U.S. to review city's housing rehab effort Audit may result

nonconstruction expenses a concern

Study 'could be expanded'

Meanwhile, head of city loan agency vows to cut costs

December 20, 1997|By Ronnie Greene and John B. O'Donnell | Ronnie Greene and John B. O'Donnell,SUN STAFF

As federal housing auditors promised a review of Baltimore's $300 million rebuilding campaign yesterday, the head of a city loan agency that finances some of the work vowed to cut costs.

"I think we have spent far too much money on these projects," said Wayne R. Frazier Sr., executive vice president of the city's Community Development Financing Corp.

Frazier was responding to a series of articles in The Sun this week that detailed how the city's rebuilding campaign has repeatedly been beset by inflated budgets, risky loans and scant accountability.

He said that, in his effort to cut costs, he hoped to hire experts quoted by The Sun to help scrutinize budgets and construction work.

"If they can help us improve, I'm for it all the way," he said.

Meantime, the chief investigator in the mid-Atlantic area for the Department of Housing and Urban Development said his auditors would begin a preliminary review of the city program early next year to verify figures in the series and see if a full-scale audit is warranted.

"The office of inspector general has always had concerns about the high delivery costs of a lot of HUD programs," said Edward F. Momorella, the HUD district inspector general in Philadelphia, when contacted by The Sun.

Momorella would not name specific projects to be reviewed. But he said he is interested in examining, among other things, the high soft costs of rehabilitation projects.

These nonconstruction items -- such as legal bills, developer fees and consulting charges -- often eat up 20 percent or more of rehab budgets. In one case, the soft costs on a $710,000 rehab of two spacious Mount Vernon rowhouses amounted to $113,000 per house.

"Depending upon the results of the preliminary review, it could be expanded to cover all HUD funds" administered by the city's Department of Housing and Community Development, said Momorella.

Housing Commissioner Daniel P. Henson III expressed surprise at the inspector general's comments.

"I find that incredulous that they would tell you and not us that they are about to do an audit," Henson said. "We have not been contacted by the [inspector general]. Usually that is the first step."

The CDFC and inspector general are focusing on a program that uses federal, state and city money to rebuild Baltimore.

Under this program, the city consistently spends more than $130,000 to rehab rowhouses that will sell for half that amount. The cost for some houses was as high as $300,000 to $400,000.

Many housing loans have been provided to inexperienced developers who encounter construction delays or budget overruns. One CDFC loan went to a convicted felon with a 30-year arrest record who failed to repay the debt or finish repairing rowhouses.

Such missteps have eaten away at housing dollars, earmarked to beautify neighborhoods while providing decent homes for the poor and middle class.

Frazier, of the CDFC, said he hopes the experts' perspectives will help the public-private loan agency find ways to trim costs while maintaining quality housing.

Frazier's goal is to cut the CDFC's project costs by 10 percent. On the millions of dollars the agency loans each year, he said, such a savings would make a significant difference for the organization, which was created by Mayor Kurt L. Schmoke in 1989 to aid long-neglected communities.

"If we can cut $10,000 off each project, we can deliver more homes," Frazier said. "What about a $1 million project? What if we could cut $100,000 off there?"

He cited Lucky Realty Homes Inc., which rehabs houses for a fraction of the money the city spends, as a company he wants to tap for its advice.

Arnold Politzer, Lucky's president, said he was willing to lend a hand.

But he's also skeptical, he said, because the city's housing department asked his company for advice on another matter a year ago and nothing ever came of that effort. "I'll believe it when I see it," Politzer said.

Another expert quoted by The Sun, professional home inspector Wayne G. Norris, examined a $1 million rehab in Sandtown Winchester financed in part by the CDFC and said construction costs were 30 percent higher than his estimate. Frazier said he intends to contact Norris as well.

The CDFC and inspector general comments follow reforms announced this month by Henson, the housing commissioner. Under the new policy reforms, the DHCD will generally limit its financing to $25,000 per unit or 30 percent of the total cost, whichever is less.

Henson said the $25,000 figure is a guideline, not an ironclad limit. He said, however, that exceptions will be rare. The limit applies only to the DHCD's portion of rehab funding.

In addition, the housing agency will encourage developers to contribute their own equity, require applicants to file more uniform information when they seek money, and hold developers more accountable for mishaps.

"We continue to look at ways to make the system work more for the benefit of the citizens," Henson said yesterday.

In an interview this week, Schmoke made clear he is leaving the rebuilding of Baltimore's program in Henson's hands.

"I'm confident that Danny is making appropriate adjustments and doing a good job of trying to address these problems," the mayor said.

Pub Date: 12/20/97

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