Issue Date May 25, 2001 Audit Case Number 2001-FW-1004 TO: Donna M. Abbenante Acting General Deputy Assistant Secretary for Community Planning and Development, D Jeff Ruster Deputy Assistant Secretary for Economic Development, DEE John Maldonado Director, Community Planning and Development Division, 6JD /SIGNED/ FROM: D. Michael Beard District Inspector General for Audit, 6AGA SUBJECT: Community Development Block Grant Section 108 Loan Program City of San Antonio San Antonio, Texas We conducted an audit of the City of San Antonio’s Section 108 Loan Program. The City used loan funds to finance development activities at Kelly Air Force Base in San Antonio, Texas. The audit report contains one finding. We are providing a copy of the report to the City. Within 60 days please provide to us, for each recommendation, a status report on: (1) the corrective action taken; (2) the proposed corrective action and the date to be completed; or, (3) why you consider corrective action unnecessary. Also, please furnish us copies of correspondence or directives issued because of the audit. If you have questions, please contact Jerry Thompson, Assistant District Inspector General for Audit, at (817) 978-9309. Management Memorandum THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page ii Executive Summary We conducted an audit of the City of San Antonio’s Community Development Block Grant (CDBG) Section 108 Loan Program to determine whether the City and its subrecipient, the Greater Kelly Development Authority, expended CDBG Section 108 loan funds for eligible activities in accordance with HUD regulations. We found that responsible City staff seemed unfamiliar with CDBG regulations and had not taken adequate steps to ensure compliance with applicable low- and moderate-income benefit and procurement requirements. The City cannot support The City has spent over $17 million1 of the approved $38.7 compliance with low-mod million in Program funds without ensuring compliance with benefit requirements. important provisions of the Act2 or HUD CDBG regulations. Although required by CDBG regulations, City staff: did not obtain a commitment from the assisted business, Boeing Company, to provide jobs to persons of low- and-moderate income; did not adequately monitor Program activities; and cannot show the Section 108 Program benefits predominately persons of low- and moderate-income. Available job creation reports are unreliable and show the latest low- and moderate- income job creation levels to be only about 26 percent instead of the required 51 percent.3 Because the City cannot adequately show benefit predominately to persons of low- and moderate-income, all expenditures of the Section 108 Program may be in danger of being ineligible. City staff did not ensure its subrecipient, the Greater Kelly The City paid questioned Development Authority, used procurement procedures that contract costs of about provide for full and open competition as required. The City did $287,000. not formally review and evaluate the Greater Kelly Development Authority’s procurement procedures before authorizing the payment of contract costs totaling about $287,000 for “pre-qualified” and “team” vendors. The Greater Kelly Development Authority used procurement procedures that did not require “pre-qualified” and “team” vendors to compete for contract awards as required by CDBG regulations. Therefore, we are questioning the reasonableness of costs for contracts awarded on a noncompetitive basis. 1 As of December 21,2000. 2 Title 1 of the Housing and Community Development Act of 1974 as amended (42 U.S.C. 5301 et seq.). 3 24 CFR §570.208(a)(4)(i). Page iii 2001-FW-1004 Executive Summary City staff seemed unfamiliar We believe City staff may have ignored, or did not become with requirements. familiar with CDBG requirements because top administration officials “guaranteed” the award of Section108 funds to San Antonio for the redevelopment of Kelly Air Force Base. City staff told us they had not performed comprehensive reviews to determine compliance with job creation and procurement requirements and wondered why we were so concerned. In November 1997, the Vice President visited San Antonio and announced that HUD was going to provide over $35 million in loans to the City to attract new business to soften the blow of closing Kelly Air Force Base. The Vice President and HUD Secretary announced the Section 108 loan award on April 14, 1998. We believe the low- and moderate-income and procurement requirements apply regardless of the interest of high-level officials. Recommendations We are recommending HUD require the City to establish procedures to insure the Section 108 Program results in the employment of the required level of low- and moderate-income persons, suspend all Section 108 payments until they provide verifiable evidence to show compliance with job creation and procurement requirements, and repay all ineligible and unsupported costs from nonfederal funds. Finding discussed with City We discussed these issues with City officials and staff during the officials. audit and held an exit conference on April 18, 2001. The City provided us a written response on April 11, 2001. The City officials said our audit has helped the City ensure it will be in