AUDIT REPORT SEATTLE HOUSING AUTHORITY MOVING TO WORK DEMONSTRATION PROGRAM SEATTLE, WASHINGTON 2004-SE-1004 MAY 21, 2004 OFFICE OF AUDIT, REGION 10 SEATTLE, WASHINGTON Issue Date May 21, 2004 Audit Case Number 2004-SE-1004 TO: Milan Ozdinec, Deputy Assistant Secretary, Office for Public Housing Investments, PI FROM: Frank E. Baca, Regional Inspector General for Audit, 0AGA SUBJECT: Seattle Housing Authority Moving To Work Demonstration Program Seattle, Washington We completed an audit of the Seattle Housing Authority’s Moving To Work Demonstration Program activities. We performed the audit as part of a national audit of the Department’s Moving To Work Demonstration Program. This report contains two findings with recommendations requiring action by your office. In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each recommendation without management decisions, a status report on: (1) the corrective action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is considered unnecessary. Additional status reports are required at 90 days and 120 days after report issuance for any recommendation without a management decision. Also, please furnish us copies of any correspondence or directives issued because of the audit. Should you or your staff have any questions, please contact me at (206) 220-5360. Management Memorandum THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page ii Executive Summary We completed an audit of the Seattle Housing Authority’s (Authority) Moving To Work Demonstration Program (MTW Program). The audit objectives were to determine if the Authority’s MTW Program activities furthered the purpose of the Program and were carried out in compliance with Program agreements. The Authority’s Program included 17 activities, 8 of which the Authority actually implemented. Under the MTW Program the Authority designed activities HUD did not require the to accomplish the Program’s purpose of reducing cost and Authority to collect achieving greater cost effectiveness, providing work information to show the incentives to promote resident self-sufficiency, and purpose of the Program increasing housing choices for low-income families. was furthered However, HUD did not require the Authority to evaluate Program accomplishments or keep specific records to facilitate such an evaluation. Accordingly, the Authority did not have readily available information to determine if the activities furthered the purpose of the Program. We will address this issue during our national audit of the MTW Program. Our review of the eight activities implemented showed the Two of eight Authority Authority was carrying out six of the activities in MTW activities did not compliance with the MTW Agreement. However, the fully comply with several Authority did not carry out the two remaining activities in Program requirements full compliance with Program requirements: • For the “Simplification of the Process to Project- Base Section 8 Assistance” activity, our sample of 11 (of 60) housing projects showed the Authority exceeded the authority granted under the MTW Demonstration Agreement for simplifying the process to project-base Section 8 Certificates and Vouchers. As a result, the Authority cannot provide HUD with assurance that: (1) impacts on environmental quality were properly considered; (2) prevailing wages were paid; (3) relocation and real property acquisition requirements were met; and (4) assistance was the minimum needed to provide affordable housing. Authority officials told us the design of their MTW Program made it unnecessary to address environmental, prevailing wage, relocation and acquisition requirements, and the MTW Demonstration Agreement did not require them to perform subsidy-layering reviews. Page iii 2004-SE-1004 Executive Summary • For the “Site-Based Waiting List” activity, the Authority did not implement its site-based waiting list program in accordance with HUD requirements. Specifically, the Authority did not collect required information on tenant and applicant nationality and language. As a result, the Authority did not carry out agreed to affirmative marketing, and racial concentrations as reported in its Annual Report were as high as 86 percent. Authority officials told us they perceived tenants as having diverse national and language backgrounds and concluded there was no racial concentration. We provided Authority Board and management officials The Authority Disagreed with a discussion draft report on March 19, 2004, and with the Draft Report discussed our findings with them at the exit conference on April 1, 2004. On April 19, 2004, we provided the Authority a formal draft report and the Executive Director responded with written comments on May 3, 2004. The Executive Director generally disagreed with our findings and noted there were differences in the interpretation of the Moving To Work requirements. The findings section of this report summarizes and evaluates the Authority’s comments. A copy of the Authority’s full response is included in Appendix B. For the Simplification of the Process to Project-Base Section Recommendations 8 Assistance activity we recommend that HUD make a determination regarding the issues raised. If appropriate, HUD should require the Authority to bring the sampled projects into compliance with MTW Program requirements or repay housing assistance payments, review the projects that were not in the audit sample to determine if Program requirements were met and take appropriate action as needed, and ensure that any future project-based Section 8 assistance complies with the MTW Demonstration Agreement. Regarding the Site-Based Waiting List activity, we recommend that HUD require the Authority to take necessary measures to properly implement its affirmative fair housing marketing activity. 