HUD gives Dallas deadline to prove millions were properly spent on affordable housing

^{Editor's note: This story has been updated throughout.}

DALLAS — Federal officials are giving Dallas City Hall until the end of the month to produce documents proving the city properly spent $29.9 million on 54 affordable housing projects, according to a U.S. Housing and Urban Development letter obtained by The Texas Tribune.

The directive comes as Dallas residents, like those in the state’s other urban areas, face increasing difficulties finding affordable housing and as City Hall is being confronted on multiple fronts about the matter that’s been characterized as a crisis.

Shirley Henley, a HUD community planning and development director in Fort Worth, said in a letter that Dallas City Manager A.C. Gonzalez received this month that one of her agency’s chief concerns was locating documents that could “confirm the allowability” of how the city disbursed HUD money from 2012 to 2014.

City councilman and housing committee chairman Scott Griggs said he's optimistic that the city will produce the documentation but worried that there aren't complete records.

"We take this matter very seriously," he said.

Dallas City Hall recently staved off, at least temporarily, the abrupt mass eviction of 305 families from rental houses in one of the city’s poorest neighborhoods, a controversy that stems from Dallas suing landlord HMK Ltd. over living conditions in the houses.

That followed a city report last year that found median wages in Dallas have fallen since 1980, one-fifth of the city’s families live below the poverty line and the current housing stock is misaligned with residents’ incomes.

Housing costs have far outpaced median incomes for decades statewide, making it more costly for people to live in the Texas’ biggest cities. The Federal Reserve Bank of Dallas released a report last month that detailed barriers nonprofits and developers face in building affordable housing, including construction costs, financing challenges and opposition from nearby homeowners.  

The latest HUD letter largely stems from an internal audit that found the city lacked documentation to show why employees steered federal funds to particular projects and how they later oversaw the developments to ensure compliance with regulations tied to the money.

The audit said documentation on projects was either “absent, limited, inconsistent, or incomplete,” making it impossible for the city to confirm, among other things, that developers complied with requirements tied to the money and that their “construction expenses were reasonable and appropriate.”

City housing officials publicly agreed with the audit’s recommendations to create policies outlining how projects are underwritten and monitored and to retain consistent paperwork documenting such decisions and oversight.

But when Henley asked whether the city had “located, completed or corrected” documents related to the $29.9 million worth of projects, assistant Dallas grants administration director Chan Williams said housing employees couldn’t follow up on the audit’s concerns “in the absence of additional information.” Williams also told HUD officials that the audit never questioned the developments’ costs.

“While city staff assured the Department that corrective actions have been and are being taken, and that supporting documentation has been located, it is necessary for the city to provide this documentation to support the assurances,” Henley wrote in the letter City Hall received last week.

City Auditor Craig Kinton called Williams' statements “disturbing” and “disingenuous at best.”

Gonzalez, the city manager, later said that Williams could have worded her answers better and that housing officials weren’t suddenly challenging a months-old audit that found flaws in their practices.  

Gonzalez was not immediately available for comment Thursday morning. In a previous interview with the Tribune, he said the audit was not a forensic accounting of all housing records but a sample of files for some projects. He said that HUD’s various funding programs each come with different rules and that the federal housing agency may be assuming the city’s documentation problems with one housing project or a particular HUD program exist across the board.

“And I don't know that's the case,” Gonzalez said.

HUD spokeswoman Patricia Campbell said the agency couldn’t comment in detail about the ongoing matter until the city responds to its letter.

“I really can’t speculate about what’s going to happen because that time hasn't come yet,” she said Thursday.

HUD previously investigated allegations that Dallas had "a pattern of negative reactions to projects" proposed in the more affluent northern half of the city. The federal agency halted the investigation after Dallas agreed to submit reports saying that it isn't discriminating against projects.

Given the previous investigation, Griggs expressed frustration that City Hall employees didn't immediately notify elected officials about HUD's recent letter. He said he asked for a copy of the letter after hearing rumors about its existence but was told no one knew where it was. He said he was then told that employees didn't know if he had wanted a copy immediately or in a few weeks.

"I was concerned by the lack of urgency," he said. "It's a very serious demand letter, particularly in view of the voluntary compliance agreement we entered into with HUD."

 Read related Tribune coverage: 

• Housing and rent subsidy programs in Dallas — like many Texas cities — have long perpetuated segregation by funneling poor renters into poor neighborhoods. New federal rules are aimed at turning that around.
• Texas has the second-highest number of families living in public housing with incomes as much as $250,000 above the income limits to get in, according to data from the U.S. Department of Housing and Urban Development.