compliance with program requirements. They agreed with us in part on the procurement issues but did not agree they needed to show compliance with job creation eligibility requirements during the audit period. The City’s position is that the eligibility criteria for job creation cited in the report is not a compliance requirement until 18 months after completion of phase one, which is March 31, 2003. They said this is when the City must show the minimum number jobs were created and held by low- and moderate-income persons as specified in the loan application modification approved by HUD. However, the City intends to conduct a survey and analysis of the 2000 census and change the emphasis of the program from measuring percentages of low- and moderate-income jobs created to alleviating the effects of the base closure upon an economically distressed area. The City’s response did not change our 2001-FW-1004 Page iv Executive Summary position. We have included a summary of the City’s response in the finding and included the complete written response in Appendix B. 2001-FW-1004 Page v Executive Summary THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page vi Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Finding 1 The City’s Section 108 Loan Program is in Danger of Not Meeting National Objectives 5 Management Controls 17 Appendices A Schedule of Questioned Costs 19 B Auditee Comments 21 C Distribution 51 Page vii 2001-FW-1004 Table of Contents Abbreviations CDBG Community Development Block Grant CFR Code of Federal Regulations HUD U. S. Department of Housing and Urban Development OIG Office of Inspector General 2001-FW-1004 Page viii Introduction The City of San Antonio, Texas, is an entitlement recipient of Background HUD’s Community Development Block Grant (CDBG) Program. The City operates under the Council-Manager form of government and receives Program funds of between $10 million to $12 million each year. The City’s Department of Housing and Community Development administers Program activities and maintains Program records at 419 S. Main, Suite 200. Title I of the Housing and Community Development Act of 1974 (Public Law 93-383) established the CDBG Program. The CDBG Program provides grants to states and units of local government to aid in the development of viable urban communities. Providing decent housing and a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income accomplish this. All program projects and activities must either benefit low- and moderate-income persons, aid in the elimination or prevention of slums and blight, or meet other community needs having a particular urgency. The Housing and Community Development Act of 1977 (Public Law 95-128) expanded the CDBG Program to include loan guarantees. The Section 108 Loan Guarantee Assistance Program allows communities entitled to CDBG a means to finance up front certain large-scale projects beyond the scope that can be financed only by annual grants. Communities can borrow up to five times their annual CDBG amount. HUD guarantees the payments on the notes or other obligations that are used to fund the loans. Grantees are required to pledge current and future CDBG funds as security. All projects must meet the same national objectives as the CDBG Program. San Antonio is home to four Air Force Bases4 including Kelly Air Force Base where approximately 12,000 people worked until 1995. The 1995 Base Realignment and Closure Commission recommended the closure of Kelly Air Force Base by July 2001. 4 Randolph, Brooks, Lackland, and Kelly. Page 1 2001-FW-1004 Introduction In July 1995, immediately following the news of Kelly’s closure and realignment, the City Council formed the Initial Base Adjustment Strategy Committee. On January 18, 1996, the City Council created the Greater Kelly Development Corporation, which they later rechartered as the Greater Kelly Development Authority. An 11-member board, appointed by the City Council, governs the Greater Kelly Development Authority. The board’s mission is to represent San Antonio during the redevelopment of Kelly Air Force Base and to retain or create 21,000 good paying jobs by the year 2006. Top administration officials “guaranteed” the award of Section 108 funds to San Antonio and said it was for the redevelopment of Kelly Air Force Base. The Vice President visited San Antonio on November 23, 1997, and guaranteed up to $35 million in HUD Section 108 loans for Kelly Air Force Base. In a HUD press release dated April 14, 1998,5 the Vice President and HUD Secretary announced the approval of a $38.7 million HUD loan to the City for “infrastructure improvements” at Kelly Air Force Base. In a commitment letter and loan agreement dated July 27, 1998, the City loaned HUD Section 108 proceeds to the Greater Kelly Development Authority to fund major facility renovations at Kelly as required by Boeing. The City entered into a Regulatory Agreement with the Greater Kelly Development Authority effective August 4, 1998. The Agreement defines the terms and conditions, as restricted by HUD and City requirements, the two parties are to follow during the rehabilitation and operation of Kelly Air Force Base for the term of the loan. The agreement requires the Greater Kelly Development Authority to follow HUD recordkeeping and reporting regulations, and to maintain records showing that most of the Kelly jobs would be available to, or held by, low- and moderate-income persons. On February 20, 1998, Boeing agreed to move some of its aerospace operations to Kelly Air Force Base and to hire as many as 850 Kelly workers. Boeing signed a sublease agreement with the Greater Kelly Development Authority on 5 HUD officially approved the City’s $38.7 million application for Section-108 loan funds on April 13, 1998. 