oversight

Citizen Complaint, HUD Takeover of the Beaumont Housing Authority, Beaumont, Texas

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-08-21.

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

                                                     U.S. Department of Housing and Urban Development
                                                     Southwest District Office of Inspector General
                                                     819 Taylor Street, Room 13A09
                                                     Fort Worth, Texas 76102

                                                     (817) 978-9309 FAX (817) 978-9316
                                                      http://www.hud.gov/oig/oigindex.html



August 21, 2001                                      2001-FW-1808


MEMORANDUM FOR:               Eileen Rogers
                              Director, Office of Public Housing, 6APH

               /SIGNED/
FROM:          D. Michael Beard
               District Inspector General for Audit, 6AGA

SUBJECT:       Citizen Complaint
               HUD Takeover of the Beaumont Housing Authority
               Beaumont, Texas


        At the request of the former chairman of the Board of Commissioners (the Board), we
performed a limited review of HUD’s actions regarding the takeover of the Beaumont Housing
Authority (Authority). In the complainant’s letter to Inspector General Susan Gaffney, he gave
six reasons to substantiate his allegation that the Authority was being singled out for political
reasons:

   1. HUD cited problems that existed under and were caused by a HUD executive serving as
      Technical Advisor to the Authority.

   2. Various HUD offices failed to coordinate amongst themselves and are not aware of the
      Authority’s efforts to comply with all HUD requirements.

   3. HUD cited the Authority’s inaction in developing 50 scattered-site units in white
      neighborhoods as one reason to takeover the Authority. However, HUD led the Authority
      to believe that HUD was not opposed to the Authority developing 50 units in Charlton
      Pollard (an all black neighborhood) and later opposed it.

   4. HUD was pursuing a vendetta against the Authority for hiring a former HUD employee.
      The Authority received perfect PHMAP scores annually. All of the problems originated
      while under the leadership of the previous Executive Director, who was a friend with
      HUD.

   5. There is an “unholy” relationship between HUD officials and Young v. Martinez
      Plaintiffs’ Counsel.
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   6. HUD was angry because the Authority will not allow Section 8 residents to move into a
      private market property.


        In completing our review, we talked to former members of the Authority’s Board of
Commissioners and a former employee, as well as representatives of HUD’s offices of Public
Housing, Fair Housing, and General Counsel in Fort Worth, Texas. In addition, we reviewed
correspondence and other documents provided by former Board members and information
contained in the files of Public Housing officials in Fort Worth. If you have any questions,
please call Theresa Carroll, Assistant District Inspector General for Audit, at (817) 978-9309.

                                          SUMMARY

        We were unable to substantiate the overall complaint that the Authority had been singled
out and HUD’s takeover was politically motivated. HUD assumed control of the Authority in
late 2000 after finding it in substantial default of its Annual Contributions Contract (ACC).
Since the takeover occurred, HUD contracted with Price Waterhouse Coopers to conduct a
comprehensive review. Price Waterhouse Coopers confirmed that substantial problems existed
in the Authority’s Homeownership and Section 8 Programs. These two issues alone support
HUD’s finding of substantial default. However, HUD’s lack of monitoring at the Authority
contributed to or exacerbated some of the problems that existed. In HUD’s defense though, the
Authority’s high Public Housing Management Assessment Program (PHMAP) scores placed the
Authority low on HUD’s monitoring schedule. Further, once HUD became aware of problems at
the Authority, HUD took action that ultimately resulted in HUD declaring the Authority in
substantial default.

                                        BACKGROUND

        The Beaumont Housing Authority is one of the East Texas Public Housing Authorities
governed by the Young v. Martinez Final Judgment and Decree (Final Judgment). In the Young
case, the court issued a liability decision in 1985 that HUD had knowingly and continually
maintained a system of segregated housing in a 36-county area of East Texas in violation of Title
VI of the Civil Rights Act of 1964. The court’s Final Judgment, issued March 30, 1995,
approved HUD’s desegregation plans for all of the involved Public Housing Authorities,
including Beaumont. The Beaumont Housing Authority also signed a Voluntary Compliance
Agreement with HUD in April 1994, agreeing to comply with Title VI of the Civil Rights Act.
This agreement expired in April 1999.

