Hotline Complaints Demolition of College Homes Knoxville's CDC, Knoxville, TN

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-10-28.

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

                                                     U.S. Department of Housing and Urban Development
                                                     District Office of the Inspector General
                                                     Office of Audit
                                                     Richard B. Russell Federal Building
                                                     75 Spring Street, SW, Room 330
                                                     Atlanta, GA 30303-3388
                                                     (404) 331-3369

October 28 , 1998                                    No. 99-AT-202-1801

MEMORANDUM FOR:              Elinor R. Bacon, Deputy Assistant Secretary, Office of Public
                                 Housing Investments, PT

FROM:         Nancy H. Cooper
              District Inspector General for Audit-Southeast/Caribbean, 4AGA

SUBJECT:      Hotline Complaints
              Demolition of College Homes
              Knoxville’s Community Development Corporation
              Knoxville, TN

We have completed a review of hotline complaints pertaining to a HOPE VI grant and related
demolition application HUD approved for Knoxville’s Community Development Corporation’s
(KCDC) 320-unit College Homes development in Knoxville, Tennessee. The complainants
alleged that (1) HUD approved the demolition application based on inaccurate information, (2)
College Homes does not meet HUD’s criteria for demolition and HOPE VI funding, (3) KCDC
deprived College Homes’ residents of the opportunity to purchase the development, (4) funding
was provided and KCDC began relocating tenants prior to the approval of the demolition
application, (5) HUD acted inappropriately to bolster KCDC’s public relations efforts against the
residents, and (6) KCDC misrepresented College Homes’ crime and drug activity.

We reviewed pertinent HUD regulations, examined relevant records at KCDC and HUD, met
with the complainants and other supporters at College Homes, interviewed HUD and KCDC
officials, and toured the development.

We found no evidence to support the contentions that College Homes should not have received
HOPE VI and demolition funding, or that the project should not proceed as planned. Our
findings with respect to the specific allegations are as follows:
Allegation (1): HUD approved KCDC’s demolition application based on an inaccurate
description of the property, which was virtually identical to the description of another
demolition project in Brockton, Massachusetts. The situations were also similar in that both
applications misrepresented the condition of the developments. Estimated renovation costs
were greatly overstated in KCDC’s application because of the rehabilitation option chosen.
This resulted in an incorrect conclusion that it was not feasible to renovate College Homes.

We found isolated similarities in language in the Brockton and KCDC applications, such as “The
units are situated together in a long row of buildings that form prison-like walls and create large
tracts of indefensible space.” The similarities occurred because the same consultant prepared both
applications. We selected the following significant items in the application in which to verify the
accuracy of statements about College Homes:

   •   Structural Deficiencies

   •   Substantial Deterioration

   •   Design and Site Deficiencies

   •   Major Systems Deficiencies

   •   Accessibility Deficiencies

   •   Neighborhood Characteristics

   •   Crime and Disorder

We found the statements in KCDC’s application to be generally supported and accurate.

HUD regulations (24 CFR 970.6(a)) state that HUD will not approve a project for demolition
unless the project is obsolete as to physical condition, location, or other factors, and no
reasonable program of modifications is feasible to return the project to useful life. HUD generally
does not consider modification to be reasonable if the costs exceed 90 percent of the cost of new

KCDC considered three other options before selecting the final renovation plan. The plan
included demolishing 44 units and building an elderly high-rise and parking deck for $24 million
(111 percent of the cost of new construction). All of the options considered included some mix
of demolition and unit replacement. KCDC obtained an independent, professional cost estimate
on the final plan selected. KCDC did not consider any of the four options to be a viable solution
to College Homes’ obsolescence, but considered option four to be the most viable of the four.
None of the options reduced density, improved the steep terrain, provided access to disabled
residents and vehicles, or solved the problems of insulating and heating 57 year old buildings.

We believe KCDC’s assessment of College Homes complied with the regulations. While less
costly renovation alternatives are obviously possible, KCDC supported its conclusion that the
renovation of the old buildings would be inefficient and do little to integrate College Homes into
the surrounding community or create a mixed income neighborhood.

Allegation (2): College Homes does not meet the Federal criteria for developments to be
demolished or for developments which are to receive HOPE VI funding.

