oversight

Limited Review - Sacramento Housing and Redevelopment Agency

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-02-07.

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

                                                    U.S. Department of Housing and Urban Development
                                                                   Office of Inspector General
                                                                                    Pacific/Hawaii District
                                                                     450 Golden Gate Avenue, Box 36003
                                                                    San Francisco, California 94102-3448




                                                                                Audit Memorandum
February 7, 2001                                                                2001-SF-141-1801



TO:         Steven Sachs
            Director, San Francisco Community Planning and Development, 9AD


FROM:       (SIGNED)
            Mimi Y. Lee
            District Inspector General for Audit, 9AGA

SUBJECT: Limited Review – Sacramento Housing and Redevelopment Agency


We reviewed the propriety of payments made by the Sacramento Housing and Redevelopment
Agency to the Sacramento County Office of District Attorney for nuisance abatement activities
in targeted areas. These activities were funded under U.S. Department of Housing and Urban
Development’s (HUD’s) community development block grant (CDBG) program. We initiated
this review based on a HUD hotline complaint questioning certain aspects of the agency’s
operations.

To determine whether payments made to the Office of District Attorney complied with
applicable HUD regulations, we:

       aInterviewed the complainant and knowledgeable HUD, agency, and district attorney
              officials.

       aReviewed pertinent documents provided by the complainant as well as those held by
             the agency and district attorney.

       aReviewed applicable HUD regulations.

       aObtained and considered comments on our tentative conclusions from the agency and
             HUD’s Office of Community Planning and Development.

       aDid not consider the agency’s applicable management controls since this was not
                  necessary for our objective.




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Audit Memorandum No. 2001-SF-1801                          Sacramento Housing and Redevelopment Agency



Our review covered the period of October 1, 1996 through December 31, 1999 and was
performed in accordance with generally accepted auditing standards.

We concluded the $225,000 the agency paid to the Office of District Attorney exceeded actual
costs and were not properly supported.

                                          BACKGROUND

The Sacramento Housing and Redevelopment Agency was created in 1973 to act as developer of
public projects for the City of Sacramento and the County of Sacramento. Both the city council
and the county board of supervisors govern the agency. On March 28, 1984, the county and
agency entered into a master project agreement. This agreement was amended on July 18, 1995
to authorize the agency to obtain county services without further approval of the board of
supervisors or other governing boards, provided the funds for the services had been budgeted.

The agency and the county district attorney's office entered into the first of three agreements
totaling $225,000, effectively beginning October 1, 1996, to fund a deputy district attorney
position to prosecute nuisance abatement and substandard housing cases as CDBG code
enforcement eligible activities. Initially, this was a half-time position. Beginning May 1, 1999,
however, the deputy district attorney began working four-fifths time with a portion devoted to
the county’s planning and community development department.

The HUD hotline received a complaint from a citizen alleging:

   •   The agency improperly paid for the services of a deputy district attorney with CDBG
       funds,

   •   The agency and the county board of supervisors showed favoritism to specific
       developers, and

   •   Both the California Housing Finance Agency and the agency may be in non-compliance
       with their respective lending requirements.

Since we found no evidence showing HUD funds were used relative to the developer and lending
issues, we limited the review to payments made to the district attorney’s office.

                                        REVIEW RESULTS

We concluded the $225,000 the agency paid to the district attorney’s office exceeded actual costs
and were not properly supported.

Title 24 of the Code of Federal Regulations (CFR) states in subpart 570.202(c), code
enforcement, that costs of salaries and related expenses for code enforcement legal proceedings
are an allowable use of CDBG funds. Nevertheless, CFR subpart 570.200(a)(5) states costs
incurred under the CDBG program must comply with the cost principles in OMB Circular A-87.
Some of the factors cited in A-87 affecting allowability of costs are that they must:


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Audit Memorandum No. 2001-SF-1801                            Sacramento Housing and Redevelopment Agency




       •   Not be prohibited under state or local laws or regulations,

       •   Be necessary and reasonable,

       •   Be allocable, and

       •   Be adequately supported.

For the period for October 1, 1996 through December 31, 1999, district attorney's office invoiced
the agency a total of $225,000 under its agreements with the agency.