        In January 2000, Fort Worth Public Housing staff conducted its first comprehensive
review of the Authority. HUD had not previously targeted the Authority for a comprehensive
review because the Authority always had high self-certified PHMAP scores. HUD initiated the
review because the plaintiff’s attorney in the Young v. Martinez lawsuit provided HUD a draft
motion of default. The plaintiff’s attorney asserted in the draft motion that HUD had violated the
Final Judgment and Decree regarding the Authority and the Young v. Martinez litigation. Public
Housing’s review found no substance to some of the charges in the draft motion. However,
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HUD identified several violations of the Authority’s ACC. One of HUD’s most significant
findings dealt with the status of the Authority’s nonprofit subsidiary Beaumont on the Grow, and
the 5(h) Homeownership Program it managed.

        HUD’s review resulted in a series of meetings, various letters of findings and contentious
correspondence between the Board and the Fort Worth Public Housing Office. Consequently,
due to the seriousness of the problems and HUD’s potential liability in the Young v. Martinez
case, Headquarters Public Housing officials became involved. Both the Deputy Secretary of
HUD and the Assistant Secretary of Public Housing concluded that new leadership was needed at
the Authority and began attempting to negotiate the resignation of the Board. The Board initially
resisted all efforts to force them to resign. Eventually, after the direct involvement of the
Secretary of HUD and two Congressmen, the Board members resigned from their positions.
Since the Board resigned without approving a HUD requested Cooperative Agreement, HUD
declared the Authority to be in substantial default of its ACC by letter dated September 22, 2000.
HUD substantial default letter classified the Authority’s violations into two major categories:
Low Rent ACC Violations and Section 8 ACC Violations. Under the Low Rent Violations,
HUD cited the Authority for violating regulations regarding the 5(h) Homeownership Program
and failing to submit annual audits to HUD. Under the Section 8 Violations, HUD cited the
Authority for failing to maintain and provide HUD required program records and documents. On
October 3, 2000, HUD assumed possession of all of the assets of the Authority and contracted
with the Port Arthur Housing Authority to conduct the day-to-day operations of the Authority.


                                   RESULTS OF REVIEW

Allegation 1: HUD cited problems that existed under and were caused by a HUD executive
serving as technical advisor to the Authority.

Results: This allegation was not substantiated.

        The Authority did not provide specific documentation that the HUD executive actually
caused the problems HUD cited in its takeover letter. The problems HUD identified in the
Declaration of Substantial Default existed for some time. Although, Fort Worth Public Housing
staff acknowledged that it was possible that the HUD executive could bear some of the blame,
ultimate responsibility for management of the Authority rested with the Board and their
Executive Director not HUD’s executive. In addition, the Authority had significant problems
prior to and after the HUD executive departed in 1995. Apparently, the Board did not have a
good understanding of, involvement in, or control of what was going on at the Authority. A
major factor in HUD’s takeover decision was the length of time the problems had existed and the
Board’s apparent resistance to make some changes. Therefore, the allegation is without merit.
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Allegation 2: Various HUD offices failed to coordinate amongst themselves and are not aware
of the Authority’s efforts to comply with all HUD requirements.

Results: This allegation was not substantiated.

        Communications and coordination problems existed between the previous HUD offices
that oversaw the Authority. OIG noted this problem in its 1997 audit report of the HUD offices.1
However, the Authority provided no documentation to show that it received approval from any of
HUD’s offices for the various improper actions cited in the substantial default notice. For
example, HUD did not approve the improper selling of houses on the open market as discussed
further in “Allegation 4.” As a result, this allegation is not supportable.


Allegation 3: HUD cites the Authority’s inaction in developing 50 scattered-site units in white
neighborhoods as one reason to takeover the Authority. However, HUD now opposes a 50-unit
development in Charlton Pollard (an all black neighborhood) that the Authority had been
working to develop. HUD had concurred with this development in the past.

Results: This allegation was not substantiated.