Eligibility requirements for HOPE VI funding and demolition are contained in the HOPE VI
Notification Of Funding Availability (NOFA) and 24 CFR 970.6, respectively. In 1996 Congress
eliminated certain funding restrictions on housing authorities seeking HOPE VI funds and
broadened the definition of “obsolete.” Although HOPE VI continues to be aimed primarily at
eliminating the most severely distressed developments, eligibility was opened to developments
relatively well preserved, but showing signs of distress and meeting the broadened definition of
obsolete. The HOPE VI NOFA defines an obsolete development as one:

       •   which has an occupancy density or building height that is significantly in excess of that
           which prevails in the neighborhood in which the project is located, a bedroom
           configuration that could be altered to better serve the needs of families seeking
           occupancy in dwellings of the public housing agency, significant security problems in
           and around the project, or significant physical deterioration or inefficient energy and
           utility systems; and

       •   for which the cost of redesign, rehabilitation or reconstruction exceeds 70 percent of
           the total development cost limits for new construction of similar units in the area.

College Homes meets the first criteria because it has 24 units per acre in a neighborhood of single
family homes. The area has experienced significant security problems in the recent past
prompting the local police to intensify its patrols and community programs. The project also has
obsolete and inefficient energy and utility systems.

College Homes also meets the second criteria. Attachment 1, excerpted from the HOPE VI
application, shows that the approved revitalization plan exceeds 70 percent of the total
development cost limits established for the Knoxville area.

We concluded College Homes meets the revised eligibility requirements and the HOPE VI
definition of obsolescence. As discussed under the first allegation, we also concluded College
Homes meets the demolition eligibility criteria.

Allegation (3): KCDC did not properly consult with College Homes residents regarding their
decision to demolish the development and did not give them the opportunity to purchase the

HUD regulations require the housing authority to develop the application in consultation with the
tenants of the project involved, and any tenant organization, and if applicable, to offer to sell the
property proposed for demolition to a duly formed resident organization (24 CFR 970.4 (a),
970.8, and 970.13).

As early as July 1997, KCDC disseminated through the HOPE VI Steering Committee its
proposal to demolish College Homes. The Steering Committee included College Homes residents
and their resident association president. The Steering Committee, the Knoxville Tenant Council,
and residents all had an opportunity to provide input into KCDC’s decision making process.

The offer to sell is supposed to occur prior to the submission of the demolition application to
HUD. KCDC submitted the application to HUD on August 21, 1997, but, to our knowledge, did
not offer to sell the development to the residents until January 21, 1998. In response to the offer,
the resident association president declined on behalf of the tenants. KCDC submitted this
information to HUD on February 23, 1998, showing compliance with the requirement, and HUD
approved the application on April 15, 1998.

The issue of giving the residents an opportunity to purchase the property was previously raised
and responded to by HUD’s General Deputy Assistant Secretary on June 26, 1998, based on
advice from HUD’s Office of General Counsel. The issue had several components, including
whether KCDC made a legitimate offer, the legal standing of a resident organization and those
representing the organization, and the timeliness of the organization’s response to the offer.
Based on our review of these and other related documents, we concur with the General Deputy
Assistant Secretary’s decision.

Allegation (4): KCDC started moving College Homes residents prior to HUD’s conditional
approval of the demolition application on April 15, 1998.

This allegation is true, but was not a violation of HUD rules. HUD signed the HOPE VI grant
agreement on January 26, 1998. Approval of the HOPE VI predevelopment budget, which
occurred on July 15, 1998, governs when relocation funds may be spent. KCDC used non-federal
funds to begin relocating residents in February 1998 that voluntarily relocated prior to approval of
the predevelopment budget. KCDC letters notifying residents that they had to move did not go
out until July 15, 1998.

Allegation (5): The local HUD office and the HUD Office of Public Housing Investments
made inappropriate releases of information to and through KCDC, and issued letters of
support in an attempt to bolster KCDC’s public relations efforts against the residents.

The complaint refers to HUD’s General Deputy Assistant Secretary’s response of June 26, 1998,
addressed to the complainant’s attorney. HUD sent a copy of the letter to KCDC, who in turn
faxed the letter to the local newspaper on July 2, 1998. The attorney said he had to obtain the
letter from the newspaper. The delay in delivery of the letter to the attorney was unfortunate, but
we have no reason to believe HUD was at fault.