2001-FW-1004 Page 2 Introduction April 17, 1998, agreeing to use Kelly facilities for aircraft repair and maintenance operations.6 The audit objective was to determine if the City expended Audit Objective, Scope, and Section 108 loan funds for eligible activities in accordance with Methodology HUD regulations. To accomplish this objective, we: • Obtained and reviewed applicable laws and CDBG regulations; • Obtained and reviewed monitoring reports and correspondence from the City and the Greater Kelly Development Authority; • Conducted interviews with HUD employees in San Antonio and Washington D. C.; • Conducted interviews with employees of the City, the Greater Kelly Development Authority, and related entities; • Obtained and reviewed accounting reports and other financial information from HUD offices in Washington D.C., the City, and the Greater Kelly Development Authority; • Obtained an understanding of procurement policies, procedures, and controls at the City and the Greater Kelly Development Authority and related entities; • Reviewed professional services and construction contracts awarded by the Greater Kelly Development Authority and related entities for compliance with federal and state requirements; and • Obtained and analyzed job creation reports to determine compliance with the loan agreement, CDBG regulations, and the Act. Audit Period We substantially performed fieldwork from June 1999 through September 2000. The audit work was periodically delayed by other, higher priority audit assignments and personnel conflicts. The audit generally covers 2 calendar years ending December 31, 1999, although we extended the review period, when appropriate. We conducted the audit in accordance with generally accepted government auditing standards. 6 Boeing Sublease Agreement Paragraph 18. Page 3 2001-FW-1004 Introduction THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page 4 Finding The City’s Section 108 Loan Program is in Danger of Not Meeting National Objectives The City has spent over $17 Million7 in Section 108 loan funds to redevelop Kelly Air Force Base without ensuring the activity meets the Program’s national objectives and complies with HUD regulations. The $17 million includes $287,000 for contracts awarded without competition as required. The City agreed to use Program funds to create job opportunities for low- and moderate-income persons but has not followed key Program requirements. The City: (1) did not obtain a required commitment from Boeing Company to create low- and moderate- income jobs before spending Program funds to upgrade Boeing facilities; (2) did not adequately monitor Program activities; and (3) cannot show the Section 108 Program is generating low- and moderate-income job opportunities as required by CDBG regulations. Also, the City did not adequately monitor the Greater Kelly Development Authority to ensure maximum free and open competition when it awarded contracts under the Program. The City may have ignored, or did not become familiar with CDBG regulations because they believed the administration awarded Section 108 loan funds to ensure continued employment for displaced Kelly workers and not specifically to create job opportunities for predominately low- and moderate-income persons. Consequently, the City cannot show compliance with CDBG eligibility requirements and all Program expenditures may be ineligible. Requirements In determining eligibility, Title 24, Code of Federal Regulation (CFR), Section 570.200, provides that an activity may be assisted in whole or in part with CDBG funds only if the activity complies with all of the following: (1) Section 105 of the Act; (2) national objectives; (3) the primary objective; (4) environmental review procedures; and (5) cost principles. The primary objective of the CDBG Program8 as described in Title I of the Act (42 U.S.C. 5301), section 101(c) is the development of viable communities, decent housing, suitable living conditions, and economic opportunities principally for persons of low and moderate income (emphasis added).9 Title 24, CFR, Section 570.506 provides that each recipient shall establish and maintain sufficient records to enable the Secretary to determine whether the recipient has met the 7 As of December 21,2000. 8 24 CFR §570.1 (c). 9 42 U.S.C. § 5301 sec. 101(c). Page 5 2001-FW-1004 Finding requirements. The City, as the recipient, is responsible for grant administration including monitoring10 and records keeping to ensure and to demonstrate compliance with all Program requirements. 