         The Authority provided no documentation to support their allegation that HUD agreed to
construction in a racially impacted area: Charlton Pollard. In one of the Board’s complaint
letters, the Authority specifically mentioned support from a former Acting Assistant Secretary.
However, they provided no letters or other documentation. HUD however stated it advised the
Authority since June 1997 that construction in an impacted area would not be acceptable without
court approval. HUD issued a letter from the Acting Public Housing Director, dated
November 14, 1997, that reminded the Authority of this fact. The Authority did provide a copy
of a letter dated December 21, 1995, to the former Director of the Beaumont Public Housing
Office requesting HUD’s approval of construction in Charlton Pollard. In this letter, the
Authority’s former Executive Director cited the court-mandated restriction that prohibited
building in a racially impacted neighborhood. Considering the Authority’s knowledge of this
restriction and the gravity of the Young Decision, the Authority should have ensured it received
written approval from the proper HUD officials before attempting to proceed. The Authority’s
failure to obtain written HUD approval validates HUD’s assertions of ineffective management by
the Board.

        The Authority’s complaint also asserted that even the Plaintiff’s attorney did not object to
construction in Charlton Pollard during court proceedings. However, the 1999 court decision
denying permission to build in Charlton Pollard specifically stated that the Plaintiff opposed
construction at this site. In addition, the Plaintiff’s attorney opposed the Authority’s motion to
build the units in October 1998. Thus, the Authority’s allegation that both HUD and the Plaintiff
agreed to construction in Charlton Pollard is without merit.



1
    See Audit Report 97-FW-174-0001, Beaumont Fair Housing and Public Housing Offices, June 3, 1997.
                                                                                                    5


Allegation 4: HUD is pursuing a vendetta against the Authority for hiring a former HUD
employee. The Authority received perfect PHMAP scores annually. All of the problems
originated while under the leadership of the former Executive Director, who was a friend with
HUD.

Results: This allegation was not substantiated.

       HUD admitted to advising the Authority against hiring the former HUD employee.
HUD’s staff expressed concern about possible violations of HUD’s Ethics restrictions. In
addition, OIG’s 1997 audit of two former HUD offices specifically addressed this former
employee, and recommended that he not be allowed to manage the successor HUD offices.
Given these reasons, HUD’s advice does not seem inappropriate nor does it appear to be a
“vendetta”.

         Receiving perfect PHMAP scores does not mean that conditions did not exist which
violated the Authority’s ACC. HUD’s PHMAP scoring system was a self-certification system,
meaning the Authority graded and certified its own performance in meeting HUD’s requirements.
Even if the Authority awarded itself a perfect score, such a score apparently did not reflect the
true conditions at the Authority. As previously stated, HUD’s first comprehensive monitoring
visit in early 2000 found significant problems in the Authority’s Section 8 Program,
Homeownership program, and its compliance with the Young v. Martinez decision.

        Some of the problems cited by HUD in its substantial default letter did originate under
the leadership of the former Executive Director. For example, HUD cited the Authority for
improperly selling houses under its Homeownership Program on the open market. Although the
former Executive Director informed HUD of this action by letter dated February 25, 1998, the
Authority cannot document any approval by HUD. Board members were aware of the sale of
these houses on the open market. Board members did not appear to question the propriety of
such a sale or whether HUD approval had been obtained. Thus, even though the former
Executive Director failed to get written approval from HUD, the Board of Commissioners must
bear final responsibility for this and all other actions of its management.


Allegation 5: There is an “unholy relationship” between HUD officials and Plaintiff’s Counsel.

Results: This allegation was not substantiated.

        The “unholy relationship” the Authority referred to was the relationship between the
plaintiff’s counsel and a former HUD Assistant Secretary. Before becoming an Assistant
Secretary, this individual was an attorney for the plaintiffs. However, an “unholy relationship”
did not exist because, as a requirement to being confirmed, she recused herself from all business
between her law firm and HUD, including the Young v. Martinez litigation.

