernization  pro-
gram; however,     HUD did not approve the program because the
Authority     did not meet HUD's requirements.

        HUD procedures      state that the purpose of a moderniza-
tion program is to upgrade low-rent                  housing projects
through    a comprehensive        program involving          (1) the correction
of extensive      physical     deterioration         of the site,    structures,
or equipment,       (2) the replacement           of outmoded equipment        or
outmoded aspects of structures,                and/or (3) improvements         in
the grounds,      structures,       or equipment       by alteration      or by
the provision      of additional         structures      or equipment.      The
procedures     also provide       for any needed improvement            in the
management of the projects.                Therefore     the HUD procedures
require    local authorities          to develop long- and short-range
programs in the following            areas.


                                             53
       I1(a>Modernization          and rehabilitation          of buildings
              and grounds.

       ” (b) Involvement   of the tenants    in the plans and
              programs for the modernization       of the project,
              changes in management policies       and practices,
              and expanded services   and facilities.

       ” cc>Expansion      of community service   programs and of
              community facilities     where needed to meet the
              requirements    of the program.

       ” (d) Intensification   of efforts               to assist    low-
              income families  to realize               their  potential
              for economic advance.

      ‘1(e>   Increased        employment    by Local      Authorities        of
              low-income        tenants."

         Funds for modernization           programs are advanced by HUD as
temporary     loans;    when    the   work    is completed,       the local hous-
ing authority       obtains     permanent financing          through    the sale
of notes or bonds to the public                 and uses the proceeds to re-
pay the loans.         The amount of permanent            financing     becomes a
part of the total         development        cost of the program for which
HUD provides      financial       assistance      in the form of annual con-
tributions.       The    annual    contributions       are used by the local
housing authority         to retire      the notes or bonds.

MODERNIZATION PROGRAMS
AFTER THE RENT STRIKE

       On July 29, 1965, HUD approved an Authority                budget of
about $6.9 million        for a rejuvenation       program for work to
be performed     at two (Pruitt      and Igoe) low-rent         housing   proj-
ects.     This rejuvenation      work was stopped on March 1, 1970,
in accordance with the Authority's            agreement with HUD that
work on this program would be suspended when HUD approved
the expenditure      of $1.1 million       modernization      funds in Jan-
uary 1970.      The Authority     had recorded      expenditures       of
$4.8 million     for rejuvenation      work at the Pruitt         and Igoe
projects.



                                            54
     .




       After    the St. Louis Civic Alliance            for Housing was
formed, the Alliance          established     a task force committee               and
staff    to recommend a modernization             program for the Author-
ity.     The recommended program, which was estimated                      to cost
$1.1 million,      was presented        to the HUD regional           office      on
January 14, 1970, by the acting              director     of the Alliance
and a consultant       to the Secretary         of HUD. The program was
a combination      consolidation        and modernization          program which
provided     for the modernization         of vacant apartments              and the
moving of tenants        from partially       occupied      buildings        into
the rehabilitated        apartments.       Buildings      totally      vacated
were to be fenced and secured from vandalism.                       It was antic-
ipated that this would provide             significant        savings in opera-
tional     and maintenance       costs.

       On January 19, 1970, the H7JD regional         office    authorized
the expenditure       of $1.1 million    and advised the Authority
that the funds were available         from unexpended      funds previ-
ously approved for the rejuvenation           of the Pruitt     and Igoe
projects.     The regional    office    stated that its approval         was
contingent    upon the Authority's       agreement to suspend, at
the earliest      practicable  date, rejuvenation      work under way
at the Pruitt      and Igoe projects.       The $1.1 million      program
is referred     to as "Phase I" of the total        modernization       pro-
gram which had not been fully         planned as of June 22, 1970.

      The Authority had incurred costs of $101,855 for work
under phase I by May 31, 1970.   The budget and costs in-
curred are shown by work item below.

                                                       Approved              costs
                 Work item                              budget             incurred

Administrative         overhead                       $    75,000          $ 33,484
Architectural         engineering     services             70,000             4,465
Fence vacant buildings                                     66,000             3,500
Unit remodeling                                           483,000            55,239
Elevator      repairs                                      81,200             1,674
Moving costs                                               80,800
Guard service                                             144,000              3,493
Contingency                                               100,000

         Total                                        $1,100,000           $101,855


                                          55
       On May 19,     1970, the Authority      requested    HUD's approval
of an additional       program estimated     to cost about $1.4 mil-
lion to provide       security   services  for all the Authority's
housing projects.         This request was supported        by a report
on a study made       by the University    of Missouri--St.      Louis
which was initiated        and financed   by the Alliance.

        On May 27, 1970, the J!BJDregional           office   forwarded    the
Authority's    budget for the $1.4 million            modernization     pro-
gram to HUD headquarters     in Washington,           D.C., with the fol-
lowing comments.

      "We have reviewed        the proposal   and recommend your
      approval for the       following   reasons:

      'ql.   This security     is necessary    before Phase I of
             their modernization       program can continue.
             Their original      request was predicated     upon
             the implementation       of a security   program.

      "2.    Security  is required       before favorable    action
             can be taken tocorrect         the existing  problem
             of excess vacancies.

      "3.    Theproposed    security   program does involve
             tenants    and includes   employment of tenants.
             Most of the one million        plus dollars   for
             nontechnical     salaries  will    be paid to
             tenants.          ,
      "4.    The last audit report      stated that one-third
             of maintenance      cost was due to vandalism.
             This must be reduced to protect       ordinary
             maintenance    as well as physical    modernization
             of the structures."