2004-SE-1004 Page iv Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 1. The Authority Did Not Comply With Environmental, Labor, and Other Moving To Work Program Requirements When Awarding Project-Based Assistance 5 2. The Seattle Housing Authority Needs to Properly Address Racial Concentrations in Assisted Buildings 17 Management Controls 23 Follow Up On Prior Audits 25 Appendices A. Schedule of Questioned Costs and Funds Put to Better Use 27 B. Auditee Comments 29 C. Sampling Methodology 37 D. Distribution 39 Page v 2004-SE-1004 Table of Contents Abbreviations Authority Seattle Housing Authority FHEO Fair Housing & Equal Opportunity HAP Housing Assistance Payments HUD U.S. Department of Housing and Urban Development MTW Program Moving To Work Demonstration Program OIG Office of Inspector General URA Uniform Relocation Assistance and Real Property Acquisition Act of 1970, as amended 2004-SE-1004 Page vi Introduction The Moving To Work Demonstration Program was established by Public Law 104-134 Section 204 (April 26, 1996). The MTW Program tasked HUD with identifying replicable models for reducing cost and achieving greater cost effectiveness; providing work incentives to promote resident self-sufficiency; and increasing housing choices for low-income families. To accomplish this task, HUD offered up to 30 Public Housing Authorities the unprecedented authority to design and test, with HUD approval, housing and self-sufficiency strategies that had not been possible under the existing programs. The Seattle Housing Authority submitted a proposal to participate in the MTW Program in response to HUD’s December 18, 1996 MTW Program notice in the Federal Register. HUD accepted the Authority’s proposal, and an MTW Demonstration Agreement was executed in December 1998 with a 5-year term. In January of 2001 the Authority and HUD agreed to extend the term of the MTW Demonstration Agreement through September 2006. The MTW Demonstration Agreement established the requirements applicable to the Authority’s Program. Further, the Agreement included the Statement of Authorizations that specifically described the activities that could be carried out under the MTW Demonstration Agreement. The Authority’s MTW Program Agreement authorized 17 activities. Of the 17 activities, the Authority decided to implement eight: • Site-Based Waiting List • Changes to Section 8 Tenant-Based Assistance Program • Simplification of the Process to Project-Base Section 8 Assistance • Simplification of Housing Management Practices • Targeting Assistance • Establish Reasonable Rent and Subsidy Levels • Single Fund Budget with Full Flexibility • Investment Policy Our audit objectives were to determine if the Authority’s Audit Objectives Moving To Work Demonstration Program activities furthered the purpose of the Program and were carried out in compliance with Program agreements. To achieve our objectives, we performed audit procedures Audit Scope and that included: Methodology Obtaining and reviewing: Page 1 2004-SE-1004 Introduction • The MTW Demonstration Agreement between HUD and the Authority to determine the activities approved. • HUD files and records to obtain information relevant to the Authority’s MTW Program. • The Authority’s annual MTW Program plans and reports. • Available Authority records showing how activities further the purpose of the MTW Program. • Available Authority records showing how activities meet the requirements established in the MTW Demonstration Agreement. Interviewing: • HUD program staff to confirm our understanding of the MTW Program requirements the Authority must follow. • The Authority’s current staff members involved in implementation of the MTW Program to obtain information regarding Program purpose, activities, and records. In addition, to evaluate the Authority’s compliance with Program requirements for project-based Section 8 assistance, we selected a non-statistical sample of 11 projects drawn from the 60 projects in the Program. Accordingly, our test results apply to the 11 projects tested and cannot be projected to the remaining 49 projects (see Appendix C for sampling methodology). Finally, we used Fair Housing & Equal Opportunity (FHEO) guidance to analyze the Authority’s information on resident racial composition for buildings with site-based waiting lists. We used the FHEO guidance because the Authority did not have standards for determining if buildings were racially identifiable. We performed audit work from August 2003 through November 2003. The audit covered the period May 1997 through March 31, 2003. We extended the review, where 2004-SE-1004 Page 2 Introduction appropriate, to include other periods. We performed the Audit in accordance with generally accepted government auditing standards. We provided a copy of this report to the Deputy Assistant Secretary of the Office for Public Housing Investments. Page 3 2004-SE-1004 Introduction THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 4 Finding 1 The Authority Did Not Comply With Environmental, Labor, and Other Moving To Work Program Requirements When Awarding Project-Based Assistance In implementing its Simplification of the Process to Project-Base Section 8 Assistance activity, the Seattle Housing Authority exceeded the authority granted under the Moving To Work Demonstration Agreement when it disregarded select MTW Program requirements applicable to project-based Section 8 assistance. As a result, project-based Section 8 assistance totaling $1.5 million has been provided with no assurance that: (1) impacts on environmental quality were properly considered; (2) prevailing wages were paid; (3) relocation and real property acquisition requirements were met; and (4) the assistance was the minimum needed to provide affordable housing. Authority officials told us the design of their Program made it unnecessary to address environmental, prevailing wage, relocation and acquisition requirements, and the MTW Demonstration Agreement did not require them to perform subsidy-layering reviews. The following table summarizes the results for the 11 (of 60) projects reviewed in our sample, and shows Housing Assistance Payments (HAP) received, estimated annual HAPs, and MTW Program requirements that the Authority did not adhere to. Moving To Work Demonstration Program Requirements not met Relocation Total HAP Assistance and made at Estimated Prevailing Real Property Project Name 11/2003 Annual HAP Environmental Wage Acquisition Subsidy-layering Eastlake Supportive Housing $111,000 ⌧ ⌧ ⌧ ⌧ YWCA Opportunity Place $748,200 ⌧ ⌧ ⌧ St. Charles Apartments $279,000 ⌧ ⌧ ⌧ Colwell Building $422,556 $117,923 ⌧ ⌧ Legacy Hotel $148,816 $99,211 ⌧ ⌧ Meadowbrook View $223,198 $223,198 ⌧ ⌧ Lam Bow $241,682 $241,682 ⌧ ⌧ ⌧ Page 5 2004-SE-1004 Finding 1 Apartments Plymouth Place $257,917 $309,500 ⌧ ⌧ ⌧ ⌧ Traugott Terrace $66,141 $132,282 ⌧ ⌧ ⌧ Kingway Apartments $17,199 $34,398 ⌧ ⌧ Morrison Hotel $138,955 $555,820 ⌧ ⌧ ⌧ Total HAP $1,516,464 $2,852,214 Each requirement not followed is separately discussed below. The MTW Agreement (Article I.J.) specifically requires the The