                                   Time Period           Amount Invoiced
                               10/01/96 – 09/30/97               $ 52,500
                               10/01/97 – 03/31/98                 52,500
                               04/01/98 – 06/30/98                 17,500
                               07/01/98 – 09/30/98                 17,500
                               10/01/98 – 12/31/98                       0
                               01/01/99 – 03/31/99                 21,250
                               04/01/99 – 06/30/99                 21,250
                               07/01/99 – 09/30/99                 21,250
                               10/01/99 – 12/31/99                 21,250
                                      Total                    $ 225,000


Payments Exceeded Actual Costs

The three agreements had the following language regarding payments:

           •   First agreement: “Agency shall pay to County a contract maximum amount of
               $70,000, payable quarterly in the amount of $17,500 per payment, upon
               submission of claims.”

           •   Second agreement:      “Agency shall pay to County a contract maximum of
               $70,000, payable quarterly in the amount of $17,500 per payment, upon
               submission of claims.”

           •   Third agreement: “AGENCY shall pay to COUNTY a contract maximum
               amount of $85,000, payable quarterly, upon submission of claims.”

Thus, the contracts nominally provided for maximum billings of $225,000, or an average of
$6,250 for three years (36 months). However, the district attorney provided services for 39
months from October 1, 1996 through December 31, 1999 to allow for a change in funding

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Audit Memorandum No. 2001-SF-1801                       Sacramento Housing and Redevelopment Agency



period from a fiscal-year basis to a calendar-year basis.    Thus, the effective monthly amount
billed was $5,769.

The county district attorney’s office treated the agreements as fixed-price contracts. In our
opinion, a fixed-price contract is inappropriate, principally because the county and agency are
related parties and permitting a profit would be contrary to the federal cost principles. Further,
agency officials believed the agency was to be billed for only the actual salary costs of a half-
time deputy district attorney, exclusive of fringe benefits and overhead. There was no record,
however, of how the contract payment amounts were determined.

Regardless, the actual costs, assuming the deputy district attorney worked half-time under the
agreements, were substantially less than the $5,769 billed on average for the 39 months. Actual
costs were:

           •   Approximately $2,600 per month for salary only for a total of $101,400 for 39
               months;

           •   Approximately $3,500 per month for salary and fringe benefits for a total of
               $136,500; and

           •   Approximately $5,000 per month for salary, fringe benefits, and overhead for a
               total of $195,000.

Payments Were Not Properly Supported

The above estimate of actual costs presumes the deputy district attorney spent half-time effort on
eligible CDBG activities.      However, neither the agency nor the district attorney’s office
maintained adequate records to show this was the case. Specifically:

       •   In May 1999 the attorney began working four-fifths time and also began to do work
           for the county’s planning and community development department in addition to
           doing work for the agency. The supervising deputy district attorney and the deputy
           district attorney estimate the deputy splits her time equally between the department
           and the agency. However, records were not maintained to show the relative amount
           worked. Further, the attorney told us it was not always possible to distinguish
           between all cases as to whether the work was for the county or the agency.

       •   The attorney did not always work on cases in the low-income targeted areas. For
           example, the attorney indicated she was working on about 30 cases as of May 7,
           1998. Approximately nine, or 30%, were outside the agency’s targeted low-income
           areas even though its performance reports to HUD said CDBG funds would be used
           to prosecute cases stemming from the target areas.




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Audit Memorandum No. 2001-SF-1801                         Sacramento Housing and Redevelopment Agency



We believe there were several principal reasons for the above problems.

       1. There was no proper agreement between the agency and district attorney’s office on
          how the office would be compensated. Also, there was no proper cost analysis to
          determine the basis for the amounts of the agreements, and billings were not required
          to be adequately detailed to show the basis for the charges.

       2. The district attorney’s office did not use a system to determine the amount of time the
          attorney spent on work done for the agency.

       3. The agency had not sufficiently monitored the attorney’s activities to assure all cases
          pertained only to the targeted area.

Agency Comments

We obtained the agency’s written comments to a draft memorandum containing our tentative
conclusions and conducted an exit conference with agency representatives on December 29,
2000. Attachment 1 contains the agency’s written response, except for voluminous exhibits we
can provide upon request. This final memorandum considers the agency’s comments.

The bulk of the agency’s comments concerned the legality of the district attorney program. On
September 18, 1998, the superior court of California for the county of Sacramento had granted a
motion in part to recuse the district attorney’s office from prosecution of a criminal case against
a local motel owner. The court also declared the contract between the agency and the district
attorney to be void. The judge concluded the contract violated public policy, and probably the
separation of powers doctrine as well. In our opinion, if the arrangements between the agency
and district attorney were not consistent with state law, costs of the program would not be
allowable under federal programs. On January 30, 2000, however, the state appeals court
overturned the earlier ruling.