11 The City must document that at least 51 percent of all jobs will be held by, or will be available to, low- and moderate-income persons.12 Jobs that are not held by low- and moderate-income persons may be considered to be available to those persons only if: (1) special skills and training are not a pre-requisite or (2) the assisted business agrees to hire unqualified persons and provide training and (3) the grant recipient and assisted business take actions to ensure low- and moderate-income persons receive first consideration for filling such jobs.13 Where the recipient chooses to document that at least 51 percent of the jobs will be available to low- and moderate- income persons, documentation will include: (1) a written agreement containing: (a) a commitment by the assisted business that it will make at least 51 percent of the jobs available to low- and moderate-income persons and will provide training for any of those jobs requiring special skills or education; (b) a listing of the jobs to be created, which jobs will be held by low- and moderate-income persons, and which will require special skill and education; and (c) a description of actions to be taken by the recipient and the business to ensure low- and moderate-income persons receive first consideration for those jobs and (2) a listing by job title of the permanent jobs filled, which jobs were available to low- and moderate-income persons, and a description of how such consideration was given to such persons for those jobs. The description shall include what hiring process was used; which low- and moderate- income persons were interviewed for a particular job; and which low- and moderate-income persons were hired.14 CDBG grant recipients must also comply with OMB cost principles and federal procurement regulations15 that require: (1) costs reflect sound business practices, arms-length 10 24 CFR §570.501(b). 11 24 CFR §570.506(b). 12 24 CFR §570.208(a)(4)(i). 13 24 CFR §570.208(a)(4)(iii). 14 24 CFR §570.506(b)(5). 15 24 CFR §570.502(a) & 502(a)(12). 2001-FW-1004 Page 6 Finding bargaining, and market prices for comparable goods or services;16 (2) competitive solicitation for all purchases in excess of $100,000;17 (3) documentation sufficient to detail the significant history of a procurement;18 and (4) require all procurement be conducted in a manner providing full and open competition.19 The laws of the State of Texas require purchases above $15,000 to be competitively selected through sealed bidding or sealed proposals.20 Requests-for-Proposals must solicit [price] quotations and specify the relative importance of price and other evaluation factors.21 Texas Civil Statutes, Chapter 2254, require the selection of professional services on the bases of demonstrated competence and qualifications for a fair and reasonable price. The City said it would use In its Section 108 loan application, the City stated Boeing Section 108 funds to create would hire and train unqualified persons to help meet low- and jobs for predominately low- moderate-income benefit requirements. The City certified that, and moderate-income in the aggregate, at least 70 percent of all CDBG funds as persons . defined by Title 24, Section 570.3(e), to be expended during 1, 2, or 3 consecutive years specified for its CDBG Program will be for activities which benefit low- and moderate-income persons. Also, under the caption “Compliance with HUD National Objectives for Community Development,” the application stated: “The Greater Kelly Development Corporation’s vision of creating economic opportunities for Kelly Air Force Base and San Antonio will be accomplished by maintaining Kelly as a world-class maintenance, manufacturing, and distribution based industrial park. As a result, a total of 21,000 good paying jobs will be created to support the activities, stimulated by Boeing, with the Section 108 assistance.”22 16 OMB Circular A-87 Attachment A part C. Basic Guidelines. 17 24 CFR §85.36(d)(1). 18 24 CFR §85.36(d)(1). 19 24CFR §85.36(c). 20 Title 8 of the Texas Local Government Code, §252.021. 21 Title 8 of the Texas Local Government Code, §252.042. 22 Amended application, page 29. Page 7 2001-FW-1004 Finding Also: “…Boeing fully intends to utilize the Department of Labor sponsored services provided by Alamo Workforce Development and the Texas Smart Jobs program to develop the maintenance skills of the San Antonio work force. What this specifically means is that Boeing has agreed to hire unqualified persons and will provide the necessary training utilizing the City of San Antonio’s Job Training Partnership Act (JTPA) sponsored programs…. This will serve to substantiate the City’s efforts to document that at least 51% of the jobs being created and retained will be available to and held by low- and moderate-income persons.” The City listed Boeing as a key to the Kelly redevelopment and job creation plan and expected Boeing to hire local workers for over 95 percent of the positions created. The City also said Boeing would try to give low- and moderate-income persons first consideration for filling new jobs. The City did not ensure the Greater Kelly Development The City did not follow Authority obtained a written commitment from Boeing before CDBG Program releasing Program funds totaling over $17 million to upgrade requirements. Boeing facilities. In September 2000, after more than a year since our first request for a copy of the agreement and job information, the City provided a “Draft” Employment Practices Plan and job report23 that did not meet CDBG requirements. For example, the Plan did not include: a written commitment by the business to make 51 percent of the jobs available to low- and moderate-income persons; a provision for hiring and training unskilled workers for qualifying skilled positions; or planning and reporting provisions including: (a) a projection of full-time jobs to be created; (b) identification of which jobs would be available to low-and moderate-income persons; (c) required training; or (d) what actions would be taken to ensure low- and moderate-income persons receive first consideration for employment. Although the City’s agreement with the Greater Kelly Development Authority included provisions for the employment 23 Dated September 28, 2000. 