Housing fund level is unsafe City's reserves are $7 million less than U.S. standard

August 13, 1993|By Melody Simmons | Melody Simmons,Staff Writer

For the first time in its 56-year history, the Housing Authority of Baltimore City is financially troubled because its reserve fund is $7 million below the level considered safe under federal standards, according to Daniel P. Henson III, the authority's executive director.

The U.S. Department of Housing and Urban Development has not officially designated the authority as financially troubled and will not evaluate it until December, said Vivian Potter, a spokeswoman for HUD in Washington.

But last week, Mr. Henson described the authority as financially troubled because it ended fiscal 1993 on June 30 with only $4.9 million in reserve. The authority should have a minimum of $12 million in reserve to pay for emergency repairs and other unforeseen expenses.

The reserve fund, which ensures the solvency and stability of the authority, was $13 million at the end of fiscal 1992.

When public housing authorities are declared financially troubled, HUD sometimes takes them over as it did in Philadelphia last year. HUD could also place the authority into receivership and hire a private management firm to run it.

In Baltimore, the authority is nowhere near being taken over by HUD or placed in receivership, Mr. Henson said.

He said to build the reserve fund, overtime will be cut and expenditures for equipment and materials will be closely watched.

"We will be adjusting all year long to rebuild our reserves," Mr. Henson said. "The bottom line is we're not going to go broke."

But Devon Wilford, a resident of Latrobe Homes in East Baltimore and president of a housing advocacy group called CHANGE, said the low reserve fund leaves public housing stock vulnerable in emergencies.

"What if there is a major catastrophe?" Ms. Wilford asked. "If that happens, residents won't be able to get the services they need . . . how will [the authority] be able to pay?"

The authority needs to boost the reserve fund to at least $12 million to regain financial health, HUD officials said. That figure is calculated on a portion of the $79 million operating budget for 1994, the officials said.

Mr. Henson said he did not know how most of the reserve fund was spent. He said the fund, which had almost $27 million in 1981, was low when he took charge of the authority in March after Mayor Kurt L. Schmoke removed Robert W. Hearn amid charges of lax management.

Nearly $4 million of the reserve fund was spent by Mr. Henson for repairs to more than 700 vacant housing units, many of which had been vandalized. The director contended that those units will begin to generate revenue as soon as tenants move in, helping to replenish the reserve fund.

Mr. Henson also said that the authority had been overcharged by the Baltimore Gas & Electric Co. for utilities and that a $3 million adjustment is expected to be made in October.

The authority is also drafting a plan to increase the reserve fund to show to HUD officials.

"I think we can give HUD the assurance we can to work our way out of this," Mr. Henson said. "We can show them within one year we'll be back at the level we need."

Mr. Schmoke said Mr. Henson informed him about the reserve fund two weeks ago.

"I'm not pleased with where we are financially," the mayor said. "But there is a plan to improve our fiscal health and we won't, by far, be one of the worst public housing authorities in the country. I'm confident [Mr. Henson] will be able to resolve the problem."

HUD officials are helping to improve matters.

"We are analyzing the situation in Baltimore and will work with the housing authority to find ways to strengthen their financial position," Michael B. Janis, general deputy assistant secretary for Public and Indian Housing at HUD, said last night through a spokeswoman.

Concern was raised about the authority's financial status last month when final fiscal 1993 budget figures were turned in to local HUD officials.

A three-page letter dated July 19 to Mr. Henson from Maxine Saunders, the director of the local HUD office, addressed the "financial decline" of the authority. The letter was obtained by The Sun under the Freedom of Information Act.

Ms. Saunders said such a decline in the reserve fund causes federal officials to wonder about "the future of the authority."

She also said that the authority's reserves had declined $6 million more during fiscal year 1993 than the authority had originally estimated.

Ms. Saunders added that the authority's $82 million budget for 1994 will be scrutinized by her office, which is also seeking to determine the reasons for the drop in the reserve fund.

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