Moving To Work Authority to obtain HUD environmental approval under 24 Demonstration Agreement CFR Part 50 before committing HUD or local funds to specifically requires Program activities involving eligible property. Further, the environmental reviews MTW Agreement (Article I.A.3.) states that Section 12 of and payment of prevailing the 1937 Housing Act1 governing wage rates shall apply to wages housing assisted under the MTW Program, unless tenant based assistance is the only assistance received by participating families and the housing in which they reside receives no other assistance. Accordingly, the section of the 1937 Housing Act regarding wage rates applies to project-based Section 8 assistance. The MTW Demonstration Agreement states that, if Environmental reviews applicable to activities under the Agreement’s Statement of were not performed Authorizations, the Authority agreed to provide HUD with any documentation needed to carry out its review under the National Environmental Policy Act (NEPA) and other related authorities, and otherwise assist HUD in complying with 24 CFR Part 50 environmental review procedures. The Authority further agreed (a) to carry out mitigating measures required by HUD or select an alternate eligible property, if permitted by HUD, and (b) not to acquire, rehabilitate, convert, lease, repair or construct property, or commit HUD or local funds to Program activities involving eligible property without HUD’s approval under 24 CFR Part 50. The Authority did not receive HUD environmental approval under 24 CFR Part 50 for projects receiving project-based Section 8 assistance. Authority officials told us they did not request or receive environmental reviews 1 Section 12 of the United States Housing Act of 1937 (42 U.S.C. 1437J). 2004-SE-1004 Page 6 Finding 1 from HUD for any of the projects provided project-based Section 8 assistance under the MTW Program. Our review of documentation for the 11 projects also found no Authority requests for environmental reviews or evidence of HUD approvals. The MTW Demonstration Agreement (Article I.A.3.) Non-compliance with specifically states that the prevailing wage requirements in prevailing wage Section 12 of the United States Housing Act of 1937 requirements continue to apply to the Authority. Section 12 states: “Any contract for loans, contributions, sale, or lease pursuant to this chapter shall contain a provision requiring that not less than the wages prevailing in the locality, as determined or adopted (subsequent to a determination under applicable State or local law) by the Secretary, shall be paid to all architects, technical engineers, draftsmen, and technicians employed in the development, and all maintenance laborers and mechanics employed in the operation, of the low-income housing project involved; and shall also contain a provision that not less than the wages prevailing in the locality, as predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act [40 U.S.C. 276a et seq.], shall be paid to all laborers and mechanics employed in the development of the project involved (including a project with nine or more units assisted under section 8 of this Act…), and the Secretary shall require certification as to compliance with the provisions of this section prior to making any payment under such contract.” The Authority did not include provisions for compliance with prevailing wage requirements in the agreements entered for project-based Section 8 assistance. Our review showed prevailing wage requirements were applicable to five of the 11 projects in our audit sample. The agreements with the owners of these five projects did not require prevailing wages. The Authority entered into agreements with the owners of the five projects to provide project-based Section 8 assistance before construction or rehabilitation was started. Those agreements were in the form of letters from the Authority committing project-based Section 8 assistance to the owners of the proposed projects. The following table shows the date of commitment letter and the start of construction or rehabilitation for the five projects. Page 7 2004-SE-1004 Finding 1 Date of commitment to Project provide project-based Date Construction or Section 8 assistance Rehabilitation started Eastlake Supportive July 11, 2001 Anticipated start in early Housing 2004 Traugott Terrace July 11, 2001 July 2002 Plymouth Place/ aka First July 11, 2001 December 19, 2001 & Denny YWCA-Opportunity Place July 11, 2001 October 1, 2002 St. Charles Apartments March 18, 2002 March 24, 2003 The five projects included two that were in operation at the time of our audit, and had received HAPs totaling about $324,000. For the remaining three projects that were not yet in operation, the Authority commitment letters included monthly HAPs that would amount to $1.1 million annually. The MTW Demonstration Agreement did not explicitly The Authority was not state that the Authority had to follow federal relocation exempt from adhering to assistance, real property acquisition, or subsidy-layering Uniform Relocation requirements. However, the Agreement did state that the Assistance, Real Property Authority was subject to all requirements of the Annual Acquisition, and Subsidy- Contributions Contracts, United States Housing Act of layering requirements 1937, and other HUD requirements except as necessary to implement the activities in the Statement of Authorizations. These requirements include federal provisions regarding relocation assistance, real property acquisition, and subsidy-layering. The activities the Authority was authorized to implement involved simplifying the process to project-base Section 8 Certificates and Vouchers, selecting projects to receive assistance, and suspending HUD reviews and approvals. In implementing these activities, the Authority did not need to do away with Uniform Relocation Assistance, Real Property Acquisition, and subsidy-layering requirements; therefore, the Authority had to follow these requirements. Further, the Authority’s Fiscal Year 2001 annual plan included a certification that the Authority will comply with acquisition and relocation requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 and implementing regulations as applicable. 