2001-FW-1004 Page 8 Finding of low- and moderate-income persons, the City did not ensure the agreement between the Greater Kelly Development Authority and Boeing contained similar provisions. The City and the Greater Kelly Development Authority entered into a Regulatory Agreement effective August 4, 1998. The Regulatory Agreement provides that at least 51 percent of the total jobs created be held by or made available to persons of low and moderate income in compliance with HUD CDBG national objectives described in 24 CFR §570.208(a)(4). 24 The Boeing Sublease agreement, dated April 17, 1998, between the Greater Kelly Development Authority and Boeing includes employment incentives for hiring displaced Kelly workers. Specifically, the agreement states, “Boeing will exert a good faith effort to attain at least 50% of the qualified local hires from either current and/or displaced Kelly AFB workers.”25 The Sublease however does not include an incentive or provision for hiring predominately low- and moderate-income persons. On August 17, 2000, a City Official told us the Boeing job creation commitment and agreement would be completed by the end of September 2000. However, as already noted, the draft employment practices plan and job report dated September 28, 2000, did not comply with CDBG regulations. We consider the Boeing commitment and job creation reports to be tardy, at minimum, because HUD approved the Program in 1998 and the City has expended over $17 million dollars to upgrade Boeing facilities. The City’s job reports show the Section 108 Program is The City cannot show Kelly creating many jobs for San Antonio residents including many redevelopment activities are jobs for persons of low- and moderate-income. However, the providing jobs predominately reports also show the City is not achieving a 51 percent job for persons of low and creation-level for low- and moderate-income persons as moderate income. proposed in the City’s Section 108 loan application, and as required by CDBG regulations. Job creation reports provided by the City are unreliable because they contain many errors and inconsistencies and show low- and moderate-income job creation levels of only about 26 to 46 percent. For example, job reports included: empty income fields; erroneous 24 Paragraph 6, “Employment Commitments”. 25 Boeing Sublease Agreement dated April 17, 1998, Paragraph 33.2. Page 9 2001-FW-1004 Finding classifications of low- and moderate-income individuals; and changes in the number of dependents and income data for numerous low- and moderate-income individuals between reporting periods. The most recent job report, dated September 28, 2000, does not include cumulative job creation data and shows that persons of low and moderate income fill only about 26 percent of all new jobs created. The City’s earlier reports dated August 24, 1999, and November 30, 1999, show low- and moderate-income job creation levels of between 43 and 46 percent. City staff questioned our concern for and were unfamiliar with low- and moderate-income classification criteria and job creation requirements. Now they are seeking technical assistance from the San Antonio HUD staff. This should ensure greater accuracy and consistency in any future job reports. The City used Program The City paid contract costs of about $287,000 for “pre- funds to pay questioned qualified” and “team” vendors without ensuring compliance with contract costs of about procurement regulations. This is because: (1) the Greater Kelly $287,000. Development Authority agreed to noncompetitively award contracts to “pre-qualified” and “team” vendors in their contract with EG&G Management Services and (2) the City did not formally review the Greater Kelly Development Authority’s procurement policy and procedures before authorizing reimbursement to the Greater Kelly Development Authority for these contract costs. On November 24, 1997, the Greater Kelly Development Authority entered into a professional and personal services contract with EG&G Management Services for Implementation Phase Services of the Kelly redevelopment plan. In the contract, EG&G agrees to provide technical, personal, and professional services either directly, or by engaging the services of subcontractors, agents, and representatives. Section II.C, “Professional, Personal and Technical Services Subcontracting Plan” directs EG&G to conduct on an annual basis an open competitive process to select prequalified subcontractors to perform work under