It was during a visit to New Orleans in 2009 that U.S. Department of Housing and Urban Development Secretary Shaun Donovan realized just how troubled the Housing Authority of New Orleans was.

As he sat in his hotel room preparing to attend a day of events marking the fourth anniversary of Hurricane Katrina, news broke that the head of HANO’s voucher program was stepping down while under investigation for using a Section 8 voucher to pay $1,400 of the monthly rent on the Gentilly home he shared with his girlfriend.

Within the same week, a former HANO chief financial officer was arrested for stealing nearly $1 million from the agency over three years, during which he bought a Florida mansion and five luxury cars.

“I just sat there thinking, ‘This is the last straw,’ ” Donovan said last week. “To me, that was the turning point. That was the moment that I realized I had to do something.”

The scandals were merely the latest in a long-running series of shameful episodes for HANO.

Despite being taken over by the federal government in 2002 after years of chronic local mismanagement, the Housing Authority was still in shambles. There had been little progress in restoring the city’s flood-damaged affordable housing stock. None of the four main public housing complexes, the so-called Big Four — Lafitte, St. Bernard, B.W. Cooper and C.J. Peete — had reopened. HUD’s inspector general had slammed the organization that year for lax oversight and inefficient operation. Local officials, landlords and current and former tenants all expressed distrust of the agency.

But as Donovan prepares to give HANO back to the city next month after 12 years of federal control, he says he is satisfied that the organization has been radically remade.

“It’s not that we’ve gotten the Housing Authority back to operating the way it was before 2002. It’s operating much better,” Donovan said while in New Orleans on Wednesday to sign documents authorizing a July 1 handoff. “We’ve been able not only to help it operate more effectively, but we’ve been able to make affordable housing available to thousands and thousands more families.”

Decades of problems

HANO was beset by problems for decades before the federal takeover. A revolving door of managers and inadequate financial controls allowed, among other things, for contractors to be repeatedly paid for work that was never completed. The developments, many dating back to the New Deal era, were infested with crime and rodents. Mold crawled up unit walls, and sewage often spilled onto streets in front of buildings.

“We saw deplorable conditions beyond what people can imagine,” said Cynthia Wiggins, president of the citywide tenants association. “The infrastructure was collapsing because the properties were so old. Crime was rampant in our neighborhoods.”

The organization still was plagued with many of those problems in 2009 when Donovan took the unusual step of hiring an outside contractor, instead of a HUD employee, to take over as both HANO’s executive director and its one-man board, a decision he now credits with finally ushering in a turnaround.

“I think, if you had come to us five years ago, the opinion would have been one of such anger and resentment about what was going on because residents didn’t feel they were part of the redevelopment,” Wiggins said. “Today, I think the living conditions speak for themselves.”

The public housing portfolio the city will inherit next month is dramatically different from the one it relinquished 12 years ago.

Gone, for the most part, are the vast public housing developments made up of multi-unit, monolithic brick buildings. In their place are a mix of multifamily buildings and townhouses designed to blend in with surrounding neighborhoods.

There also are fewer public housing units now than before HANO went into administrative receivership. Then, public housing could accommodate more than 6,000 families. Today that number sits at 1,825, as some complexes remain under construction and others, like St. Bernard, have been restructured to include a mix of public, affordable and market-rate housing.

A model redevelopment

The St. Bernard site, now renamed Columbia Parc, is often touted by city officials, including the mayor, as an example of what public housing in New Orleans should look like.

The hulking, 65-year-old buildings of the old St. Bernard complex, housing nearly 1,500 families, were torn down in 2007. Replacing them is a $190 million development consisting of 683 units, 228 of them public housing units, in buildings that look like a mix of townhouses and modern apartments. The site has a pool, a gym, a theater and a separate building for seniors.

With the number of public housing units so drastically reduced, the number of Section 8 vouchers for renting privately owned apartments has climbed from 5,039 in 2002 to 17,700, according to data provided by HANO.

Beyond its physical transformation, HANO has been rated a “standard performer” in terms of management for two years in a row, according to HUD’s public housing and Section 8 assessment systems.

In 2009, HANO scored 40 out of a possible 145 points on the self-assessment scale and was assessed as “troubled.” The agency received its first troubled rating in 1979 and stayed there for the next 30 years.