        On August 26, 1970, HUD headquarters           informed      the re-
gional    office   that it did not consider         the cost of provid-
ing security      services,    except for the cost of capital             equip-
ment, as part of modernization          but that it would not object
to the approval       of the proposed program as an operating               ac-
tivity    to the extent     that the program was determined             to be
feasible      from an operational     and financial      standpoint.
MODERNIZATION PROGRAMS
BEFORE THE RENT STRIKE

       On April  22, 1968, the Authority    submitted    a low-rent
public   housing modernization  program budget of $9.4 million
to the HUD regional    office.  Deletions    made by the regional
office   reduced the budget submitted     by the Authority     to
$7.3 million.

       The HUD regional     office     advised the Authority     that ap-
proval   of its request     for modernization       funds was contingent
upon a firm commitment that the Authority              would take certain
actions   which would contribute         materially    to the social   and
economic advancement of tenants            and to a realistic    plan for
achievement    of financial      solvency.

         On May 23, 1968, the regional                  office     submitted       the Au-
thority's        adjusted      modernization         program budget to HUD head-
quarters.          The regional       office      advised its headquarters               that
the $7.3 million            included      $222,704 for reimbursement                 of the
Authority's         operating      funds for nonroutine             expenditures         made
during      the period July 1, 1967, to March 31, 1968.                            The re-
gional      office     recommended that immediate                 authorization         be
granted the Authority              to reimburse         its operating          funds from
development         funds previously          allocated        for rejuvenation          of
the Pruitt         and Igoe projects.            The regional         office      stated
that the rejuvenation              funds could be reimbursed                 from the
first     advance of modernization                funds.

        On August 7, 1968, the HUD headquarters         approved the
regional    office  recommendation    for reimbursement      of the
$222,704 but stated that approval          of the total   modernization
program would not be given until         the Authority    adopted an
effective    tenant services    program,    including   meaningful    ten-
ant involvement.

        The records  showed that Authority        officials     visited    the
HUD headquarters     office   to work out details          of a moderniza-
tion program that would meet HUD's requirements.                  On
March 10, 1969, the regional         office    was advised by its head-
quarters    that the modernization        program had been reactivated
but was reduced from $7.3 million            to $5 million     which could
be used for any projects        except Pruitt     and Igoe.       The Au-
thority    submitted  a revised     modernization       budget of

                                              57
$5.5 million      to the HUD regional     office    on March 12, 1969,
and a plan for adding social        services     personnel  to the Au-
thority's    staff.

       On March 18, 1969, the regional    office  submitted     the
revised   budget to its headquarters    and recommended reductions
to $5 million    and prompt approval   of the program.      This rec-
ommendation was made about l-l/2     months after    the rent
strike   started  on February 1, 1969.

        The &4uthority,    not having received      any notice      of ap-
proval     by May 20, 1969, requested        the regional    office    to
furnish     information    on the status of the approval          of its mc:j-
ernization       budget.   The regional     office  replied   that it
could not determine        whether any funds would be made available
for the program and that the Authority             should proceed on the
assumption       the modernization    program would not be approved.

       HUD's records       showed that,      on October 15, 1969, the HUD
Assistant     Secretary     for Renewal and Housing Assistance             stated
that the modernization           funds in the amount of $5 million            were
being withheld       because prior       to June 30, 1969, when HUD's
fiscal    year 1969 funds expired,           the Authority     had not met
HUD's requirement        that the Authority        adopt an effective       ten-
ant services      program,     including     meaningful    tenant  involve-
ment.     He stated that fiscal          year 1970 funds were being with-
held pending action by the Congress on HUD's 1970 appropria-
tion.

       In January 1970, the HUD headquarters            furnished      the re-
gional   office   with information      which showed that $5 million
was allocated     for the Authority's       modernization      program for
fiscal   year 1970.     HUD later    withdrew   this allocation          with
the understanding      that it would be reinstated           in fiscal      year
1971.

        A regional    office    official     advised us that the $5 mil-
lion was not made available              for use by the Authority         because
HUD was not going to spend additional               modernization       funds in
St. Louis until       physical      security   of public      housing was en-
sured.     He informed       us that the $5 million        would be reallo-
cated after HUD updated a modernization               survey it had made
in April     1968.    He stated,       however, that the follow-on          mod-
ernization      survey would not be performed           until     the results

                                        58
of the $1.1 million         modernization       program were evaluated         and
a physical    security      program was satisfactorily            established
because earlier       rejuvenation       improvements      at the Pruitt      and
Igoe projects     were promptly         destroyed     by vandals.




                                        59
                                                                                        I
                                                                                  .




                                    CHAPTER 9

                               SCOPE OF REVIEW

         The review was performed            primarily       at the office       of
the St. Louis Housing Authority                 in St. Louis,        Missouri.
During the review,          information       was also obtained          at the var-
ious low-rent        housing projects         of the Authority,          including
discussions       with tenants       residing     in the projects.            We re-
viewed pertinent         regulations        and documents and interviewed
officials      of the Department          of Housing and Urban Develop-
ment's headquarters           in Washington,         D.C., and regional          of-
fice in Fort Worth, Texas.                Discussions        were held with offi-
cials of the St. Louis Civic Alliance                     for Housing,      members
of the board of commissioners                of the Authority,         and five
other persons in St. Louis who--Congressman                      William      L. Clay
believed--could        supply information            pertinent     to our work.




U.S.   GAO   Weah.,   D.C.
                                          60