the contract. This section also includes the following: “It is hereby acknowledged by [the Greater Kelly Development Authority] that current Contractor Team Members (existing Contractor team subcontractors) including: EG&G, Klynveld Peat Marwick Goerdeler (KPMG), United Parcel Service (UPS), Trammell Crow Company (TCC), 2001-FW-1004 Page 10 Finding Operational Technologies, Inc. (OpTech), Saldana & Associates, Vickrey Associates, Ricondo & Associates, Foster CM Group, and J.D. Gonzalez Associates are considered “Pre-qualified” within their recognized disciplines and to the extent that they continue to provide satisfactory services for [the Greater Kelly Development Authority], will not need to participate in any annual pre-qualification selection process to be eligible for potential new work.” The Greater Kelly Development Authority personnel said they did not conduct an annual competitive process as required by Section II.C. and agreed they awarded contracts to pre- qualified and team vendors without formal competition. Contracting personnel also said they did not formally document their rationale for the selection of pre-qualified and team vendors. The following table shows the vendors and amounts of the noncompetitive awards. Task Authorized Paid by Sec. Vendor Order Amount 108 funds 26 Subtotals Team vendors: Ricondo 1 $ 274,942 $ 70,945 1366 74,519 35,495 Saldana 6 44,944 44,711 Vickrey 4 108,565 93,973 10 38,540 20,415 $ 264,540 Prequalified vendor: PDI 3 72,757 22,470 22,470 Total Questioned Contract Costs $287,010 City staff seemed unfamiliar with CDBG regulations and told us The City did not adequately they had not performed comprehensive reviews to determine monitor job creation and compliance with job creation and procurement requirements. procurement requirements. Responsible City staff believed HUD provided Section 108 loan funds to ensure continued employment for Kelly workers and wondered why we were asking questions about compliance with low- and moderate-income job creation requirements. We believe they may have ignored, or did not become familiar with CDBG requirements because top administration officials 26 As of May 30, 2000. Page 11 2001-FW-1004 Finding “guaranteed” the award of Section 108 funds to San Antonio for the redevelopment of Kelly Air Force Base. Responsible staff at the City and the Greater Kelly Development Authority said top administration officials guaranteed Section 108 loan funds to ensure Kelly workers had a job when the base closed down. According to a November 24, 1997 newspaper article included in San Antonio Office of CPD27 files, the Vice President came to San Antonio and “guaranteed” approval of the HUD Section 108 loan to help make Kelly “a world-class commercial center.” Also, on April 14, 1998, HUD issued a news release stating: “The Clinton Administration will provide $38.7 million in Department of Housing and Urban Development loan guarantees to San Antonio, TX for infrastructure improvements to attract a Boeing Co. aircraft maintenance facility expected to create more than 1,100 jobs at Kelly Air Force Base, Vice President Al Gore and HUD Secretary Andrew Cuomo announced today.” Although top administration officials made these announcements, we do not believe this is a valid reason for the City to ignore key Program requirements including: monitoring responsibilities; the creation of jobs for predominately low- and moderate-income persons; and compliance with procurement regulations. The City’s Section 108 Program must meet a CDBG national objective to be eligible for CDBG assistance. The City applied for Section 108 assistance with the stated national objective of benefit to low- and moderate-income persons. Specifically, the City agreed to use Section 108 funds for job creation and retention activities pursuant to 24 CFR §570.208(a)(4). Since the City cannot show the Program is providing jobs for predominately low- and moderate-income persons, all Program expenditures are in danger of not meeting Section 108 eligibility requirements. The City agreed to work with the Greater Kelly Development Auditee Comments Authority and Boeing to develop a job-creation plan and to 27 Community Planning and Development. 2001-FW-1004 Page 12 Finding document the hiring of low- and moderate-income persons to fulfill the 51 percent requirement. The City also has obtained an agreement dated September 29, 2000, between Greater Kelly Development Authority and Boeing on employment practices and recordkeeping related to hiring low- and moderate- income persons. They are modifying the plan to include the required language. The City did not agree that any requirements related to the hiring of low- and moderate- income persons applied during the period of our review. They said HUD approved the City’s modified application, which stated the creation of the specified number of low- and moderate- income jobs would not be required until 18 months after construction completion, or March 31, 2003. The City said because of this, the City does not concur with our job-creation conclusions. The City also said it is going to conduct a survey and analysis of the 2000 census to determine whether the project will qualify under the area benefit criteria instead of the criteria contained