We also reviewed letters to KCDC, the complainants and their attorney from HUD’s PIH
Director and Senior Community Builder in Knoxville. The letters were official correspondence
written in response to requests from the residents and the attorney for information and answers.
We saw nothing improper in any of the correspondence reviewed.

Allegation (6): KCDC moved the 11 residents, cited in their demolition application as 1997
drug evictions, into College Homes knowing of their drug background. KCDC lied about a
resident who had a mental problem and was shot and killed in College Homes and exploited
the death of a 5 year old shot at another development.

We found nothing to indicate KCDC knowingly moved residents into College Homes who had a
history of drug problems. When we asked, the Director of Admissions stated this could not have
occurred. KCDC has a policy against admitting drug offenders and adheres to a “one strike”
eviction policy. The housing application specifically asks about drug charges and KCDC matches
all applicants against police data to check for convictions prior to admission.

Newspaper accounts of the police shooting at College Homes were similar to KCDC’s
application. Both stated that police were attempting to serve a warrant on the resident when the
shooting occurred. Neither made mention of the resident’s mental state. We do not believe that
KCDC misrepresented the facts or that the statement had a significant bearing on HUD’s decision
to approve the demolition application.

The allegation that the drive by shooting of the 5 year old girl did not occur in College Homes is
true. KCDC included news headlines in a pictorial overlay in their HOPE VI application
contrasting today’s College Homes headlines with those of 1940. The 1940 overlay included
articles on the opening of College Homes. The 1997 overlay had no articles identifiable to
College Homes, but included generic headlines on drugs and crime. The 5 year old’s shooting
was the only headline identifiable, and it occurred in another Knoxville public housing complex.
We agree that KCDC improperly implied that it occurred in College Homes. However,
considering the evidence, which we verified, of past high crime in College Homes, the implication
had no effect on HUD’s approval.

If you have any questions regarding this matter, please call me at (404) 331-3369.


                                                                    Attachment 1

Source: KCDC’s Application for Fiscal Year 1997 HOPE VI Program Funding

                                                                           Attachment 2


Secretary’s Representative, 4AS
Director, Office of Public Housing, 4JPIH
Mark J. Brezina, Senior Community Builder Coordinator, 4JS
Director, Administrative Service Center, 4AA
Audit Liaison Officer, 3AFI
Knoxville Area Coordinator, 4JS
Associate General Counsel, Office of Assisted Housing and Community Development, CD
Chief Financial Officer, F (Room 10166)
Deputy Chief Financial Officer for Finances, FF (Room 10166)
Director, Office of Budget, FO (Room 3270)
Director, Housing and Community Development, Issue Area, U.S. GAO, 441 G Street, NW,
   Room 2474 Washington, DC 20548 Attention: Judy England-Joseph
Counsel to the IG, GC (Room 8260)
HUD OIG Webmaster-Electronic format via Email Morris_F._Grissom@hud.gov
Director, HUD Enforcement Center, 1240 Maryland Avenue, Suite 200, Washington, DC 20024
Public Affairs Officer, G (Room 8256)
Acting Assistant Secretary for Public and Indian Housing, P
Comptroller’s Office, PF (Room P8202)
Director, General Management Division, PMG (Room 4216)
Deputy Assistant Secretary, Office of Public Housing Investments, PT
Director, Office of Capital Improvements, PTC
Assistant to the Deputy Secretary for Field Management, SDF (Room7106)
Assistant to the Secretary for Labor Relations, SL (Room 7118)
The Honorable Fred Thompson, Chairman, Committee on Governmental
         Affairs, United States Senate, Washington, DC 20510-6250
The Honorable John Glenn, Ranking Member, Committee on Governmental
         Affairs, United States Senate, Washington, DC 20510-6250
Mr. Pete Sessions, Government Reform and Oversight Committee,
         Congress of the United States, House of Representatives,
         Washington, DC 20515-4305
Ms. Cindy Sprunger, Subcommittee on General Oversight and
         Investigations, Room 212, O’Neill House Office Building,
         Washington, DC 20515
Fred DeBruhl, Executive Director, KCDC
Mark Siegel, Attorney at Law
Juliette Johnson
Julia Chesson