Every June, as the city prepares its budget for the fiscal year that begins July 1, one particular piece of business appears on the City Council agenda. Officially known as an "Ordinance Providing for the Continuation of Appropriations," it gives the city legal authority to keep operating if there are delays in passing a new budget. The ordinance is among the more routine matters considered by Council each year and, invariably, it is approved unanimously without discussion. Such was the case June 17, 1997, when City Council authorized more than $30 million.
What councilmembers didn't know was that the $1.1 million authorized for housing-related expenses was later used to pay a hefty penalty levied against the city's Department of Housing and Community Development.
In February 1997, the federal Department of Housing and Urban Development, or HUD, published an audit finding city housing officials exercised "no contractual control and little or no oversight" over a $1.1 million block grant to renovate two apartment buildings bought from the Resolution Trust Corporation, the now defunct agency that managed the assets of failed savings and loans. HUD ordered the city to document about $400,000 in unexplained costs paid to the housing department's contractors, Duddlesten Management Corporation and Cornerstone Construction, or risk having to reimburse the feds the entire grant.
City housing officials disputed the audit, and in May 1997, asked HUD for six months to review the contract. Yet, a month later, they submitted to City Council a continuing appropriation that transferred exactly $1.1 million in city housing monies to a federal grant fund. The actual transfer, however, was not made until this past February, when, as expected, HUD ordered the city to repay the block grant.
City Council members say they were never told of the HUD audit, nor did housing department director Margie Bingham seek their approval before she transferred more than $1 million in city funds to reimburse the federal housing agency.
"How could that kind of repayment back to HUD never appear on Council's agenda?" asked at-large City Councilwoman Annise Parker. "Why were the audit findings never brought to Council's attention?"
The HUD audit is just one example of city housing officials withholding from public scrutiny problems associated with multimillion-dollar redevelopment projects initiated by the administration of former mayor Bob Lanier.
For instance, most councilmembers are not aware that the housing department has foreclosed on a taxpayer-funded, 110-unit single-family development in north Houston. The project collapsed early this year when the contractor, Mastermark Homebuilders, went out of business after finishing just 39 homes. Another 19 homes, on 20 acres of land owned by the city, are in various stages of construction.
To date, the Mastermark project has cost the city close to $6 million -- double the $3 million housing officials agreed to loan Mastermark in 1996 to cover construction costs. The city will recoup some of that loss after more homes are completed and sold. But the housing department has yet to select a new contractor to finish the subdivision, and until that happens, the city is obligated to pay off Mastermark mechanics' liens -- estimated by one housing source to be about $300,000 -- as well as to cover the costs of warranty repairs sought by the owners of the occupied homes.
Moreover, a similar taxpayer-backed deal to redevelop the historic Fourth Ward/Freedmen's Town area, just west of downtown, is in danger of failing. In that instance, housing officials have struggled to hold the contractor, Houston Renaissance, Inc., accountable for a $3.5 million city grant to develop a mixed-income neighborhood that would include 250 units of housing for first-time homebuyers of limited means.
Renaissance, a nonprofit corporation, owns about 1.2 million square feet of property in the Fourth Ward, all purchased with taxpayers' money. Today, the nonprofit is broke and unable to secure additional financing to carry out a so-called "master plan" commissioned by Renaissance and local ministers last fall.
However, Renaissance has demolished 18 homes in Freedmen's Town, which was named to the National Register of Historic Places in 1985. That, despite repeated attempts by councilmembers and local preservationists to forestall the destruction of homes built by descendants of the slaves who settled the area more than 100 years ago.
Ironically, the councilmember most concerned with the possibility that Freedmen's Town could lose its national historical designation to the wrecking ball is not Jew Don Boney or Michael Yarbrough, who are African-Americans, but Parker, who is white.
Parker points out that a March 27 report issued by a team of Brown advisers recommended an audit and performance review of the city's contract with Houston Renaissance. That has yet to happen. Nor has Parker, an elected official, been able to extract much information about the status of the Fourth Ward project from either Renaissance or housing officials.
"This has been one of the most frustrating situations I've ever dealt with," says Parker, who describes the city housing department as a "nasty can of worms."
"It's a combination, I think, of the contractor not caring and no one [being] willing to step up and hold them accountable for what they're doing."
By now, Lee Brown should realize that succeeding Bob Lanier as mayor of Houston is not all it's cracked up to be.
