With a $1.2 Million Grant, Durham City Council Helps Save Deficit-Burdened Housing Authority

DHA requested a nearly $1.2 million grant from the city in order to help fund four months of administrative overhead for DVI and to help “replenish public housing reserves” at the housing authority. The money would be split between the two entities—with $389,783 going to DVI for “administrative and predevelopment expenses,” and $805,430 for DHA to help eliminate operating deficits.

The first chunk of money will come out of the Dedicated Housing Fund—the “penny for housing” portion of your tax dollars. The rest will be funded from the city’s general fund. As of June the general fund had a balance of $54,417,743.

Durham Housing Authority CEO Anthony Scott explained that asking for the grant would be better than a loan because a loan would be a burden on the group’s financials and said any development completed with the grant funds would remain affordable housing for at least thirty years.

The city bailout means DHA can continue to move forward with renovations to Morreene Road and Damar Court public housing facilities—which have been delayed for two years. Those delays play a role in deficits DHA and DVI are now attempting to patch up.

Scott said the deficit must be remedied before the housing authority can close on those development projects and to be in compliance with the U.S. Department of Housing and Urban Development requirements.

“Because of the significant delays on Morreene Road and Damar Court closings anticipated developments fees were not received by DVI for the benefit of the central office cost center,” Scott says. By not receiving those funds, the authority had to use “temporary monthly inter-fund loans” from the authority’s reserves to avoid deficits.

Morreene Road Apartments was slated to have a “substantial rehabilitation” of 224 affordable apartment units, set to close in November 2015, but now will not close until the first quarter of 2017. Damar Court Apartments is another substantial rehab for 102 affordable apartment units. That was set to close in October 2016, but has since been moved to the third quarter of 2017. The Morreene Road rehab is set to cost $16.5 million and the Damar Court rehab will come in at about $18.5 million.

Monday’s bailout was on top of a $500,000 grant given to the authority in June 2015—which has not been touched and is held in a restricted account.

The deficits were found during a March 2016 audit. And at that time, then-CEO Dallas Parks was preparing to retire, and a few months later, CFO Jeffrey Causey left. Scott became the CEO in June.

“DVI has a big development need over the next five or ten years,” Schewel says, adding the grant would help capitalize on future development.

But, he also pointed out that the CFO had previously been transferring money out of the public housing funds into the development funds, and when that was figured out, Schewel said the board acted appropriately.

Councilwoman Jillian Johnson questioned the oversight of both DHA and DVI (which shares the same board members).

“What I’m concerned about is that there doesn’t seem to have been sufficient oversight by the board members. How are we being assured that that situation is being correct?” Johnson asked Scott, who defended the board.

“I do think there is oversight, but there are properties and projects, as you know, [that have] delays occur. Once the issue with Morreene Road was discovered, then we took action to make sure that was in fact cured,” Scott says.

DHA Board chairman Dan Hudgins said until the March audit, the board had not been told about the deficit. Parks told the board at that time he was working with the city to remedy the problem.

“Once we became aware we dealt with it. And I think what you’re seeing today is the product of a system that will not allow this to happen in the future, and I do feel responsible for what is happening,” Hudgins said.

Past chairman Tom Niemann said mistakes had been made but “the controls are in place and the staff is aware of it” and doesn’t think a deficit like this one will happen again.

Once the developer fees start coming in, Scott said that money will be used for “continue our development work,” including redeveloping all for the public housing sites in Durham.

Mayor Bill Bell understood why DHA would want a grant instead of a loan, but wanted to see a repayment option that the city is advancing the authority.

It doesn’t help that HUD’s Rental Assistance Demonstration (RAD) program to preserve and improve public housing is about $26 billion behind capital funding for the 1.2 million public housing units in the nation. The RAD program allows for housing authorities (or other HUD-assisted properties) to convert the public housing units to a voucher program for more subsidies. DHA started the RAD conversion process in 2012—including Morreene Road and Damar Court.