“We’ve been performing financial audits on HANO that show that its financial condition is as strong as it’s ever been,” said Donovan, who will soon step down as HUD secretary to take the helm of the White House Office of Management and Budget. “(Previously), you have to go back decades and decades to find a strong financial position for HANO.”

New Orleans has benefited recently from having HUD, and especially Donovan, in the driver’s seat, said Linda Couch, a public housing expert at the National Low Income Housing Coalition.

“I think that in a lot of ways HANO today is fortunate because it does now have these very close relationships with the people in HUD headquarters,” Couch said. “Donovan really made very clear that he wanted it to be among his legacy of achievements.”

Bitter battles

Still, getting to this point has not been easy.

Before Donovan took over as HUD secretary in 2009, there were bitter battles about the future of the city’s public housing. Many residents contested the plan to demolish the Big Four, some bitterly. In a city with rising rents and a sizable percentage of the population living below the poverty line, they argued that razing the developments would make it harder for poorer residents to find places to live in New Orleans. The Housing Authority argued that rehabilitating the buildings would be too costly and would not solve the fundamental problems.

The battle included lawsuits and eventually required City Council approval.

There is still a question about whether New Orleans has adopted the right model in rebuilding its public housing stock, Couch said.

“The inclination in redeveloping and building is to serve more moderate-income people when there’s often very little need at those income levels,” Couch said. “The real desperate need, the widespread need, is in the lowest income levels. That’s a trap we get into because that’s where the money is. There’s no money right now to help build housing for the poorest-income people.”

HANO’s return to city oversight comes at time when HUD’s pockets are pinched and housing authorities across the country are struggling to find ways to maintain buildings and services, Couch said.

“That won’t change,” she said. “The truth of the matter is the thing that plagues every housing authority will be a big burden to New Orleans.”

The incoming management team will have other issues to address as well.

Collette Tippy, an organizer with STAND with Dignity, a grass-roots organization that tries to protect the interests of low-income residents and workers in New Orleans, said the organization intends to push the new board and executive director to enforce federal rules requiring contractors rebuilding housing authorities to hire local workers. Tippy said the agency has become lax in doing so.

Tippy said the nonprofit also wants to revisit HANO’s background-check policy. The organization worked with HANO to revise the policy to make it easier for ex-felons to acquire public housing and jobs with HANO. The policy, for instance, said criminal background checks for job candidates wouldn’t be conducted until after a job offer was made, so as to reduce the risk of discrimination against candidates with criminal histories.

But Tippy said landlords and developers working on HANO projects aren’t following the new policy and HANO is not making them do it.

Continuing the gains

Going forward, Wiggins said, tenants are most concerned with making sure that the progress they’ve seen over the past few years continues.

“While we understand that HUD wants to turn it back over to the city, we would like for (Donovan) to ensure that he secures the necessary funding through HUD to finish what we actually started,” Wiggins said.

The continued overhaul of the city’s housing developments will be in the hands of an as-yet-unnamed executive director and a seven-member board of commissioners. Four appointees to that board have been announced. The other three members are expected to be named before July 1. Once in place, the board will choose a new leader for the agency.

Wiggins said residents want to make sure the new team reopens the under-construction Florida housing development, closed since Katrina, with a minimum of 300 units, not the 52 that have been promised. It originally had 734 units. Tenants also would like to see the stalled B.W. Cooper development completed.

Arguably the most high-profile task ahead for the new team will be managing the multimillion-dollar redevelopment of the Iberville housing complex, a project that local, state and federal officials have billed as necessary to revitalize Canal Street, the Treme neighborhood and the Central Business District.

To help cover the cost of the project, HANO and the city received a $30.5 million grant through HUD’s Choice Neighborhood Initiative, a program aimed at transforming distressed urban areas and traditional public housing into mixed-income neighborhoods with links to schools, transportation and jobs. It is part of a 300-square-block, $600 million planned redevelopment that includes investment in initiatives like apartments, schools and food stores.

Construction is underway.

“That will be as complex, as comprehensive a revitalization project as you’ll see anywhere in the country,” Donovan said.

Mayor Mitch Landrieu said the city intends to hire an executive director with experience in such projects. Meanwhile, Donovan said HUD will continue to “pay very close attention” to what’s happening here.

“It’s not like HUD is walking away from this partnership,” Donovan said. “We’re returning to the normal form of partnership that we have with housing authorities across the country, recognizing that New Orleans is a special place. It has a lot more going on than other housing authorities.”