in its application. The City said it will work with HUD to shift the emphasis from measuring percentages of low- and moderate- income jobs created, to alleviating the effects of the base closure upon an economically distressed area. The City agreed with the audit’s procurement compliance conclusions with respect to the awarding of professional services contracts totaling approximately $287,000. However, it did not agree that the City generally did not monitor the awarding of contracts. The City said it is currently withholding payment on $95,295 related to professional services contracts because the documentation submitted does not meet the federal or local criteria for full and open competition. The City said it officially notified the Greater Kelly Development Authority on March 27, 2001, that all payments and reimbursements would be immediately suspended until such time as the issues outlined in the draft report are addressed and resolved. Also, on March 29, 2001, the City officially notified Greater Kelly Development Authority of the need for several documents to demonstrate progress toward meeting job creation requirements. The City plans to take other corrective action to assure compliance with procurement requirements, including conducting an independent review of Greater Kelly Development Authority’s procurement activities and increasing monitoring. The City said it is committed to following up on the corrective actions already taken and planned to assure Page 13 2001-FW-1004 Finding compliance with all Loan Program requirements. The City’s complete response is contained in Appendix B. Although the City did not agree with parts of the audit, the OIG Evaluation of City’s actions and planned actions appear responsive. The Comments City’s response did not change our position on the issues but we did make a minor revision to our draft related to the City’s monitoring of contract awards. We agree the City monitored the awarding of contracts to some extent but we still believe it did not do it adequately to ensure full and open competition for all contracts awarded. We do not agree with the City’s statement that compliance regarding job creation should not be required until 18 months after the end of the construction phase. Regardless of the City’s statements, they were preparing occasional job creation reports but they were unreliable. The criteria stated in the finding show requirements for certain documentation to start before the actual creation of the jobs. Specifically, the City must comply with documentation requirements as provided by Title 24, Code of Federal Regulations, Section 570.506 (b)(5). Such documentation includes a written agreement containing the commitment by the assisted business to make at least 51 percent of the jobs available to low- and moderate-income individuals. It should also include a listing by job title of the permanent jobs to be created indicating which jobs will be available to low- and moderate-income persons, which jobs require special skills or education, and which jobs are part-time, if any. We believe, in response to the draft audit, the City’s actions and planned actions to create 51 percent of the jobs for low- and moderate- income persons are steps in the right direction. We do not know whether the City can meet the program’s national objectives by shifting the emphasis of the program from measuring the percentages of low- and moderate-income jobs created to alleviating the effects of the base closure upon an economically distressed area, as the City says it will attempt to do. Until the City takes sufficient steps to meet the national objectives, all expenditures of the program remain in danger of being ineligible. 2001-FW-1004 Page 14 Finding Recommendations We recommend HUD require the City to: 1A. Establish procedures to ensure the Section 108 Loan Program results in the employment of the required level of low- and moderate-income persons. 1B. Suspend all Section 108 payments for Kelly redevelopment activities until the City can provide a verifiable job creation plan and data supporting low- and moderate-income job creation levels of at least 51 percent. 1C. Reimburse the CDBG Program from nonfederal funds an amount equal to all Section 108 expenditures for Kelly redevelopment activities if the City cannot satisfactorily show the Program meets or exceeds the eligibility requirement to benefit low- and moderate-income persons. 1D. Conduct a formal review of procurement procedures used by the Greater Kelly Development Authority to ensure full and open competition for procurement and contract awards. 1E. If the City can show the Kelly redevelopment activities meet the Section 108 Program eligibility requirements, provide support for the reasonableness of the $287,000 paid to “pre-qualified” and “team” vendors or reimburse the CDBG Program from nonfederal funds for any amounts not supported as reasonable and not awarded competitively. We also recommend HUD: 1F. Review and determine if the Boeing agreement (response Attachment 5, Appendix B) is sufficient to ensure compliance with job-creation requirements, if it contains appropriate remedies for noncompliance, and if job- creation requirements should more appropriately be made part of the Boeing Sublease agreement, also Page 15 2001-FW-1004 Finding 1G. Suspend Section 108 assistance payments to the City until the City can provide verifiable evidence to show sufficient progress is being made to meet the national objectives of the Program. 