In the past few months, a series of audit reports identified millions of dollars in waste and misappropriations by the Public Works Department during the Lanier era. Former Houston Rockets star Calvin Murphy, hired by Lanier to run the city's youth sports program, is under investigation by a grand jury for allegedly filing fraudulent time sheets. And Brown has ordered an investigation into possible violations of state purchasing laws by city officials overseeing the renovations of the old City Hall and the new Bob Lanier Public Works Building at 611 Walker.
In each case, the underlying problem is the lack of oversight and accountability of public funds under Lanier. Indeed, the former mayor deliberately stripped away the checks and balances that safeguard against the abuse of tax dollars, often by giving inordinate control of projects to private contractors. Nowhere is the result of that breach of bureaucratic protocol more evident than at the city housing department.
The unique role the Department of Housing and Community Development played in the Lanier administration dates back to November 1993, when the mayor decided to purchase, renovate and resell a group of apartment complexes owned by the RTC. The importance of the unprecedented venture was summed up in a memo from Lanier's co-chief of staff, Dave Walden, to city housing director Margie Bingham. Walden warned Bingham that the RTC transactions had put "the reputation of the city of Houston and this administration on the line."
George Greanias had raised questions about the city's contract with Duddlesten Management Corporation, which is owned by Wayne Duddlesten, a close friend of Lanier's and the city's choice to develop a $160 million convention-center hotel downtown.
The city hired Duddlesten to inspect the apartment buildings, evaluate the financial potential of each complex and decide which ones the city should buy. Duddlesten also determined how much renovation was required, and his firm managed the repair work -- including the renovation of two complexes in southwest Houston that were the subject of the HUD audit.
Greanias's concerns were right on the mark. HUD auditors found that Duddlesten was able to pass the construction work off to a second Duddlesten-owned firm, Cornerstone Construction, which violates federal competitive-bidding regulations. The report also revealed that Duddlesten ignored federal wage laws and engaged in "questionable transactions" that resulted in almost $400,000 in undocumented costs to the city.
City housing officials have complained that the HUD audit was overly harsh and failed to consider the giant profit earned by the city's purchase and resale of the complexes. Bingham, the housing director, failed to respond to repeated requests for an interview. But her spokesperson, Suzy Hartgrove, told the Press that the housing department does not plan to make Duddlesten reimburse the city for the $1.1 million penalty ordered by HUD.
"We feel that he was instrumental in helping earn the $10 million profit that we wouldn't have been able to earn without him to begin with," says housing mouthpiece Suzy Hartgrove. "So we're not seeking to reclaim that money from him."
But should taxpayers be required to pay twice for the same job at the whim of a department head? To begin with, ensuring the project's success was Duddlesten's job, and he was paid roughly $2 million for everything from brokering the purchase and reselling the apartment buildings to leasing empty units and performing renovations.
"If HUD found that Duddlesten misspent the funds, then there's no question he should have to pay them back," Councilman Rob Todd says.
Todd and other councilmembers say they do not recall approving payment of the $1.1 million penalty to HUD. When asked about that, Hartgrove produced the June 1997 "Ordinance Providing for the Continuation of Appropriations." But nothing in the document explains the purpose of the housing department's appropriation, and the ordinance was not accompanied by the usual paperwork, or "backup," routinely submitted when a city department seeks approval of an expenditure greater than $5,000.
Yet Hartgrove says councilmembers could have figured out on their own that the $1.1 million was, in fact, not "for housing," as advertised, but to pay the federal government for the city's mismanagement of a contract.
That explanation, according to Councilwoman Parker, is "total bullshit."
In February 1996, Bob Lanier announced a program called Homes for Houston, an initiative to produce 20,000 new affordable-housing units between 1996 and 2000. The program was an example of Lanier's favorite governing concept, the "public-private partnership," which held that public investment in urban projects is needed to entice the private sector. Indeed, Lanier was more than willing to ante up tens of millions of dollars in local, state and federal housing funds to pay for some ambitious redevelopment projects.
In May 1996, City Council approved the selection of Mastermark to build 109 single-family homes in north Houston for working families of limited means. Homes for Houston would provide mortgage and down-payment assistance to qualified low- and moderate-income buyers.
The project actually included two separate subdivisions -- a 54-home extension to the Binglewood neighborhood in Spring Branch, and 55 homes in what would be known as Rittenhouse Village, a few miles north of Binglewood. Construction costs were funded by a $3 million revolving loan from the city to Mastermark, which would build homes for between $50,000 and $85,000, and sell them for what it cost to build them, to pay back the revolving loan. Mastermark agreed to take a 5 percent fee for each home it built and sold.