2004-SE-1004 Page 8 Finding 1 Federal regulations at 24 CFR Part 983 require that project- The Authority did not based Section 8 assistance be provided in compliance with require or monitor the Uniform Relocation Assistance and Real Property compliance with Uniform Acquisition Policies Act. Relocation Assistance and Real Property Acquisition Policies Act requirements The regulations at 24 CFR 983.10 state that a displaced Relocation Assistance person must be provided relocation assistance at the levels requirements not followed described in, and in accordance with the requirements of, the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (URA) (42 U.S.C. 4201– 4655) and implementing regulations at 49 CFR part 24. The relocation requirements at 49 CFR part 24 include provisions that at least one comparable replacement dwelling is made available to the person to be displaced, relocation assistance advisory services be provided, reasonable documentation supporting relocation expenses be kept, and displaced persons receive payment for moving and related expenses. The Authority’s agreements for project-based Section 8 assistance did not include provisions for compliance with relocation requirements. Our sample review of 11 projects identified two projects that involved potential displacement: • Plymouth Place. The proposal for project-based Section 8 assistance at the Plymouth Place project stated the site was presently occupied by an Ivar's Fish & Chips restaurant; however, the proposal did not indicate whether the restaurant was in operation or closed. We contacted the Plymouth Place owner and Ivar’s, who informed us that on May 23, 2001 the owner notified Ivar’s that its lease would be terminated on September 1, 2001. An Ivar’s official told us that they closed operations, moved all company owned equipment and fixtures, and turned the property over to Plymouth Housing on September 1. The owner’s May 23, 2001 notice to Ivar’s that their lease would be terminated came 12 days Page 9 2004-SE-1004 Finding 1 after the Authority issued the request for proposals for project-based Section 8 assistance, and nine days before the application for assistance was prepared. Accordingly, relocation benefits may have been applicable. • Morrison Hotel. The development budget narrative in exhibit C of the Morrison Hotel HAP states the building will operate during construction (rehabilitation) and includes a $257,000 relocation entry that notes a breakdown was previously provided. We contacted the Morrison Hotel owner, who said that residents were relocated during construction, and that relocation requirements were also contractually required by other funding sources. However, the Authority has no assurance that relocation requirements were met. For these two projects, the Authority did not fulfill its responsibility to require and monitor compliance with relocation requirements. Federal regulations at 24 CFR 983.10 also state that the Real property acquisition acquisition of real property for a project is subject to the requirements not adhered URA and the requirements of 49 CFR part 24, subpart B. to The real property acquisition requirements at 49 CFR part 24 include provisions that must be met for real property acquisition for a Federal program or project, and to programs and projects where there is Federal financial assistance in any part of project costs. The regulations at 49 CFR 24.2 define program or project as any activity or series of activities undertaken by a Federal agency or with Federal financial assistance received or anticipated in any phase of an undertaking in accordance with the Federal funding agency guidelines. Further, 49 CFR 24.101 states that with limited exceptions, the requirements for real property acquisition apply to any acquisition of real property for a Federal program or project, and to programs and projects where there is Federal financial assistance in any part of project costs. For two of the 11 sampled projects, Section 8 assistance was clearly anticipated prior to the expected real property 2004-SE-1004 Page 10 Finding 1 acquisition; however the Authority did not include provisions for compliance with real property acquisition requirements in the agreements. • Eastlake Supportive Housing. In a July 11, 2001 commitment letter, the Authority committed to provide project-based Section 8 assistance for this project, and the application showed the real property acquisition was to be completed September 29, 2001. • Lam Bow Apartments. The Authority anticipated project-based Section 8 assistance for the Lam Bow Apartments prior to acquisition on December 2, 2002. A September 15, 2003 Board Resolution adjusting the rent structure of the apartments stated that “…the financing for the acquisition of the Lam Bow apartments was based on Section 8 voucher payment standards and market rents for the area at the time of acquisition.” The Department of Housing and Urban Development Subsidy-layering reviews Reform Act of 1989 limits the amount of assistance that not performed can be provided to a project. The Act requires HUD or a housing credit agency to certify that the combination of HUD and other government assistance provided in connection with a property shall not be any greater than is necessary to provide affordable housing. The regulations at 24 CFR Part 983 implement this requirement and require housing authorities to obtain subsidy-layering contract rent reviews from HUD or a Housing Credit Agency before entering into an agreement for assistance. The rent reviews are to determine if rents charged are the minimum rents needed to cover project costs. Rents above the minimum needed to cover costs would result in HUD paying excessive Section 8 rental subsidies. Authority officials told us they did not request subsidy- layering reviews for any of the projects that were provided project-based Section 8 assistance under the MTW Program. Also, our sample review of 11 projects identified no requests for subsidy-layering review, and showed that all 11 projects received or anticipated receiving other governmental assistance. The initial rents for these projects were not supported by a comparability analysis Page 11 2004-SE-1004 Finding 1 prepared by a qualified State-certified appraiser as required by 24 CFR 983.256. Instead, the Authority determined that initial rents were reasonable based on its standard rent reasonableness process. Overall Auditee The Authority concluded that it complied with all Comments requirements of the MTW Program and its MTW Agreement. The Authority characterized each of the issues discussed in the finding as arising from serious