Fulton repaying $3.2 million to HUD

Because of mismanagement by its housing department, cash-strapped Fulton County is in the process of repaying the U.S. Department of Housing and Urban Development $3.2 million. HUD also has repeatedly rejected the county's pleas that it release another $3 million in affordable housing grants frozen because of the problems.

The reason: HUD officials are concerned Fulton's housing department continues to lack enough experienced staff to properly spend federal HOME Program grants, according to documents obtained under the Georgia Open Records Act. The program gives local officials federal money to create affordable housing through building, buying or renovating properties, or providing rental assistance.

Yet, despite these actions, HUD has opened a floodgate on a pot of federal economic recovery funds. Fulton's housing department has recently received $13.3 million in Neighborhood Stabilization Program funds, which are supposed to help shore up areas plagued by subprime lending and foreclosures.

HUD had no choice but to release the funds. And Fulton County officials say taxpayers have no reason to worry.

Congress designed the stabilization program as an entitlement that would send money to local housing departments based on a mathematical formula focused on the percentage and number of foreclosures, mortgage delinquencies and subprime lending in their area.

Nationwide, HUD has allocated $3.92 billion based on its formula to 254 local governments, and 55 states and territories.

"The Neighborhood Stabilization Program is a special piece of legislation ... to address the mortgage crisis," said Patricia Hoban-Moore, HUD's deputy regional director based in Atlanta. And there's no question Fulton County has been hit hard by foreclosures.

While Fulton County may have ongoing issues in its handling of HUD HOME Program funds, Hoban-Moore said, that's separate from the Neighborhood Stabilization Program (NSP).

"For our purposes, they're two discrete activities," she said. "Both programs will be assiduously monitored by the HUD staff here and the rules and regulations required under NSP will be strictly enforced."

County Manager Zachary Williams said he has made a series of changes to the housing department and that staff members are up to the task of properly spending the influx of new money. In recent months the department has been reorganized and staff added, including people with significant experience administering federal funds, according to Williams' correspondence with HUD.

"We're staffing appropriately, we're training appropriately," Williams said in an interview. "We have put in place all the appropriate controls to ensure that this doesn't happen again."

The "this" that Williams refers to is HUD's demand that Fulton pay back $3.2 million in misused funds, most of it involving money invested in housing developments that have languished unfinished around the county.

In March 2008, HUD auditors issued a report saying the county had mismanaged HOME Program funds for more than a decade, resulting in more than $6 million that was spent in questionable ways or allowed to sit unused in accounts since 2000. Over the past year, Fulton County officials have been able to justify to HUD a little more than half of those questioned costs.

"A lot of this goes back to 2002," said Williams, who didn't become county manager until last year. "Projects were authorized without the appropriate level of due diligence," he said. "It seems as if they made decisions that were quite frankly beyond what were typically expected and what they would have the authority to do."

The auditors were especially critical of Fulton investing from $340,000 to $525,000 and failing to properly monitor five housing developments that weren't completed despite the passage of years. They include the Nelson McGhee senior housing development off Old National Highway near Flat Shoals Road, which was featured in a Spotlight column last fall (http://tinyurl.com/SpotlightFultonMoney). The county gave that project $464,850 between 2000 and 2005, yet it remains unfinished and unoccupied.

The audit called for Fulton to make repayment for these unfinished projects and other unallowed costs with non-federal funds. But the $3.2 million repayment plan currently pending final HUD approval would require Fulton County to take only about $1.7 million out of its own coffers. The remainder of the bill would be satisfied by Fulton forfeiting a frozen $1.5 million HUD HOME Program grant from fiscal year 2008, which would be returned to the U.S. Treasury, federal officials said.

HUD officials said despite the audit's language, it's allowable under the agency's rules to apply the frozen federal funds toward the repayment. And even though HUD is still not releasing Fulton's frozen 2009 HOME Program grant, the repayment plan lets Fulton send its $1.7 million reimbursement to a fund where the county can use it toward future HOME Program projects.

"The federal government has been gracious enough to allow the funds to stay in Fulton County and be reused for eligible activities," Williams said.

The housing needs of county residents are critical, Williams said. "I believe that may be part of what the federal government recognized. Times are getting worse."

Williams said safeguards have been put in place to ensure funds are now allocated to appropriate projects. County auditors are also now monitoring the housing department's performance. Williams said he's moved auditors under his office to ensure their independence as a watchdog and make clear the expectation that they catch bad things before they happen.

Despite the changes, HUD officials have continued to reject Fulton's request that the agency approve its plan for administering HOME Program funds.

HUD officials are concerned about the huge influx of Neighborhood Stabilization Funds —- $13 million the county has recently received and another $15 million it's about to apply for. "The staff shown on the new organization chart would be stretched, in order to effectively administer just the regular [block grant] and HOME programs," according to a May 6 letter to Williams from Mary Presley, director of HUD's Atlanta Office of Community Planning and Development.

Williams replied, in a letter last month, that the county will assign specific staff to focus on each of the three programs: block grants, HOME Program and the Neighborhood Stabilization Program. Additional staff will focus on financial reporting.

In an interview, Williams said he thinks the county is close to resolving HUD's concerns and moving ahead to tackle affordable housing and foreclosure problems to make life better for residents.

"We are excited about clearing up this blemish and really getting into this in a big way and being a part of the solution," he said.

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Check our sources

HUD Neighborhood Stabilization Program: www.hud.gov/nsp/

Fulton County's draft plan for using additional Neighborhood Stabilization Program funds: www.fultoncountyga.gov/content/view/1633/1/

HUD Inspector General's audit of Fulton's HOME Program spending: http://nhl.gov/offices/oig/reports/files/ig0841006.pdf