Between Friends

A federal audit suggests the Lanier administration gave a sweetheart deal to one of the mayor's buddies -- then failed to ensure that taxpayers' money was properly spent.

In November 1993, shortly after he was first re-elected with 91 percent of the vote, Mayor Bob Lanier embarked on a series of unprecedented real estate deals. The significance of the transactions was summed up by Lanier's chief of staff, Dave Walden, in a memo to Margie Bingham, the director of the city's Department of Housing and Community Development.

"This is a simple written reminder of one inescapable fact," Walden offered in an inter-office correspondence dated November 17. "The reputation of the city of Houston and this administration is on the line."

The issue was Lanier's decision to buy and sell nine rundown apartment complexes owned by the quasi-public Resolution Trust Corporation, keeper of the foreclosed assets collected following the collapse of the savings and loan industry.

Ostensibly, the policy goal of what Walden called "the RTC program" was to provide affordable rental housing to working families of modest means. Yet the message from the mayor's chief troubleshooter seemed more in tune with Lanier's past profession as a real estate speculator than his current one as a public servant. In a patronizing tone, Walden emphasized the need to quickly renovate the apartments and to operate them in the black until they could be sold to the highest bidder.

"Your department has to make abso-lutely sure that we go the extra mile," Walden stressed. "If you or any of your employees encounter any difficulties with other city departments ... I am to be advised immediately."

Clearly, Walden was demanding diligence and accountability. What taxpayers got, however, was something considerably less, at least according to an audit recently released by the inspector general of the U.S. Department of Housing and Urban Development. As a result, the city might have to reimburse HUD for more than $1 million worth of federal grants and subsidies that the agency says may have been spent improperly.

The audit found that after the city awarded two contracts to inspect, manage and renovate the complexes, housing officials ignored their duties and allowed the contractor, Duddlesten Management Corporation, unchecked control over $1.1 million in taxpayers' money to repair two complexes on West Bellfort in southwest Houston.

Nearly half of that sum -- more than $450,000 -- appears to have been spent improperly by Cornerstone Construction. Cornerstone, like Duddlesten Management before it merged with a South Carolina firm, is owned by developer Wayne Duddlesten, an old friend of Lanier's and the city's choice to develop a publicly subsidized $155 million hotel near the George R. Brown Convention Center. For handling the city's entire RTCapartment program, Duddlesten's companies were paid fees of roughly $2 million.

The audit, which was triggered by irregularities found by the inspector general in the course of a routine audit of another HUD program, determined that city housing officials, as well as the Duddlesten companies, flouted numerous federal regulations, including procurement laws that prohibit the awarding of so-called "sweetheart deals" to government contractors.

More troubling than the obvious violations, however, are questions the audit raises about the Byzantine relationship between three subcontractors hired by Cornerstone Construction. At the time, all three -- Buffalo Steel, Gulf Con and Gulf Coast Building Supply Inc. -- shared the same Pasadena address. Two of the companies, Buffalo Steel and Gulf Coast Building Supply, were owned by the same man, James Mills. And Gulf Con's relationship with Mills was such that its owner, Pat Rivers, actually signed several checks issued by Mills's steel and building supply companies.

Rivers also received more than $125,000 in checks from Cornerstone, made out directly to him, and he endorsed and cashed two others made out to another individual for $96,000. Auditors could not locate invoices or purchase orders to support the payments. And for reasons even the federal government couldn't ascertain, Mills transferred $203,000 paid to Buffalo Steel and Gulf Coast Building Supply into Gulf Con's bank account.

All told, without having to go through the trouble of bidding for the work, Gulf Con ended up with more than $950,000 of public money. Nice work for a company that had no employees and was formed just three months before the city awarded the Duddlesten Management Corporation a contract to manage rehabilitation of the RTC apartments. Gulf Con, if it still exists, does not have a listing in the telephone book.

Buffalo Steel's credentials were even more dubious: Mills didn't start up that one-man operation until two days after Duddlesten's contract with the city was finalized on November 10, 1993. The company is no longer in business.

The shadowy figures and irregular transactions outlined in the HUD audit of the RTC program underscore the lack of regard the Lanier administration has for laws designed to protect the public from conflicts of interest and wasteful spending. The latest findings mirror other questionable deals unearthed during audits of other contracts awarded by the city since Lanier took office.

For example, the city still has not replaced two ticket-collection contractors fired in 1995 after a lengthy review by then-city controller George Greanias found that a minority subcontractor, Bayou City Enterprises, had been paid some $400,000 for essentially doing nothing. It was also discovered that the prime contractor on that deal, Municipal Collections, was overpaid as much as $1 million, according to auditors, "with the knowledge and cooperation" of city officials in charge of overseeing the contract.

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