differences of opinion over the interpretation of the program requirements. Further, the Authority believed these differences in interpretation of the requirements were certain to arise in future audits of other housing authorities. For this reason the Authority recommended the finding be withdrawn and the differences of interpretation reported in a national audit report addressing the MTW Program as a whole. OIG Evaluation of We maintain the finding accurately reflects HUD requirements. Nevertheless, to address Authority concerns Overall Auditee regarding differences in interpretation and to ensure that Comments program requirements are clearly communicated, we are recommending that HUD make its own determinations regarding the issues raised. Auditee Comments on The Authority stated that HUD reviews were not applicable Environmental activities under the MTW Statement of Authorizations and, therefore, the environmental review and documentation Reviews requirements contained in the MTW Agreement did not apply. Additionally, the Authority stated that to comply with the National Environmental Policy Act (NEPA), it had sent required documentation for a Part 58 review to the City of Seattle, which conducted a review and determined that project basing is an exempt activity under NEPA. OIG Evaluation of We do not agree the Statement of Authorizations exempted the Authority from its responsibility under the MTW Auditee Comments Agreement. The General Conditions of the Statement of Authorizations provide that: “This Statement of Authorizations describes the activities that the Seattle Housing Authority (SHA) may carry out under the Moving to Work Demonstration program (MTW), subject to the terms and conditions of 2004-SE-1004 Page 12 Finding 1 the Moving to Work Demonstration Agreement (MTW Agreement) between the SHA and the U.S. Department of Housing and Urban Development (HUD).” Accordingly, the provisions of the MTW Agreement apply, and take precedence over the Statement of Authorizations. Further, the Part 58 reviews by the City of Seattle cannot be properly assessed until HUD has determined if the Authority’s award letter constitutes an agreement for project basing assistance. The HUD determination is needed to properly classify the transaction for environmental purposes as new construction, rehabilitation, or acquisition. Such classification is critical to determining the appropriate environmental requirements. Auditee Comments on The Authority stated that prevailing wage requirements did not apply to projects awarded project based assistance Prevailing Wage because construction or rehabilitation was started before an Requirements agreement for the assistance was executed. The Authority stated the award letters issued to owners selected from those responding to a request for proposals were merely a statement of a willingness to provide assistance. They were neither a contract nor a formal agreement. Also, the Authority stated that prevailing wage requirements do not describe the nature or the formality of the agreement required to invoke prevailing wage requirements. OIG Evaluation of As stated in the finding, we believe the letter is a clear Auditee Comments acceptance of the owner proposal meeting the requirements for application of prevailing wage requirements. In addition, we believe that to conclude otherwise could lead to a perception that prevailing wage requirements are being circumvented or abused.2 2 Abuse is distinct from fraud, illegal acts, and violations of provisions of contracts or grant agreements. When abuse occurs, no law, regulation, or provision of a contract or grant agreement is violated. Rather, the conduct of a program or entity falls far short of behavior that is expected to be reasonable and necessary business practices by a prudent person. Page 13 2004-SE-1004 Finding 1 The Authority stated that the findings on relocation and Auditee Comments on real property acquisition are incorrect in concluding that Relocation and Real the Authority failed to comply with the requirements. The Property Acquisition Authority stated that assistance was provided after any real Requirements property was acquired and after rehabilitation and demolition. The Authority’s position is that assistance was not provided until the Housing Assistance Payment Contract was executed and stated award letters issued to owners were not considered a formal document. The Authority concluded that under the circumstances, the event creating any displaced persons and requiring relocation assistance would be the initiation of negotiations between Seattle Housing Authority and the owners. In support of this conclusion, the Authority cited HUD handbook 1378, Section 1-15c: Whenever displacement occurs as a direct result of privately undertaken acquisition, rehabilitation or demolition, the initiation of negotiations is the execution of the loan or grant agreement between the grantee and the person owning or controlling the property. The Authority also concluded real property acquisition requirements did not apply because the owners that undertook the projects did not have authority to use eminent domain authority. OIG Evaluation of Regarding relocation, we believe the Authority’s award letter is the appropriate measure for the start of HUD Auditee Comments assistance used in determining if persons are displaced. We selected this date since the Authority program did not require an agreement to enter a housing assistance payment contract similar to the standard Section 8 project based program. As regards real property acquisition, the Authority’s comments did not address its acquisition of a project or include the requirements that apply even when eminent domain authority does not exist. Although the regulations at 49 CFR 24.101 exempt qualifying real property acquisition from the requirements, specified conditions must be met for the acquisition to be considered exempt. Those conditions include provisions that the purchaser (the 2004-SE-1004 Page 14 Finding 1 Authority or program participants lacking eminent domain authority) advise the owner: • The property will not be acquired unless negotiations result in an amicable agreement, and • Of what it believes to be the fair market value of the property. The Authority did not ensure these conditions were met or retain documents needed to show they were met. Auditee Comments on The Authority stated that provisions in the MTW Agreement