2001-FW-1004 Page 16 Management Controls In planning and performing the audit, we obtained an understanding of the management controls relevant to the audit objectives. Management is responsible for establishing effective management controls, and in a broader sense, these include a plan of organization, methods, and procedures to ensure management goals are met. Management controls include the process for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Significant Controls. The following significant controls were relevant to our audit objectives: • Program administration. • Compliance with laws and regulations. We assessed these relevant control categories to the extent they impacted the audit objectives. Significant Weakness. A significant weakness exists if management controls do not give reasonable assurance resource use is consistent with laws, regulations, and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained, maintained, and fairly disclosed in reports. Based on this review, we believe the following item to be a significant weakness: • The City did not properly administer the Section 108 Loan Program by expending millions of CDBG funds without ensuring compliance with CDBG eligibility and federal and state procurement requirements (see Finding). Page 17 2001-FW-1004 Management Controls THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page 18 Appendix A Schedule of Questioned Costs Type of Questioned Costs Issue Unsupported 1/ 1C. Program eligibility $17,575,8412/ TOTAL $17,575,841 1 Unsupported costs are those which eligibility cannot be clearly determined during the audit since such costs were not supported by adequate documentation to establish eligibility. 2 Program funds disbursed by the City to the Greater Kelly Development Authority as of December 21, 2000. Page 19 2001-FW-1004 Appendix A THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page 20 Appendix B Auditee Comments Page 21 2001-FW-1004 Appendix B 2001-FW-1004 Page 22 Appendix B Page 23 2001-FW-1004 Appendix B 2001-FW-1004 Page 24 Appendix B Page 25 2001-FW-1004 Appendix B 2001-FW-1004 Page 26 Appendix B Page 27 2001-FW-1004 Appendix B 2001-FW-1004 Page 28 Appendix B Page 29 2001-FW-1004 Appendix B 2001-FW-1004 Page 30 Appendix B Page 31 2001-FW-1004 Appendix B 2001-FW-1004 Page 32 Appendix B Page 33 2001-FW-1004 Appendix B 2001-FW-1004 Page 34 Appendix B Page 35 2001-FW-1004 Appendix B 2001-FW-1004 Page 36 Appendix B Page 37 2001-FW-1004 Appendix B 2001-FW-1004 Page 38 Appendix B Page 39 2001-FW-1004 Appendix B 2001-FW-1004 Page 40 Appendix B Page 41 2001-FW-1004 Appendix B 2001-FW-1004 Page 42 Appendix B Page 43 2001-FW-1004 Appendix B 2001-FW-1004 Page 44 Appendix B Page 45 2001-FW-1004 Appendix B 2001-FW-1004 Page 46 Appendix B Page 47 2001-FW-1004 Appendix B 2001-FW-1004 Page 48 Appendix B Page 49 2001-FW-1004 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 2001-FW-1004 Page 50 Appendix C Distribution Secretary's Representative, 6AS Comptroller, 6AF Director, Accounting, 6AAF Acting General Deputy Assistant Secretary for CPD, D Deputy Assistant Secretary for Economic Development, DEE Director, Office of CPD, 6JD Deputy Secretary, SD (Room 10100) Chief of Staff, S (Room 10000) Office of General Counsel, C (Room 10214) Assistant Secretary for Housing/FHA, H (Room 9100) Assistant Secretary for Public & Indian Housing, P (Room 4100) Office of Policy Development and Research (Room 8100) Assistant Secretary for FHEO, E (Room 5100) Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120) Assistant Secretary for Administration, A (Room 10110) Assistant Secretary for Public Affairs, W (Room 10222) FTW ALO, AF (2) CPD ALO, DOT (Room 7220) (2) Dept. ALO, FM (Room 2206) (2) Acquisitions Librarian, Library, AS (Room 8141) Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2T23 Washington, DC 20548 Attn: Stan Czerwinski Henry A. Waxman, Ranking Member, Committee on Govt Reform, House of Rep., Washington, D.C. 20515 The Honorable Fred Thompson, Chairman, Committee on Govt Affairs, U.S. Senate, Washington, D.C. 20510 The Honorable Joseph Lieberman, Ranking Member, Committee on Govt Affairs, U.S. Senate, Washington, D.C. 20510 Cindy Fogleman, Subcomm. on Gen. Oversight & Invest., Room 212, O'Neill House Ofc. Bldg., Washington, D.C. 20515 The Honorable Dan Burton, Chairman, Committee on Govt Reform, House of Representatives, Washington, D.C. 20515 Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515 Steve Redburn, Chief, Housing Branch, Office of Management and Budget 725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503 Andrew R. Cochran, Sr. Counsel, Committee on Financial Services, House of Representatives, Washington, D.C. 20515 Inspector General, G Mayor, City of San Antonio City Manager, City of San Antonio Page 51 2001-FW-1004 Appendix C Texas State Auditor Bennett, San Antonio Current 2001-FW-1004 Page 52
Community Development Block Grant Section 108 Loan Program, City of San Antonio, San Antonio, Texas
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)