Slush money soaks HUD

0 Comments | Insight on the News, Sept 18, 1995 | by Jamie Dettmer

The regularly troubled and scandal-plagued Department of Housing and Urban Development is about to regain the spotlight as a regulatory authority that just can't seem to stamp out corruption and mismanagement. The embarrassment the agency has suffered since the launch earlier this year of an independent-counsel investigation into the finances of HUD Secretary Henry Cisneros soon could be dwarfed by an even bigger scandal--one involving hundreds of millions of taxpayers' dollars. And it won't just be the reputation of the current HUD secretary at stake. The department's previous boss, Republican Jack Kemp, also could find himself enveloped in the fallout.

At issue are hundreds of administrative sundry accounts that are buried in the annual budgets of the 3,000 public housing authorities, or PHAs. Such accounts, which collectively cost U.S. taxpayers more than $200 million a year, allegedly are riddled with abuse. And, despite repeated attempts for many years by some within the HUD bureaucracy to initiate a major probe, political pressures have been too strong to overcome, says a senior HUD official.

According to senior and mid-level employees at HUD's concrete monster of a headquarters in southwest Washington, a massive, bipartisan, virtually endemic rip-off has been under way quietly for years, and neither the current Housing secretary nor the department's inspector general want anything to do with a probe. Nor, some HUD employees claim, was Kemp tenacious in pursuing an investigation when a whistel-blower urged him to get to the bottom of how PHAs spend some of their rental income and the direct subsidies they receive from HUD.

The whistle-blower, a senior HUD official who declined to be named for this article, contacted Kemp on several occasions in the final year of the Bush administration and warned him of widespread abuse by the PHAs of operating expenditures listed in annual accounts as administrative sundry spending. The whistle-blower suspected a large amount of the expenditure was being used as political slushfund money and urged Bush's HUD secretary to probe the issue. Kemp reportedly said he would look into the alleged abuse after the election.

However, in a telephone interview with Insight, Kemp says he did "get his IG [then Paul Adams] to look at the sundry accounts." He adds: "I was aware it was a problem and it still is a problem. It's endemic of the whole system where you get government to pay local authorities for low-rental housing. I am not accusing anyone of anything, but there were very lax checks on how money was being spent. I could not get Congress to change things." However, according to HUD's Office of the Inspector General, no record exists of a major probe into PHA sundry accounts during Kemp's tenure at HUD. "We have never looked at them, as far as I am aware," said an official in the office.

Since 1992, the PHAs' administrative sundry spending frequently has been brought before senior officials at HUD by concerned employees. The IG's office has been alerted as was Cisneros within days of taking up his duties as Clinton's HUD secretary.

At least one official who raised the question of rocketing sundry expenditures was ordered to back off by an assistant secretary, who acknowledged that much of the money probably was being used locally to finance a variety of political activity ranging from payments to precinct captains to funding advertising for candidates. "We never audit PHAs' sundries, you know that," the assistant secretary reportedly told the complainant. "We don't want to look under their shirts."

Indeed HUD doesn't. "There is no monitoring of sundry spending items," acknowledges HUD official Nancy Menhennick. "They get monies from rent and from HUD, and HUD has nothing to do with how much they spend. We monitor their over-all budget. How they spend the subsidy they get from us, we leave up to them. They decide on what is important."

The agency was created by President Johnson a month after the Watts riots in Los Angeles, and HUD has never been a stranger to lax auditing procedures. Nor have the PHAs. Every form of bilking known to man has been observed at the department since 1965. During the Carter administration, spending on the Section 8 Moderate Rehabilitation Program, a scheme in which rent subsidies and tax credits are awarded to developers who buy and renovate low-income housing, reached $24 billion, with much of it going to developers with Democratic Party ties.

In the 1980s, as the agency was being shrunk and its budget cut, the department's IG was busy investigating field-office directors and a HUD undersecretary for improperly billing personal travel as official business. Cozy arrangements between senior HUD officials (including then-secretary of HUD Samuel Pierce) and Republican-linked developers and bankers also were probed. Scandal after HUD scandal was unearthed, from the case in Memphis in which Housing officials used HUD grant money to engage in 1,700 speculative transactions worth about $1 billion on the bond market, to the falsification by real-estate agents in New Jersey of federal mortgage applications.