The agency stated it would implement the recommendations concerning the excess and
unsupported costs.

Recommendations

We recommend you require the agency to:

       1A.     Reach an understanding with the district attorney’s office on precisely what costs
               will be reimbursed. If indirect costs are to be reimbursed, the agency should
               assure they do not duplicate any of its costs charged to the CDBG program.

       1B.     Return to the CDBG program any amounts paid in excess of allowable costs.

       1C.     Ensure the district attorney’s office establishes and uses a system to properly
               identify and distribute direct salaries costs for work done for the agency, and
               revises its billing practices to detail costs claimed.


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  Audit Memorandum No. 2001-SF-1801                       Sacramento Housing and Redevelopment Agency



         1D.     Ensure the district attorney office costs only pertain to those cases applicable to
                 the target area by increasing its monitoring of and coordination with that office.

  Within 60 days, please furnish us a status report on the corrective action taken, the proposed
  corrective action, and the date to be completed, or why action is not considered necessary for the
  recommendations. Also, please furnish us copies of correspondence or directives issued because
  of this review.

  If you have any questions, please contact me or Mark Pierce, Assistant District Inspector General
  for Audit, at (415) 436-8101.



  Attachments:
         1.  Auditee (Agency) Comments
         2.  Distribution


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Audit Memorandum No. 201-SF-1801                         Sacramento Housing and Redevelopment Agency
                                                                                    ATTACHMENT 1


                                     AUDITEE COMMENTS



To:     Ms. Mimi Lee, District Inspector General for Audit, 9AG

From: Anne Moore, Executive Director

Date:   February 13, 2001

Re:     Draft Audit Memorandum 01-SF-141-18



Draft Audit Memorandum 01-SF-141-18 indicates the HUD Inspector General’s concerns
regarding the use of CDBG funds to support the work of a Deputy District Attorney focusing on
nuisance abatement in low and moderate-income regions of Sacramento County. This response,
prepared in conjunction with staff and counsel, will provide some relevant background
information and then demonstrate that the use of CDBG funds in this program has always been,
and continues to be, a legitimate and allowable activity.

There are a number of identifiable areas in Sacramento County where slum and blight endanger
the health, safety, and life opportunities of county residents. In some of these areas, illegal
activities such as the promotion of prostitution and drug crimes and the maintenance of
substandard housing exacerbate these problems. Of course, such problems are not unique to
Sacramento County. Counties across the country have faced these same issues and a growing
number of them have adopted the same tool to help combat the problem. As described in D.A.s
in the Streets, attached as Exhibit A, the practice of assigning deputy district attorneys to fight
slum, blight, and their associated problems has become commonplace.

In 1996, Sacramento County began using CDBG funding to help finance a new deputy position
within the County District Attorney’s office for an attorney, Rita Spillane, to specialize in
nuisance abatement. SHRA, as the County’s CDBG grant administrator, contracted with the
District Attorney to provide the CDBG funds. As the Chief Deputy District Attorney has
testified, the District Attorney had made a practice of pursuing this sort of work prior to the
CDBG funding (see Exhibit B, Hearing, p. 102,) and the CDBG funding made up only a
minuscule portion of the District Attorney’s office’s $50 million budget. Exhibit B, Hearing, p.
97. The use of CDBG funding enabled the District Attorney to increase the level of service
provided in low and moderate-income neighborhoods. In 1997, Ms. Spillane brought suit against
the owners of two motels that were in violation of numerous sections of the applicable building
codes and were magnets for both prostitution and drug crimes. (A synopsis of the various counts
is attached as Exhibit C. All references in the synopsis are to Sacramento County Ordinances.)
The defendants in that case brought a motion to recuse Ms. Spillane on the grounds that the
CDBG funding contract between the District Attorney’s office and the County’s CDBG grant
administrator (the Sacramento Housing and Redevelopment Agency---SHRA) limited Ms.
Spillane’s prosecutorial discretion by obligating her to do the bidding of SHRA.


