D.C. Auditor Raises Concerns Over Use Of Affordable Housing Funds

The District's primary vehicle for funding affordable housing is coming under scrutiny, with a new audit raising concerns over the selection process for over $100M in affordable housing awards last year. 

D.C. auditor Kathleen Patterson released a report Thursday that found five of the nine projects D.C. selected for $103M in total funding in June 2018 ranked in the bottom half of the applicant pool based on the Department of Housing and Community Development's evaluation process. 

DHCD Director Polly Donaldson, who has authority to make the final selections, awarded funding to the projects and passed over five higher-ranking projects that would have led to the creation of 353 more units of affordable housing, the audit found. 

The June 2018 awards included $78M in funding from D.C.'s Housing Production Trust Fund and $25M from low-income housing tax credits. While the five projects that were passed over in June 2018 each received funding in a later award cycle this year, Patterson said she has serious underlying concerns about the decision-making and transparency of the DHCD selection process.

"The fact is it wasn't just one project pulled from the bottom of the heap, it was five. A majority of the projects had not been well-ranked," Patterson said Monday in an interview with Bisnow. "It does not appear to be consistent with the goals of the program."

The five projects funded in June 2018 that the auditor is raising concerns over, and their developers, are as follows: 

• Petworth Station from WC Smith.
• 3500 East Capitol St. NE from MRP Realty.
• 1100 Eastern Ave. NE from Neighborhood Development Co.
• Mary's House from Northern Real Estate Urban Ventures.
• Anacostia Gardens Apartments from The NHP Foundation.

Each of the five development firms, or one of their executives, has contributed to Mayor Muriel Bowser's campaign, according to campaign filings first reported by the Washington Post and confirmed by Bisnow. 

Bowser addressed the audit in a press conference Monday morning, noting that the DHCD director has the authority to make the selections and that all of the projects were ultimately funded in later rounds. 

"What I would say to the residents and the council is the Housing Production Trust Fund needs more money, not less," Bowser said. "The truth is, if we were not so limited in the amount of awards we can make in each round, more people and more organizations would be funded." 

Patterson emphasized that her report did not identify any wrongdoing on behalf of the developers, but the campaign finance questions are an issue the D.C. Council could address. 

"There are still unanswered questions," Patterson said. "Our focus is what we consider to be bad practice by the government. We did not focus on the motivation, and we did not focus on who are these people who got funding. Those are legitimate questions the council can ask."

Bisnow reached out to each of the five developers for comment. A WC Smith spokesperson, in a written statement, highlighted that the company was selected by the tenants association to renovate the Petworth Station apartments, and it worked with nonprofits Latino Economic Development Corp. and Bread for the City. 

"Developers compete for limited financial resources that are governed by rules established by DHCD, but we are not involved in the DHCD scoring process or privy to the other factors that determine whether or not they are awarded funding," WC Smith said in the statement. 

The NHP Foundation, in a written statement, highlighted its track record of developing and preserving over 8,000 units of affordable housing and said it looks forward to working with the residents of Anacostia Gardens to renovate the property. The other three developers either did not respond or declined to comment. 

The Office of the D.C. Auditor requested documents from DHCD March 26 that would explain how Donaldson selected the lower-ranked projects, according to letters attached as an appendix to the audit. Donaldson responded April 24 and outlined multiple reasons for selecting the projects, but declined to provide the documents Patterson requested.

In her response, Donaldson said the DHCD evaluation process and rankings represent recommendations and she has the authority to make the final selections. One primary reason she cited for her selections differing from the recommendations was new information about the number of rent supplement vouchers available for the projects, information she said was not available to the evaluators and became a primary factor in her decision. 

Donaldson also said she uses discretion based on DHCD's past experiences with developers. Some developers may be better at writing proposals than delivering results, she said, while others may have a strong track record of delivering projects but not put together the best proposal. 

"I make decisions that I determine are in the best interest of the District," Donaldson said in a letter to Patterson. "At all times I exercise my discretion in an impartial manner, without favoritism based on any impermissible grounds."

The auditor's office issued a subpoena for the records April 29 after DHCD declined to provide them upon the initial request. DHCD responded to the subpoena and again declined to provide the records, citing an exemption for privileged information relating to a deliberative process. 

Patterson said DHCD's justification for declining to provide the documents was meritless and the auditor's office has the authority to request the D.C. Superior Court enforce the subpoena. The auditor's office obtained the relevant documents from a confidential source and decided not to take DHCD to court. But Patterson said the issuing of the subpoena shows the seriousness of this case. 

"I've been in this job for four-plus years and this is the first subpoena I've issued," Patterson said. "I wouldn't hesitate to go to court to enforce it if it were necessary ... the agency refused to give us what we were legally entitled to have."

The auditor's primary recommendation in the report is that the D.C. Council enact legislation to increase the transparency of the DHCD selection process. It says the council should require public release of the selection criteria and the evaluators' rating sheets and set requirements on when and how the agency's director can exercise discretion in the selection process. 

Council member Elissa Silverman in February introduced a bill that addresses this issue, the Housing Production Trust Fund Transparency Amendment Act of 2019. The bill has a public hearing scheduled for June 17 at 10 a.m. 

"I think it will help," Patterson said of the bill. "But I think one of the good things about having a public hearing is there may be other, better ideas thrown out on the public stage, so it's a good conversation to have."