In May, the city quietly allowed Mastermark's two-year contract to expire, and the project collapsed. Fewer than half the 109 homes planned had been built. Moreover, the city had already spent more than $5.5 million, nearly twice the amount of the revolving loan.
Hartgrove says housing officials are still trying to determine what went wrong. Calls to Mastermark's founder, Bob Hutchins, who closed his company after more than 25 years in the home-building business, were not returned.
Whatever happened, city housing officials have kept quiet about the failure of the project. As for councilmembers, the only way they would even know about the Mastermark failure was if they picked up the June 4 Houston Chronicle. In the fine print of the classified-ad legal notices, the city announced that Mastermark's plans and specifications, as well as any leftover building materials, would be sold at public auction.
In some ways, the city's contract with Houston Renaissance mirrors the Mastermark deal: For example, after almost two years, few councilmembers realize how rapidly the original plan to build a mixed-income neighborhood in the Fourth Ward could crumble.
Renaissance received the go-ahead to develop a master plan for the Fourth Ward in October 1996. The terms of the city's contract were simple: In exchange for a $3.4 million grant, the nonprofit is obligated to develop a minimum of 250 housing units for low- and moderate-income people. With city money, augmented by a $5 million loan from the quasi-public Houston Housing Finance Corporation, Renaissance has bought about 40 percent of the property in an area bordered by West Gray, Taft, West Dallas and Heiner.
According to Houston Renaissance's master plan, an "underlying concept" of the Fourth Ward project is "the retention of viable historic structures ... with particular emphasis on those that remain in the Freedmen's Town Historic District boundaries."
But, in the last month, Renaissance has torn down at least 18 buildings in the old neighborhood. That includes ten houses that Randy Pace, the city's historic preservation officer, recommended be saved following a survey of Fourth Ward properties with possible historic significance. Pace's written report noted that his survey was performed at the request of Robert Boyd, executive director of Houston Renaissance.
However, Boyd, who moved to Houston from Orlando a year ago to accept the $180,000-a-year job of managing Renaissance's daily operations, denies that he asked Pace to conduct a survey. Rather, he says, "that decision was made at a meeting I did not attend."
Boyd lays blame for demolition of Fourth Ward structures at the doorstep of local preservationists, who, he says, have failed to step up and help the nonprofit in its mission to preserve the historic integrity of the area.
"We couldn't find anybody to bid on those houses," Boyd insists, "and we can't afford to restore them ourselves."
Architect and preservationist Lynn Edmundson disputes Boyd's claims, saying he rejected a proposal she made in May to relocate the houses elsewhere in the Fourth Ward, if Renaissance would donate them.
Renaissance still hopes to solve its financial problems by securing a $7.2 million bank loan. The loan would allow Renaissance to pay back the $5 million it owes the Houston Housing Finance Corporation, which has cut off further funding of Houston Renaissance. The nonprofit would then own 1.2 million square feet of Fourth Ward land outright, but still wouldn't have enough money to complete the project.
What happens then is up to Lee Brown, who has been asked by Houston Renaissance to sign a "subordination agreement" that would give lenders a first lien on Renaissance's land. That means the banks, not the city, would have the right to foreclose on Fourth Ward property bought with public money. The banks could then sell the land to builders, who would be under no obligation to produce the 250 units of affordable housing promised by Houston Renaissance.
So far, Brown has declined to sign the agreement.
Meanwhile, city housing officials are powerless to dictate the direction of the project, despite evidence that the organization tried to renege on the terms of a $3.4 million agreement approved by City Council in October 1996. A month later, assistant city attorney Jean White complained in writing to assistant housing director Jim Tipps that the nonprofit was trying to "undermine" the city's ability to enforce the contract.
"I ask that you please take these matters into consideration in evaluating the business deal," White wrote, "and, in particular, the additional concessions which [Houston Renaissance] seeks. Otherwise, the city may one day find itself in the unenviable position of having to explain why it provided $3,400,000 to a private entity, why little or no affordable housing was ever constructed, and why the city couldn't do anything about it."
Indeed, the city housing department can't keep tabs on Houston Renaissance, but maybe Lee Brown can. Unlike the investigations into the parks and public works departments, which were initiated by others, Brown could order his own review of the Fourth Ward project, just his transition team suggested in March.
The alternative could be that, while he had nothing to do with how the mess began, Lee Brown may become known as the mayor who watched as a historic Houston neighborhood disappeared.
E-mail Brian Wallstin at email@example.com.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you’ll never miss Houston Press' biggest stories.