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Audit Memorandum No. 201-SF-1801                          Sacramento Housing and Redevelopment Agency
                                                                                     ATTACHMENT 1




In granting the defendants’ motion to recuse the deputy district attorney, the court determined
that the funding contract between SHRA and the District Attorney was void as against public
policy. Exhibit D, Order, p. 56. The court made this determination without allowing SHRA an
opportunity to be heard (SHRA was not a party to the underlying criminal action nor to the
accuseds’ motion to recuse the deputy district attorney), and its order is currently under appeal.
Oral argument has been set for January 22, 2001. See Exhibit E. Under California law,
enforcement of the court’s order is stayed while this appeal is pending.1 HUD should not require
the return of CDBG funds under these circumstances. Further, in the wake of the court’s order,
SHRA and the District Attorney entered a new funding arrangement that complies with the
order.

Disbursements Under the Original Agreement Were Valid
The HUD Inspector General’s recent draft letter memorandum to SHRA notes the order issued
by the court on September 18, 1998 “declared the agreements between the agency and district
attorney to be null and void.” Exhibit F, p.3. The letter goes on to note that the District Attorney
continued to perform services and invoice the agency after the issuance of this order, and that
disbursements of CDBG funds for these services “are unallowable as they violated state law.”
Exhibit F, p.4. As will be explained here, the disbursements preceding the court’s order were
legitimate and allowable, and in conformance with all CDBG regulations. Furthermore, the
disbursements made after the court’s order were made pursuant to a new funding arrangement
that complies with the order.

The CDBG regulations state that CDBG funds may be used for legal proceedings that “may be
expected to arrest the decline of [an] area.” Section 570.202(c). It seems apparent that HUD
itself recognized the validity of payments to the District Attorney for such purposes. The
program was described in the one-year Action Plans submitted to HUD in each year the activity
was funded, and HUD never indicated any potential problems with this activity. See Exhibit G.
It is only the fact that the court’s order questions the legality of the agreement between SHRA
and the District Attorney that raises an issue as to the allowability of these disbursements under
CDBG rules.

Given that the court’s order is based on a fundamental misunderstanding of the arrangement
underlying the disbursement of these funds, and the fact that the order is unenforceable while
under appeal, it would make little sense to require the restoration of these funds to HUD at this
time.

As SHRA’s brief of amicus curiae in the appeal of the court’s order makes clear, the court
interpreted the agency’s agreement with the District Attorney without allowing SHRA an
opportunity to be heard. See Exhibit H. Had the court allowed the agency to speak on this issue,
it might have understood the intentions of the parties to the agreement and the true nature of the
   1
    /California Code of Civil Procedure section 916(a) states, “Except as provided in Section 917.1 to
917.9, inclusive and in Section 116.810 [not applicable here], the perfecting of an appeal stays
proceedings in the trial court upon the judgment or order appealed from or upon the matters
embraced therein or affected thereby, including enforcement of the judgment or order. . . .”
(Emphasis added.)


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Audit Memorandum No. 201-SF-1801                        Sacramento Housing and Redevelopment Agency
                                                                                   ATTACHMENT 1


transaction between SHRA and the District Attorney. Equipped with such an understanding, the
court would have ruled the original agreement between the agency and the District Attorney was
valid.

The court’s order depends on the idea that the agreement between SHRA and the District
Attorney to provide CDBG funding was akin to a private citizen paying the District Attorney to
prosecute a particular case. The order states:
       . . . the District Attorney had owed performance of a specific designation to the
       public agency, and the public agency had expected certain services to be
       performed before paying for the already-rendered services. In addition, because
       the contract is an at-will one that may be terminated by either party, each may feel
       obligated to perform satisfactorily toward the other, to avoid termination of the
       contract. Exhibit D, Order, page 39, lines 16-23.
Nothing could be further from the truth.

If the District Attorney activities had been part of an SHRA-directed program, there might be
some reason to adopt the court’s view of the arrangement. But this is not the case. SHRA’s
involvement in this arrangement was only that of a CDBG grant administrator; not that of a
CDBG grantee spending CDBG dollars; and certainly not that of a client, supervisor, or
employer directing the actions of the District Attorney.

The court failed to recognize the dual roles that the agency plays in regard to Sacramento County
CDBG funds. To be sure, SHRA is the recipient of some County CDBG money, which it uses to
fund some of its various housing and redevelopment activities including the agency’s first time
homebuyers program, its emergency repair program, its multi-famly housing program, and its
supportive housing program. Additionally, SHRA implements revitalization projects such as the
Auburn water line. In regard to these funds, SHRA is a grant recipient like any other. It spends
CDBG funds directly in pursuit of the County’s identified CDBG-eligible activities. What the
court fails to understand, due in all likelyhood to the fact that he took no input from the agency
before issuing his order, is that SHRA also performs a second role in the County’s CDBG
process.