clearly indicate that HUD and the Authority Subsidy Layering intended to suspend HUD’s subsidy layering review. In support of this position the Authority cites: • Section VII E4 of the Statement of Authorizations that suspends HUD reviews and approvals related to the project basing of Section 8 Certificates and Vouchers, • Section VI.A of the Statement of Authorizations that permits the Authority to determine reasonable rents, the content of housing assistance payments contracts to owners, and the content of contract rental agreements, and • Section 3 of the Calculation of Subsidies provision in Attachment A to the MTW Agreement that does not require the Authority to provide only the minimum assistance necessary to provide affordable housing. OIG Evaluation of We do not agree that HUD and the Authority intended to suspend HUD’s subsidy layering reviews. The Statement Auditee Comments of Authorizations was silent on HUD subsidy layering reviews because Section VII E4 of the Statement of Authorizations applies only to projects that are “otherwise non-subsidized.” In the absence of other governmental subsidies a HUD subsidy layering review is not required. However, as noted in the finding, all 11 projects included in our review received other governmental assistance, making all HUD Section 8 Project Based Assistance rules Page 15 2004-SE-1004 Finding 1 applicable, including the Subsidy Layering Review requirements. Recommendations We recommend that you take action in accordance with the Moving To Work Demonstration Agreement and: 1A. Determine if the Seattle Housing Authority complied with statutory and regulatory requirements for environmental reviews, prevailing wages, relocation assistance, real property acquisition, and subsidy-layering reviews for the 11 projects discussed in Finding 1. If you determine that the Authority did not comply with any or all of the applicable requirements per Recommendation 1A, we further recommend you: 1B. Direct the Authority to bring the projects into compliance or repay to HUD any of the $1,516,464 in Housing Assistance Payments that it received for these projects that are ineligible. 1C. Review the award of project-based Section 8 assistance to each project in the Seattle Housing Authority Program for similar non-compliance, and take appropriate corrective action. 1D. Take the appropriate corrective or remedial actions under the Moving To Work Demonstration Agreement to ensure future project-based Section 8 assistance complies with statutory and regulatory requirements for environmental reviews, prevailing wages, relocation assistance, real property acquisition, and subsidy-layering reviews. 2004-SE-1004 Page 16 Finding 2 The Seattle Housing Authority Needs to Properly Address Racial Concentrations in Assisted Buildings The Seattle Housing Authority did not include agreed to affirmative marketing provisions in its public housing site-based waiting list procedures. As a result, the Authority did not have a basis for determining when affirmative marketing was required and had not addressed apparent minority racial concentrations even though its reports showed concentrations as high as 86 percent in its buildings. This occurred because the Authority did not believe it had to affirmatively market its buildings if those buildings maintained the same racial composition as at Program inception. The Moving To Work Agreement allows the Authority to use site-based waiting lists, subject to HUD approval of an implementation plan. HUD required that the implementation plan address how the Authority will conduct affirmative fair housing marketing3 and maintain records for auditing purposes. The Authority’s Board of Commissioners detailed the implementation plan for site- based waiting lists in its Applicant Choice Policy (Policy) Resolution in June 2000, and HUD approved it the following October. The Resolution requires the Authority to conduct affirmative fair housing marketing when a building becomes “racially identifiable,” and allows the Authority to determine racial identifiability using resident race, nationality, and language.4 The Authority’s affirmative fair housing marketing program was intended to promote diversity in racially identifiable buildings by marketing those buildings to underrepresented groups through appropriate community or other newspapers. The Resolution directed Authority staff to develop the 3 The purpose of affirmative fair housing marketing is to promote a condition where people of similar incomes in the same housing market area have a like range of housing choices by ensuring that positive outreach and informational efforts are made to those least likely to know about and apply for the housing being marketed. (HUD Handbook 8025.1 para 1-3) 4 If the vast majority of residents in a building are Asian Americans, for example, but they represent a mix of Laotian, Thai, or Korean, etc., the Authority will not consider a building racially identifiable merely because a majority of the residents are Asian Americans. Page 17 2004-SE-1004 Finding 2 necessary procedures and implement the policy by January 2001. Our review found that, while the Policy meets applicable fair housing requirements, the Authority did not fully implement the Policy. The Authority did not attempt to reach underrepresented groups through community or other newspapers. Also, although the Resolution called for using nationality and language in addition to race as a basis for determining racial identifiability, the Authority’s procedures did not define “racial identifiability,” or provide for collecting nationality and language information. Therefore the Authority does not have the criteria or the information needed to determine if a building is racially identifiable under its Policy, and lacks an objective basis for deciding whether to conduct affirmative fair housing marketing to promote diversity in its buildings. The Authority anticipated that people of particular races would apply for certain buildings and mitigated this tendency toward racial identifiability by having every other placement come from the urgent needs waiting list.5 Monitoring communities for racial identifiability was expected to take into account the different nationalities in racial groups and would show that a community was not racially identifiable even though it had a preponderance of one race. However, the Authority’s FY 2002 Applicant Choice Policy Evaluation found that the