       The Authority also asserted that because of this “unholy relationship”, Beaumont was
being held to a higher standard than the Authority governing Vidor, Texas. In support of this
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assertion, the complainant stated that the plaintiff’s counsel had purposely overlooked the
situation in Vidor. This statement is not valid. As stated in the complainant’s letter, HUD
controlled the Orange County Housing Authority, which governed Vidor, for several years.
Further, HUD made a very publicized effort to desegregate this area, even though it failed.
Additionally, in court documents concerning the Authority, the plaintiff’s counsel still refers to
the problem of segregation in other East Texas cities. And in a newspaper article related to the
takeover, the plaintiff’s counsel is quoted as saying that he doesn’t trust HUD or the Beaumont
Housing Authority.

        As part of the Authority’s double-standard allegation, it also alleged that $50,000 in
tenant accounts had been missing in Vidor for several years. However, the Authority provided
no evidence to support this allegation. Therefore, the allegation that the Authority has been held
to a higher standard of accountability because of a relationship between the plaintiff’s counsel
and a former HUD Assistant Secretary is without merit. Instead, it could be argued that due to
the long-standing problems in East Texas and HUD’s potential liability, HUD should have taken
action sooner.


Allegation 6: HUD is angry because the Authority will not allow Section 8 residents to move
into a private market property.

Results: Although this allegation is substantiated, it is without merit. HUD did not take over the
Authority merely because it was “angry” with it. Instead, serious deficiencies existed.

        The Authority’s refusal to allow Section 8 residents to move into its Lexington on the
Lake Apartments was a serious issue with HUD. The Authority built the Lexington on the Lake
Apartments in a non-impacted area using its tax-free status and was responsible for appointing its
governing Board. Even though the Young v. Martinez Final Judgment required the Authority to
provide housing in non-impacted areas, the Authority refused to allow Section 8 residents to
move in saying it had no authority to do so. The Authority’s refusal raised serious questions
about the Board’s commitment to desegregation. The complainant also alleged that HUD wanted
to turn this private market property into a Public Housing property. However, HUD appeared
willing to settle for 15 units of the 150-unit complex to be set aside for Section 8 residents.
Thus, HUD had reason to be frustrated by and concerned about the Board’s refusal to open the
development to Section 8 residents. Yet, HUD did not take over the Authority merely because
the Board did not want to allow Section 8 residents into Lexington on the Lake Apartments.
Rather, the Authority had significant problems in other areas.
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DISTRIBUTION

Beaumont Housing Authority, Beaumont, Texas
Principal Staff
Secretary's Representative, 6AS
CFO, 6AF
Director, Accounting, 6AAF
Director, Office of Public Housing, 6APH (4)
Fort Worth ALO, 6AF (2)
Public Housing ALO, PF (Room P8202)
Department ALO, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)

Armando Falcon
Director, Office of Federal Housing Enterprise Oversight
1700 G Street, NW, Room 4011, Washington, D.C. 20515

Sharon Pinkerton
Sr. Advisor, Subcommittee on Criminal Justice, Drug Policy &
Human Resources
B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515

Cindy Fogleman
Subcommittee on General Oversight & Investigations, Room 212
O'Neill House Ofc. Bldg., Washington, D.C. 20515

Stanley Czerwinski
Associate Director, Housing. & Telecommunications Issues
US GAO, 441 G St. NW, Room 2T23, Washington, DC 20548

Steve Redburn
Chief, Housing Branch, OMB
725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503

The Honorable Fred Thompson
Chairman, Committee on Govt Affairs,
340 Dirksen Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510

The Honorable Joseph Lieberman
Ranking Member, Committee on Govt Affairs,
706 Hart Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510
                                                        8


The Honorable Dan Burton
Chairman, Committee on Govt Reform,
2185 Rayburn Building
House of Representatives, Washington, D.C. 20515-6143

Henry A. Waxman
Ranking Member, Committee on Govt Reform,
2204 Rayburn Bldg.
House of Rep., Washington, D.C. 20515-4305

Andrew R. Cochran
Sr. Counsel, Committee on Financial Services
2129 Rayburn, HOB
House of Rep., Washington, D.C. 20510