As alluded to above, the second role performed by SHRA is that of grant administrator. In this
second capacity, the agency enters into all CDBG contracts and disburses all CDBG funds,
prepares the annual report to HUD on CDBG activities, and submits the one-year Action Plans
allocating CDBG funds on behalf of the County. When acting as grant administrator, SHRA
does not spend CDBG funds on its own programmatic activities, but instead assists the County in
overseeing subrecipient activities and disbursing funds. SHRA’s role is to make certain that the
activity is carried out in a way that meets a national objective and complies with all CDBG
administrative requirements.      SHRA’s oversight role has never included the direction or
management of day-to-day activities of the District Attorney or any other subrecipient of CDBG
funds..

The County, of course, is the recipient of the CDBG funds from HUD, and its Board of
Supervisors is the ultimate decision-maker as to the use of those funds. Thus, the proper
characterization of the arrangement with the County district attorney is that Sacramento County


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Audit Memorandum No. 201-SF-1801                       Sacramento Housing and Redevelopment Agency
                                                                                  ATTACHMENT 1


chose to use CDBG money to increase the level of neighborhood revitalization activities,
including code enforcement and legal representation, as allowed by CDBG regulations.

It is important to note that the County also funds the other activities of the District Attorney,
including targeted investigation and prosecution units such as the child abduction unit, the
consumer and environmental prosecutions unit, and the domestic violence unit. Thus the fact
that, under the agreement in question, Deputy District Attorney Rita Spillane focused on
nuisance abatement cases is in no way out of the ordinary. The following testimony from the
recusal hearing makes this point very clear:

Question from Assistant Chief Deputy District Attorney David Druliner:
       Now, in your experience, both personal experience and contact with other deputy district
       attorneys in the office, are you of the understanding, for example, that a person who is
       assigned to the felony bureau is assigned a job where they primarily focus on those types
       of felony cases that are in the felony bureau?
Response from Deputy District Attorney Rita Spillane:
       A       Yes. . . .
Question from Assistant Chief Deputy District Attorney David Druliner:
       Q       Okay. And likewise, that actually applies, does it not, for just about all of
               the different sections in the office, whether it’s major crimes or major
               narcotics or assault – adult sexual assault cases or child abuse cases, that
               those assignments define their job as they will primarily focus on
               something, but not to exclude that individual’s ability to prosecute or
               handle a case that’s outside that primary focus?
Response from Deputy District Attorney Rita Spillane:
       A       That’s exactly right. In fact, when I first took this position, Mr. Prentice
               [Spillane’s supervisor] told me that I could be receiving hand-offs from
               felony teams if they’re overloaded even though I was on a special team at
               this point. Exhibit B, Hearing, p. 616.

The only difference between these units within the District Attorney’s office and the nuisance
abatement specialist at issue in this case is the fact that the County used CDBG funds to pay for
half of the new nuisance abatement attorney position as allowed by CDBG regulations. Since
SHRA is the County’s CDBG grant administrator, the agency entered a contract with the District
Attorney and disbursed CDBG funds under that contract. While the use of CDBG funds requires
additional record-keeping, SHRA’s administrative involvement was limited to CDBG oversight
and did not entail any direction, assignment, or supervision of specific cases. This fact is
emphasized by Ms. Spillane’s testimony in regard to her duties under the SHRA-administered
contract:

       Well, to me, again, I – I’m not reading that as a – as anything out of the ordinary
       of my ordinary duties as a deputy district attorney, which is receiving cases from
       NPOs and POP officers [two designations of police officers] and examining the
       evidence as I see it, as I read it.
               I just – I – I did not interpret this contract to be anything more burdensome or
       more of an onus on the job that I already had. It’s just what it did is because this is a –
       it’s a special team, that my specific assignment is nuisance abatement, then, as opposed

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Audit Memorandum No. 201-SF-1801                         Sacramento Housing and Redevelopment Agency
                                                                                    ATTACHMENT 1


        to working on a felony team where I would get every garden variety of felony that exists,
        so it’s –
                  Again, it – to me it seemed like a redundancy of what my duties already
        were as a deputy district attorney. Exhibit B, Hearing, p. 515.
This testimony demonstrates that the SHRA’s administrative involvement did not usurp Rita
Spillane’s prosecutorial discretion or make her SHRA’s attorney.

