D.C. Auditor Kathy Patterson
D.C. Auditor Kathy Patterson issued a new report highlighting the Council's tendency to ignore her recommendations. Credit: Darrow Montgomery

Missing affordable apartments. Inconsistently enforced income requirements. Unreliable data.

Those are some of the problems highlighted in the first-ever audit of the District’s main source of affordable housing money—the Housing Production Trust Fund—released today. The Office of the D.C. Auditor, headed by former Ward 3 Councilmember Kathy Patterson, reviewed the fund over the 16 full years it’s been active, from 2001 to 2016. Local lawmakers initially created the reserve in 1988, though it remained unfunded until the 21st century. As of last October, the HPTF has received over $1 billion, largely from dedicated recording and deed-transfer taxes.

The fund provides gap financing to developers in exchange for them creating affordable units, either through new construction or the preservation of existing apartments. The Department of Housing Community Development manages the HPTF. Mayor Muriel Bowser has placed $100 million annually into the fund, delivering on a campaign promise as the cost of living increases.

Yet in at least one instance over the life of the fund, a developer did not create the affordable units it had promised to with help from a $2 million D.C. loan in 2007, the audit says. The project, known as Kentucky Scott (or Kennedy Street Apartments), is located in Ward 4, and is owned by an Alexandria-based LLC. Kentucky Scott was supposed to produce 21 units of affordable housing for seniors making half or less of the area median income, or up to $38,000 for a single person under today’s standards. Through an affordability covenant typical of HPTF financing, the units were to remain affordable for 40 years from the date of the loan agreement.

After it bought the building for $1.2 million, however, the LLC failed to fill it with elderly tenants. Nor did it screen tenants for income limits associated with trust-fund dollars, which is required. The auditor notes that the owner had paid $465,620 of $582,484—or four-fifths—due on the 2-percent-interest loan as of September. (A request for comment to the owner was not returned.)

“Some tenants’ rents were at or below the rent limit, but we could not determine if they qualified for those units because screening did not take place,” the auditor’s office explains in an email.

It’s not immediately clear why the developer did not lease the units to low-income seniors, or how all the money was used. The mishap appears to be the most egregious one in the audit, which recommends that DHCD should “bring the property into compliance with the agreement, without adversely impacting current tenants.” Patterson’s review also says rents at the building exceeded HPTF limits for “17 percent to 42 percent” of the tenants in a sample spanning seven years. “There may have been more instances of excessive rent due to the fact that rent did not include any utilities, and DHCD did not include utilities in the rent limit as required,” it explains.

In response to that specific recommendation—one of 39 in the audit, which involves 14 HPTF-backed developments since 2001—the department simply says: “DHCD acknowledges the recommendation and will work with our Portfolio and Asset Management Division to address.”

Despite being the first deep dive into the fund, the audit has limitations. Some of that may have to do with poor record-keeping in the early aughts, since much of the documentation was kept on paper. DHCD told the D.C. Auditor that the fund partly bankrolled 9,588 units—across 158 multifamily projects—from fiscal year 2001 through fiscal year 2015. But “this review found the data to be unreliable, and we are not confident in the accuracy of the total[s],” the auditor says.

As a result, Patterson’s office admits it hasn’t “yet been able to evaluate how efficient the HPTF has been in providing and creating affordable housing for District residents as originally intended.” It adds that “information such as the number of units, number of projects, and award amounts from DHCD changed throughout the course of our audit” and data was often missing.

Bowser’s office says it’s evaluating all the findings. “While there is more work to do, residents should be clear that under this administration, the fund continues to to make great progress in creating more affordable housing options across all eight wards,” a spokesman for Bowser says in a statement. He adds that most of the projects in the audit precede the mayor’s tenure.

One reason there were gaps in information, per the audit: Five HPTF awardees in the sample didn’t give DHCD any required annual financial reports. This represents 36 percent of the 14 awardees surveyed and includes Kentucky Scott. Only one submitted all required statements.

The department responded to a draft of the document in late February and took issue with the methodology, saying it relied on “an unrepresentative sample of DHCD projects.” Because the D.C. Auditor only looked at “one project per year since 2001, each of which was solely funded with HPTF” and not in conjunction with federal funds, DHCD argues the audit “does not capture the complete view” of its portfolio-management. “When federal funds were involved in project funding, internal monitoring was better and regulated throughout this timeframe,” DHCD says.

“DHCD looks forward to collaboratively working with ODCA to address any issues identified by the review,” the department’s director Polly Donaldson wrote to Patterson’s office. She went on to note that the fund is “just one tool” to create affordable housing and that since the Bowser administration took office, it has “produced and preserved over 3,100 units” of it in the District. Last fiscal year, DHCD allocated $106.3 million in HPTF money across 19 projects, which hold 1,200 units, and DHCD has doled out roughly $50 million in HPTF dollars so far this fiscal year.

The audit comes as the District faces pressure to adequately house residents across income levels. A 2015 report found that almost half of all D.C.-area tenants are rent-burdened, paying more than 30 percent of their income on rent. Meanwhile, the audit notes that more than 42,000 families are on the waiting list for D.C.’s public housing, which is poised to get significant cuts.

Among the other issues explored in the auditor’s review: DHCD “had different documentation requirements and review procedures, which varied in quality” for HPTF grantees; DHCD “did not ensure that projects created or maintained all of the affordable units required” (some sites had long or large numbers of vacancies, for example); and residents exceeded income limits. 

On that last point, some landlords said they didn’t know what to do when a household’s income increased above HPTF thresholds, and in some instances allowed those households to remain, according to the auditor. DHCD says its working with the rest of the administration to consider “how to best to handle the thorny issues surrounding what to do when low-income tenants—happily—achieve greater income. We do not want to destabilize [them] by removing them.”

Patterson’s office says it’s continuing to examine the Housing Production Trust Fund given the recent investments in it. “While we found it encouraging that most property managers indicated that they wished to comply with legal requirements and wanted more guidance from DHCD, the agency appeared to have a hands-off approach to projects once they had been selected for funding,” the audit says. “Making certain that properties that were renovated or built to be affordable are actually housing those who meet the income requirements and are complying with rent limits is DHCD’s responsibility to the District residents whose tax dollars fund HPTF.”