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HUD inspector general probes Fresno’s mismanaged $8mil in block grants

Fresno City Hall

HUD inspector general probes Fresno’s mismanaged $8mil in block grants

Fresno screwed up the spending of more than $8 million in federal grants, a HUD inspector general report reveals.

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The City of Fresno screwed up the spending of more than $8 million in federal grants designed to help the city’s poorest residents.

City Hall’s boneheaded handling of the grants involved shoddy internal oversight, missed reporting deadlines and failure to follow the rules.

All this happened because, when it comes to dealing with free money, Fresno City Hall manages to show its incompetence.

Federal officials for years have tried to knock some common sense into City Hall, but with limited success.

City Hall’s options are to finally get its act together and learn how to correctly spend CDBG money, or repay about $8 million to the feds.

Most frightening of all, problems at City Hall persist to this day.

That pretty much sums up a 48-page report on a federal investigation into the way Fresno has administered Community Development Block Grants (CDBG for short).

The report is dated Aug. 9 and comes from Tanya E. Schulze, regional inspector general for audit with the U.S. Department of Housing and Urban Development. The report made its way to both HUD’s San Francisco office and, of course, City Hall.

I got a copy of the report.

City Hall Communications Director Mark Standriff in an email on Monday told me that the administration of Mayor Lee Brand takes the report seriously. Standriff said the feds’ reporting requirements can be mind-boggling in their complexity. Standriff said Fresnans shouldn’t worry because the poor won’t lose their money.

I’ll give you Standriff’s entire statement in a bit.

First, some history. Some of you may recall a story I wrote for The Bee in December 2012 that dealt with HUD frustrations over the way City Hall spends federal funds from certain pots of money. The mayor at the time was Ashley Swearengin (she would be termed out in January 2017). CDBG funds were a part of the scathing report. But the feds reserved most of their anger over how the city spent its federal Home Investment Partnership Program money (called HOME funds).

The 2012 HUD report came at the end of a long investigation. The result was a shakeup in both the Housing and Community Development Division and the City Manager’s Office.

A couple of lower-level, out-of-favor managers became the scapegoats. I was told at the time by city officials that reform was on its way.

This new HUD report refers to the mess uncovered in the 2012 report. However, the new report is mostly about the mess since 2012.

The 2017 report begins by stating its mission: Figure out if Fresno is playing by the rules with its CDBG funds.

From the report’s executive summary:

“The City did not administer its program in accordance with HUD requirements. Specifically it (1) did not meet HUD’s code enforcement requirements, (2) spent CDBG funds on general government expenses, (3) did not ensure that one program met a CDBG national objective, (4) did not properly monitor its subrecipient or City departments, (5) used its entitlement funds before its program income, and (6) did not report program income to HUD in a timely manner.

“This condition occurred because the City (1) lacked the capacity and experience to administer and implement the program, (2) did not have adequate procedures and controls in place, and (3) disregarded HUD requirements. As a result, it used CDBG funds for $163,555 in ineligible costs and more than $7.9 million in unsupported costs and put $428,373 at risk over the next year of similar questionable use.”

Now to Standriff’s full statement to me:

“Over a six month period, we’ve worked with a HUD auditing agency that operates independently and reviewed the City’s use of HUD Community Development Block Grant (CDBG) activities going back to 2012. Although the report points out some deficiencies, we’re confident that CDBG funding was used for meaningful activities that have improved the quality of life in our lowest income neighborhoods.

“The report essentially makes a number of recommendations to the San Francisco HUD Regional Office for consideration, some of which the City has already implemented, including the suspension of funding code enforcement activities with CDBG. Now that the auditor has made the recommendations to the HUD regional office, the final conclusion may take some time.

“While the City takes the items in the report very seriously, it’s important to recognize the high degree of difficulty in providing the acceptable level of documentation and verification that the federal government requires.

“The good news is that if HUD does ultimately request any repayment of funds, the money would be placed in the City’s treasury account and be available for the City to use again on eligible activities.

“In other words, after working with the HUD regional office to better document the files, the worst case scenario of potential repayment could actually be considered the BEST case scenario for neighborhoods in need that would be getting additional resources and programming.

“We basically would end up paying ourselves back and spend the funds on CDBG activities that help the neighborhoods in Fresno with the greatest need.

“Again, the City takes the concerns outlined in the report very seriously and will continue to work with the HUD regional office on improving the federal record-keeping requirements. There’s really no downside from this report.”

I guess it all depends on how you define “downside.” In a future CVObserver piece, I’ll explore the new HUD report in more detail. Perhaps I can get a City Council member or two to comment.

For now, I leave you with one conclusion from the Inspector General’s report. It comes after a detailed review of City Hall’s struggles with CDBG rules. Keep in mind that the Housing Division and the management of CDBG funds are part of the city’s Development and Resource Management Department (DARM).

The 2017 report states: “The problems discussed above occurred because the City lacked the capacity, experience, and controls to administer and implement its CDBG program.

“The Development and Resource Management Department director had not had CDBG training in 10 to 15 years, while the assistant director had not had CDBG training or any prior CDBG experience.

“Further, the neighborhood revitalization manager, who had held this position for less than a year, had not had CDBG training or prior code enforcement job experience, and the business manager responsible for processing payroll had received no CDBG training.

“The only person with CDBG experience was the designated CDBG administrator; however, she had only been available to work on a limited basis over the last 4 years.

“The City hired a consultant in mid-2015 to help resolve the HUD 2012 monitoring findings, yet based on the finding above, the City still had not corrected the problems and followed HUD requirements.

“Therefore, the lack of capacity and management experience impaired the City’s ability to administer its CDBG program.”

No downside there unless you’re a taxpayer.

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George Hostetter

George Hostetter is a contributor to CVObserver and advisor to The Collegian, the student newspaper of Fresno State.

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