SHRA performs these same administrative functions for the County in regard to numerous other
CDBG grant recipients. These include, for example, the nonprofit organizations Christmas in
April and Infoline; as well as the cities of Galt, Folsom, and Isleton; the Southgate Recreation
and Park District; and the Sacramento County Department of Human Assistance. The case of the
Sacramento County Department of Human Assistance is particularly instructive. Like the
District Attorney, the Dept. of Human Assistance is an arm of County government. If the
County did not use SHRA as the administrator of CDBG funds, it could simply allocate CDBG
funds directly to the Department for eligible CDBG activities. Instead, SHRA entered a contract
with the Department and disbursed funds to the Department just as it did with the District
Attorney. In both cases, SHRA simply served as an administrator facilitating the achievement of
County goals and CDBG objectives by organs of County government.

In regard to the contracts with both the Department of Human Assistance and the District
Attorney’s office, SHRA has been involved only as the administrator of the County’s CDBG
funds. SHRA has never directed the activities of either entity. Thus, any characterization of the
arrangement between the SHRA and the District Attorney as one in which the agency has
purchased, and therefore directs, the District Attorney is entirely erroneous.

The testimony of Deputy District Attorney Rita Spillane in the hearing before the court clearly
supports this analysis. Spillane’s testimony shows that she was in no way beholden to SHRA.
In fact, in addition to the testimony quoted above, Spillane pointed out that she did not even
“know the intricacies, as it were, between the two agencies [SHRA and the District Attorney]
until this became an issue at the recusal hearing.” Exhibit B, Hearing, p. 497. It is difficult to
imagine that a Deputy District Attorney under such circumstances would feel as though her
personal prosecutorial discretion was in any way circumscribed by SHRA.

The behavior of Ms. Spillane as a nuisance abatement specialist strongly bolsters this assertion.
For example, in the case heard by the court, SHRA did not, “at any time, urge [Ms. Spillane] to
file criminal charges against the defendants.” Exhibit B, Hearing, p. 527. Deputy District
Attorney Spillane described the role of SHRA as “just observers,” and stated that she needed
nothing from SHRA to do her job. Exhibit B, Hearing, pp. 540-41. In fact, Ms. Spillane was
unaware that SHRA had offered grant funding to the defendants in the case in question while
Spillane was investigating and bringing charges against them.  Exhibit B, Hearing, p. 587-89.
These facts clearly demonstrate that Spillane acted independently in her role as a nuisance
abatement specialist for the District Attorney.

For these reasons, it is exceedingly likely that the court’s order will be overturned on appeal soon
after the oral argument on January 22, 2001. It would not be at all justified to require the return
of any CDBG funds before that appeal is resolved.


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Audit Memorandum No. 201-SF-1801                        Sacramento Housing and Redevelopment Agency
                                                                                   ATTACHMENT 1


All Disbursements Made in 1999 and 2000 are Allowable
As demonstrated above, CDBG disbursements made to the District Attorney prior to the court’s
order were allowable under CDBG regulations and California law. It is even more clear that all
disbursements made after that order are allowable, since it has never been alleged that they
violate state law. This is because, in the wake of the court’s order, SHRA and the District
Attorney entered a new funding arrangement that complies with that order.

According to the court’s order, the basic problem with the original agreement was that the
agreement took prosecutorial discretion out of the hands of the District Attorney and in effect
allowed SHRA to direct County prosecutions. If this were actually the case, the court found that
the agreement would violate California law as stated in the case of People v. Eubanks, (1996) 14
Cal. 4th 580. Exhibit D, Order, pp. 33, 35. Such an arrangement would be problematic if, as the
court believed, the agreement allowed SHRA to control the District Attorney by “mandating
certain duties from the designated deputy district attorney.” Exhibit D, Order, p. 39. The court
was especially troubled that the original agreement used language that could be seen as
mandatory and therefore as limiting the District Attorney’s discretion. To quote from the order,

       The contract directed that, in order to be paid for her services rendered, she “will”
       focus on nuisance cases in SHRA targeted areas, that she “will seek all legal and
       equitable remedies available to the District Attorney under law on individuals
       who are found to be in violation of Nuisance statutes.” The al tter is a mandatory
       directive for her to prosecute all cases in which violations occur; it leaves no
       discretion for the district attorney to decide whether a particular case under its
       particular facts, should be prosecuted. Order, p. 40.

