New Orleans failed to follow guidelines for use of federal money aimed at increasing the supply of affordable housing in the city, possibly allowing renters to be overcharged, properties to be improperly "flipped" and units to go without inspections, according to an audit by the Inspector General's Office of the Department of Housing and Urban Development.
The report recommends the city be forced to repay the federal government at least $1.8 million, and possibly as much as $7.6 million, if it can’t prove that the lapses did not lead to violations of federal rules.
The newly released audit blasts the city’s management of funds from the HOME Investment Partnership Program, which provides federal grants intended to increase affordable housing, saying that poor record-keeping and oversight caused a variety of problems with the program in New Orleans.
“The city failed to protect more than $7.5 million in HOME funds disbursed; detect $82,800 in rent overpayments; ensure that affordable housing was available and offered to low-income households; and ensure participants lived in decent, safe and sanitary housing,” according to the audit.
The audit was done after a complaint from a somewhat unusual source: City Councilwoman Stacy Head. Head said she contacted HUD as well as law enforcement after she tried to bring the problems to the attention of officials in Mayor Mitch Landrieu’s administration.
“Any time an auditing body like an inspector general identifies taxpayer waste, it’s good for me,” Head said. “It’s really important that we as public officials maintain the public trust by acknowledging when taxpayer dollars are not being spent wisely.”
In an official response to the audit, the Landrieu administration argued that it had abided by the rules or was working to fix potential problems, including those officials said were connected to the administration of former Mayor Ray Nagin.
“The city takes very seriously its responsibility to be good stewards of the resources to which it has been entrusted,” according to the administration response. “Many of the findings cited in the audit report are connected to activities that date back as far as 2002 and are therefore more challenging to resolve because of changes in leadership and staffing, loss of institutional memory and damaged records.”
The audit reviewed 13 projects in the city.
Of those, the report found that four projects with a total of 30 apartment units had been sold by their original developers, possibly without the city’s approval and without agreements in place requiring that they be kept as affordable housing. The properties — the HOPE Rental–Havana Street Project, Marlborough Gate Apartments, Mazant Development and Jordan Manor — were all sold between 2006 and 2015.
On the nine other properties, regulatory agreements were in place, but the city did not always ensure they were being adhered to, according to the audit report.
At the Rosa Keller project, the audit found that the city did not provide documentation to show it was allowed to make rent payments on 30 units that exceeded the limits set under the HOME program. Those payments totaled $82,800.
The city responded that the higher rents were due to the use of vouchers from the Louisiana Housing Corp., which can be used for higher rents. While the HUD Inspector General’s Office found that was the case for some of the units identified in the report, it maintained that the city had not provided enough documentation to prove that it had followed the correct process for the 30 units at the Rosa Keller project, owned by UNITY of Greater New Orleans.
Martha Kegel, the Unity's Executive Director, said by email she believes HUD will be satisfied that the project complies with federal regulations when they receive the additional documentation.
The report also found that the city did not properly verify the income of two tenants, to determine whether they were eligible for the units they leased, until nine months after they began living in the units.
There were also various problems with inspections at the projects, including failing to do any inspections at some properties and skipping years at others. The city responded that the projects were mainly new construction that was required to meet higher standards than those set by HUD, but the inspector general argued that there was no way to know that they met the agency’s standards.
The city also failed to properly monitor the properties, track vacancies, follow some of HUD’s accounting rules or maintain supervision over staff and proper records, the auditors found.
The report says the issues that can be fixed should be remedied immediately, or else the city should have to repay the federal money it received.
Editor's note: This story was changed on Sept. 11, 2017, to clarify the reports' findings on rents charged at rates higher than those included in HUD guidelines.