Authority only haphazardly records the information needed for this monitoring and recommended the Authority “decide whether to invest time and resources in better tracking of ethnic heritage and language, or accept a certain amount of apparent racial concentration.” The Authority’s Fiscal Year 2002 Annual Report included information on the resident racial composition for buildings with site-based waiting lists. This information showed significant differences in the resident racial distributions. Because the Authority had not established standards for determining if buildings were racially identifiable, we used Fair Housing & Equal Opportunity (FHEO) guidance to put the reported distributions into context and determine if they could be classified as concentrations. The comparison of building racial composition using FHEO guidance showed 5 Applicants on the urgent needs waiting list consider their housing need to be too urgent to wait for a development of their own choosing. 2004-SE-1004 Page 18 Finding 2 four buildings could be classified as racially identifiable. For these four buildings the percentage of residents of a particular racial group was at least 20 percent higher than the average percentage for all high-rise buildings or more than 50 percent for minority groups. The below charts show the reported racial distribution for these four buildings is clearly out of proportion to the Applicant Choice program population as a whole. Also, for International Terrace, the reported percentage of Asian American residents in that building rose from 84 percent to 86 percent in fiscal year 2002 while the percentage of Asian American applicants for that building rose from 82 percent to 90 percent over the same period. However, the Authority has not collected nationality and language information for this (or any) of its buildings, defined “racial identifiability,” nor advertised site based waiting lists in community or other newspapers. As a result, the Authority had not addressed these apparent racial concentrations reported in its Fiscal Year 2002 Annual Report. International Terrace Barton Place 100% 100% 90% 13 90% 80% 80% 70% 23 60% 70% 86 60% 50% 40% 50% 63 30% 40% 20% 30% 10% 20% 0% 10% Tenant Population International 0% as a Whole Terrace Population Tenant Population Barton Place as a Whole Population Legend Beacon Tower Holly Court 100% 100% 90% 13 90% 80% 48 80% 70% 70% 23 60% 60% 50% 50% 60 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Tenant Population Beacon Tower Tenant Population Holly Court as a Whole Population as a Whole Population Authority officials said they did not believe the Authority had to conduct affirmative marketing as long as the racial Page 19 2004-SE-1004 Finding 2 composition of its buildings had not significantly changed since the inception of the Applicant Choice Policy. Auditee Comments The Authority states that it Applicant Choice Policy (Policy) involves a new approach of providing services and conducting business in keeping with the purpose of the MTW Demonstration and that they identified the shortcomings in the finding before our audit and are making progress toward full implementation of the Policy and the HUD-approved implementation plan. The Authority noted that the implementation of the Policy was harder than they anticipated and shared their ongoing concern about its implementation. When there are long wait lists to get into particular buildings, affirmative fair housing marketing may be a disservice to those who respond to such marketing with the expectation of renting there in the near future. It makes little sense to advertise the long site-specific wait lists for buildings such as International Terrace and Beacon Tower because anyone responding to the ad will wait months for a unit when they could be housed much more quickly at another building. In these cases, only those who are more interested in living at International Terrace or Beacon Towers are served by the fair marketing advertising. SHA believes it is making substantial progress toward meeting fair housing requirements. The Authority says the four buildings identified in the findings as racially identifiable were already racially identifiable before the Policy was adopted. The Authority had always interpreted the policy as requiring affirmative fair housing marketing when there is a significant change in the racial, ethnic, or national population in any building, and that change evidences an unacceptable concentration of any racial group or nationality. Since the policy was adopted, there has not been a significant change in the racial composition of any Authority building. OIG Evaluation of We do not agree that implementation concerns identified Auditee Comments by the Authority are difficult to overcome and should delay implementation. A simple disclosure of the estimated time applicants can expect to wait for a unit and use of the 2004-SE-1004 Page 20 Finding 2 Authority’s existing waiting list designed for applicants wanting the first available housing should address the concerns listed. The estimated time that would be spent on the waiting list would ensure expectations were reasonable, the use of the urgent needs waiting list would help those wanting the first available unit, and those wanting to live at a specific property would be given a fair opportunity to do so. Further, we do not agree with the Authority position that only a significant change in the racial population of a building will require affirmative fair marketing. The Authority should take action under its affirmative fair marketing plan when a property is racially identifiable regardless of how long that condition has existed. Also, the Authority should continue to monitor changes and take action when a “significant change” is noted. Accordingly, we believe adding appropriate definitions of racial identifiability and significant changes requiring affirmative fair housing marketing would enhance the Authority’s policy and plan. Recommendations We recommend that you take action in accordance with the Moving To Work Demonstration Agreement to require the Seattle Housing Authority to: 2A. Amend its Applicant Choice Policy procedures to include a definition of racial identifiability, and a method of collecting the nationalities and languages of its residents and applicants. 