In reality, the only mandate to the District Attorney under the original contract was that the work
of the nuisance abatement specialist reflect a clear nexus between the receipt of CDBG funds and
the provision of additional neighborhood revitalization efforts within identified low and
moderate income areas as required under CDBG regulations. Nonetheless, the new agreement
between the SHRA and the District Attorney addresses the court’s concern head on. Copies of
the original and the new agreement are attached as Exhibit I. Even a cursory review of the two
agreements makes clear that the new agreement in no way infringes on the discretion of the
District Attorney. It gives no directives to the District Attorney and in particular does not
mandate any specific investigations or prosecutions.

Since all disbursements of CDBG funds after the court’s order were made pursuant to this new,
entirely legal agreement, these disbursements are allowable under CDBG rules. As a result, the
disbursements made both before and after the court’s order are legitimate. HUD should not seek
return of any such funds.

While the use of CDBG funds to help finance the nuisance abatement specialist position at the
District Attorney’s office is clearly allowable, SHRA agrees with recommendations 1C through
1F of HUD’s draft memorandum. It has always been the Agency’s goal to ensure that CDBG
funds are spent only in accordance with all program regulations. To this end, SHRA is currently
holding payments to the District Attorney in abeyance pending confirmation from HUD that the
program is allowable. SHRA stands ready to implement recommendations 1C-1F as soon as
such confirmation is received.

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Audit Memorandum No. 201-SF-1801                    Sacramento Housing and Redevelopment Agency
                                                                               ATTACHMENT 1




Anne Moore
Executive Director
Sacramento Housing and Redevelopment Agency



CC:    Stephen Sachs
       Community Planning and Development
       U.S. Department of Housing and Urban Development
       450 Golden Gate Avenue
       San Francisco, CA 94102



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Audit Memorandum No. 2001-SF-1801                  Sacramento Housing and Redevelopment Agency
                                                                               ATTACHMENT 2


                                    DISTRIBUTION


Director, Community Planning and Development, California State Office, HUD
Office of Comptroller, Texas State Office, HUD
Sacramento Housing and Redevelopment Agency
Secretary, HUD
Deputy Secretary, HUD
Deputy Secretary, Special Assistant, HUD
Chief of Staff, HUD
Office of Administration, HUD
Assistant Secretary for Congressional and Intergovernmental Relations, HUD
Office of Public Affairs, HUD
Administrative Services, Office of the Executive Secretariat, HUD
Intergovernmental Relations, HUD
Deputy Chief of Staff, HUD
Deputy Chief of Staff for Policy, HUD
Deputy Chief of Staff for Programs, HUD
Special Counsel to the Secretary, HUD
Senior Advisor to the Secretary, HUD
Special Assistant for Inter-Faith Community Outreach, HUD
Executive Officer for Administrative Operations and Management, HUD
General Counsel, HUD
Assistant Secretary for Housing/Federal Housing Commissioner, HUD
Assistant Secretary for Policy Development and Research, HUD
Assistant Secretary for Community Planning and Development, HUD
Assistant Deputy Secretary for Field Policy and Management, HUD
Office of Government National Mortgage Association, HUD
Assistant Secretary for Fair Housing and Equal Opportunity, HUD
Director, Office of Departmental Equal Employment Opportunity, HUD
Chief Procurement Officer, HUD
Assistant Secretary for Public and Indian Housing, HUD
Director, Office of Departmental Operations and Coordination, HUD
Office of the Chief Financial Officer, HUD
Chief Information Officer, HUD
Director, Enforcement Center, HUD
Director, Real Estate Assessment Center, HUD
Director, Office of Multifamily Assistance Restructuring, HUD
Acquisitions Librarian, HUD
Special Advisor/Comptroller, Audit Liaison Officer, HUD
Secretary’s Representatives, HUD
Various Headquarters Officials, Office of Community Planning and Development, HUD
Chairman, Committee on Governmental Affairs, U.S. Senate
Ranking Member, Committee on Governmental Affairs, U.S. Senate
Chairman, Committee on Government Reform, U.S. House of Representatives
Ranking Member, Committee on Government Reform, U.S. House of Representatives
Director, Office of Federal Housing Enterprise Oversight
Subcommittee on Oversight and Investigations, U.S. House of Representatives
Associate Director, Resources, Community, and Economic Development Division, U.S. General
        Accounting Office
Chief, Housing Branch, Office of Management and Budget

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