Kathy Patterson Credit: Darrow Montgomery

The first-ever comprehensive audit of D.C.’s Housing Production Trust Fund—a nine-figure coffer that provides loans and grants to developers across D.C., and is in many ways the backbone of D.C.’s affordable housing effort—is a damning one, indicating that chronic mismanagement of the fund by the Department of Housing and Community Development (DHCD) has likely wasted tens of millions of dollars. The report was published this morning by the office of the D.C. auditor.

Among the most concerning findings is the discovery that DHCD used housing trust funds to pay for “a significant and growing portion” of its employees’ salaries and benefits; that there is only a “remote” possibility DHCD will recoup tens of millions of dollars in loan repayments; and that DHCD failed to meet statutory requirements that dictate how much of its money should be spent on extremely low-income households, failing to contract thousands of legally required (and desperately needed) housing units.

Additionally, the audit said, officials in the Office of the Chief Financial Officer (OCFO) who oversee the fund’s dispersion “should have detected, prevented, and corrected many [of these] practices.” It concluded that the auditor “cannot rule out the possibility that fraud could have occurred during the scope of the audit.”

All told, the audit says D.C. officials “took undue advantage of the flexibility” of the fund, which “led to inefficiency and resulted in less funding available to create and preserve affordable housing for District residents.” (The auditor published an initial review of the fund almost exactly one year ago.)

“We have made huge investments of taxpayer dollars in affordable housing through the Housing Production Trust Fund but we haven’t gotten our money’s worth,” D.C. Auditor Kathy Patterson said in a statement her office released Tuesday morning.

DHCD Director Polly Donaldson, meanwhile, told City Paper that Patterson “chose to politicize this report by releasing it to the press before giving the final copy to DHCD,” which “shows her intentions are not really about residents and affordable housing.” OCFO’s spokesman, David Umansky, told City Paper the office believes that “many of the findings and conclusions of the audit and the press release are not supported by the facts and the analysis contained within the audit itself.”

The auditor’s office gave DHCD and OCFO opportunities to respond to each of the report’s findings and recommendations, which the office then included in the back of its audit. That inter-agency discourse appears agitated and, at times, openly hostile.

Loan woes

The trust, structured as a “revolving fund,” leverages money primarily by granting sizable loans to for- and not-for-profit developers interested in creating or preserving affordable housing, which can comprise up to 49 percent of the project’s cost. Those loans are either deferred, which gives borrowers years (often decades) to repay the fund; others are amortized, with payments due shortly after borrowers receive the loan.

But the audit concludes that DHCD and OFCO have not structured payments in a way that would allow the fund to recuperate those loans, instead operating under the assumption that “the vast majority of future trust fund payments [are] potentially uncollectible.” Between 2013 and 2016 alone, loan repayments comprised a pitiful four percent of housing trust fund revenue, in part due to the fact that 75 percent of all housing production funds are deferred, and in part due to “weaknesses in DHCD’s assessment of borrowers’ ability to pay back loans, and a lack of rigorous monitoring regarding loan compliance and collection,” the audit says.

Donaldson and the OCFO, meanwhile, point out that those figures are a feature, not a flaw, of the fund, which is intended to disperse deferred loans to small organizations who need a longer lead time to pay the fund back.

Missing the mark

The audit also reflects concerns, outlined by members of the D.C. Council during a March performance oversight hearing for the Committee on Housing and Neighborhood Revitalization, that DHCD has routinely missed legally mandated benchmarks for affordable housing spending.

D.C. law requires that 40 percent of housing production trust funds be used to meet the housing needs of people who make less than 30 percent of the area median income (AMI), those who are considered “extremely low income”; similarly, it requires that another 40 percent of housing trust funds be dispersed to people who make between 31 and 50 percent AMI (“very low income”), with the final 20 percent funneled to those making 51 to 80 percent of AMI.

The auditor criticized DHCD for failing to meet those benchmarks, writing that her office’s database “shows that the [trust] funds disbursed per AMI category failed to meet the legal requirements for the proportion that should have been available to extremely low- and very low-income households. And the percentage of funds disbursed to assist those at 51 percent to 80 percent AMI has significantly exceeded the legal requirement.”

The audit doesn’t include hard figures, but data provided to City Paper by DHCD indicates the auditor’s assessment is largely true. The agency estimates it spent $101,013,185, or 29.4 percent of its housing funds, on projects affordable to the lowest income bracket (about 10 percent shy of its mandate); it spent another $128,360,580, or 37.4 percent, on projects affordable to those making 30 to 50 percent AMI, and $114,282,298, or 33.2 percent, on housing at 51 to 80 percent AMI. (The bulk of the latter category, about $104 million, went to housing contracts for those making 50 to 60 percent AMI.)

Where the money went

From 2001 to 2016, $622 million in funds from the housing production trust were used to produce or preserve just over 10,000 units of affordable housing. The overwhelming majority of that money was spent on multi-family projects, with only about $3.5 million spent to support 146 single-family projects, and were located primarily in Wards 7 and 8. No known projects received housing trust dollars in Ward 3 between 2001 and 2016. (The report also notes that it remains unclear whether the units produced have remained affordable over time, or whether plans to rehabilitate or build each of the units were successfully completed.)

Of additional concern to the auditor was the agencies’ tendency to misplace or discard loan and grant agreements. It reportedly took one year for OCFO and DHCD to provide the auditor with loan and grant agreements for nearly $500 million in contracts (a timeline the parties dispute), and the auditor found that they were unable to provide any documentation or invoices for projects totalling some $13 million. D.C. law requires that those records be preserved and accessible if requested.

Finally, in three different years, DHCD spent more on administrative costs than what is allowed under D.C. Code. While fund managers are allowed to use some of it for administrative costs, those costs have a mandated cap; in fiscal years 2009, 2012, and 2015, DHCD exceeded it by a total of $10 million, money “that should have been invested in affordable housing projects.” With that money, the auditor’s office calculated that DHCD could have produced or preserved an additional 167 units, removed lead from 133 households, repaired the roofs of 667 homes, or improved accessibility in 333 units with seniors or disabled people. (Salary increases and fringe benefits comprise the bulk of administrative costs, at about 45 percent.)

DHCD disputes the characterization that the agency has neglected to invest in affordable housing for the city’s most vulnerable populations. “We have been, since I came to the agency in 2015 under Mayor Bowser’s leadership, laser-focused on producing the most affordable housing for District residents by using every tool and every dollar at our disposal,” Donaldson says. “And that includes, of course, the trust fund.”