2B. Conduct affirmative fair housing marketing for its buildings that are racially identifiable based on race until the Authority has the nationality and language information it needs to carry out the Applicant Choice Policy. Page 21 2004-SE-1004 Finding 2 THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 22 Management Controls In planning and performing our audit, we obtained an understanding of the management controls that were relevant to our audit. Management is responsible for establishing effective management controls. Management controls, in the broadest sense include the plan of organization, methods, and procedures adopted by management to meet its missions, goals, and objectives. Management controls include the processes for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined the following management controls were Relevant Management relevant to our audit objectives: Controls • Program Operations – Policies and procedures that management has implemented to reasonably ensure that Moving To Work Demonstration Program activities are carried out as authorized. • Compliance with Laws and Regulations – Policies and procedures that management has implemented to reasonably ensure that resources used are consistent with laws and regulations. Scope of Work We assessed the relevant controls identified above. It is a significant weakness if management controls do not Significant Weaknesses provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet an organization’s objectives. We identified significant weakness in the Authority’s management controls over project-based Section 8 assistance and fair housing. These weaknesses are discussed in findings 1 and 2 respectively. Page 23 2004-SE-1004 Management Controls THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 24 Follow Up On Prior Audits This was the first Office of Inspector General audit of the Seattle Housing Authority’s Moving To Work Demonstration Program. Two prior audits by the Office of Inspector General addressed parts of the Authority’s MTW Program; report numbers IG301003 and IG401001. The recommendations in those reports were resolved or are pending a HUD management decision, respectively. The pending HUD management decision on recommendations in IG401001 will not impact the objectives of this audit. We reviewed the independent auditor’s reports for fiscal years 1997 through 2002. The reports did not contain any findings related to our audit objectives or the issues discussed in Findings 1 and 2. Page 25 2004-SE-1004 Follow Up On Prior Audits THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 26 Appendix A Schedule of Questioned Costs and Funds Put to Better Use Recommendation Type of Questioned Cost Funds Put to Number Unsupported 1/ Better Use2/ 1B $1,516,464 $1,714,014 3/ 1/ Unsupported costs are costs charged to a HUD-financed or HUD-Insured program or activity and eligibility cannot be determined at the time of audit. The costs are not supported by adequate documentation or there is a need for a legal or administrative determination on the eligibility of the costs. Unsupported costs require a future decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of Departmental policies and procedures. 2/ Funds Put to Better Use are costs that will not be improperly expended in the future if our recommendations are implemented. 3/ The $1,714,014 million in Funds Put to Better Use are based upon only those projects that had executed HAP contracts. The estimated annual HAP of $2,852,214 in Finding 1 for all 11 projects includes $1,138,200 for three projects that did not yet have a HAP contract. Page 27 2004-SE-1004 Appendix A THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 28 Appendix B Auditee Comments Page 29 2004-SE-1004 Appendix B 2004-SE-1004 Page 30 Appendix B Page 31 2004-SE-1004 Appendix B 2004-SE-1004 Page 32 Appendix B Page 33 2004-SE-1004 Appendix B 2004-SE-1004 Page 34 Appendix B Page 35 2004-SE-1004 Appendix B 2004-SE-1004 Page 36 Appendix C Sampling Methodology To evaluate the Seattle Housing Authority’s compliance with Moving To Work Demonstration Program requirements for project-based Section 8 assistance (see Finding 1), we selected a non- statistical sample of 11 projects, drawn from the 60 projects in the Program. We developed this sample by obtaining information on the number of projects receiving project-based Section 8 assistance under the Authority’s MTW Program. The Authority lists its project-based Section 8 assistance under four categories: 1. Projects owned by the Authority. 2. Awards through Requests for Proposals for projects owned by profit or nonprofit entities. 3. The Sound Families program, a nonprofit entity. 4. Projects assisted by the City of Seattle. The 11 projects sampled included: the largest project (category 1); four new construction projects under a 2001 Request for Proposal, and the two largest projects under a 2002 Request for Proposal (category 2); the two largest projects (category 3); and the largest project and the largest project with tax credits (category 4). The 11 projects in the sample account for 675 of 1281 project-based Section 8 assisted units in the 60 projects. As noted, we did not statistically sample the project-based Section 8 assistance. Accordingly, our results will only apply to the 11 projects in our sample and cannot be projected to the remaining 49 projects. Page 37 2004-SE-1004 Appendix C THIS PAGE LEFT BLANK INTENTIONALLY 2004-SE-1004 Page 38 Appendix D Distribution Outside of HUD Tom Tierney, Executive Director, Seattle Housing Authority Jennifer Potter, Chair, Board of Commissioners, Seattle Housing Authority The Honorable Joseph Lieberman, Ranking Member, Committee on Government Affairs Elizabeth Meyer, Senior Advisor, Subcommittee on Criminal Justice Clinton C. Jones, Senior Counsel, Committee on Financial Services Kay Gibbs, Committee on Financial Services Mark Calabria, Committee on Banking, Housing, and Urban Affairs W. Brent Hall, U.S. General Accounting Office Steve Redburn, Chief Housing Branch, Office of Management and Budget Linda Halliday, Department of Veterans Affairs, Office of Inspector General The Honorable Susan M. Collins, Chairman, Committee on Government Affairs The Honorable Thomas M Davis, III, Chairman, Committee on Government Reform The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform Page 39 2004-SE-1004
Seattle Housing Authority, Moving To Work Demonstration Program Seattle, Washington
Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-05-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)