Honolulu hardly has a nickel to waste on the effort to catch up with this island’s enormous and growing affordable housing needs.

As Civil Beat editorialized just last week, the city needs at least 11,000 new affordable housing units by 2020 to even come close to meeting demand. That number, from a study two years ago, may already be out-of-date, given the rapid rise in real estate prices and growth in residents over the age of 65, who have a disproportionate need for affordable housing.

So it was deeply disappointing this week to learn that the city wasted nearly $16 million in federal grant funds acquiring property at an above-market price or entering into contracts it shouldn’t have signed. Some of those actions were simply unnecessary, while others violated federal and city guidelines for expenditure of Community Development Block Grant funding.

Honolulu Hale. 27 march 2015. photograph Cory Lum/Civil Beat
Honolulu officials should use the HUD audit as a blueprint for a new approach to affordable housing. Cory Lum/Civil Beat

“Wasted” isn’t our characterization, by the way. That’s how the federal Department of Housing and Urban Development’s Office of the Inspector General described the city’s use of the funds. The city bureaucracy’s processes “created dysfunction, inefficiency” and waste, the IG said in its Aug. 26 audit.

In its haste to spend the grant monies in question in a timely fashion so as to comply with HUD requirements — a chronic issue for the city — it sometimes spent more than it should, got sloppy with documentation and record keeping and in one case approved a contract worth nearly $1.5 million despite the appearance of a conflict of interest.

As though the inefficient, wasteful use of critical resources weren’t enough, the city may now have to pay the money back. That may eat into available funding for affordable housing projects in the future and push the city even further behind on this pressing need.

It is important to note that the city disputed many of the HUD findings in 56 pages of detailed responses submitted in July to the earlier draft version of the IG’s report. Those responses can be read — some compelling, some not so much — in their entirety at the end of this editorial.

But even more important to note is HUD’s response: it found only a handful sufficiently persuasive to make even modest modifications to the final report. The rest were dismissed with brief explanations that in some cases called into account the city’s familiarity with block grant funding regulations, disagreements in the city’s own narrative and myriad other details that did not support the city’s position.

Perhaps the most important thing about this audit is that it speaks to how the problems might be mitigated in the future — by bringing housing management under one department. That speaks to the creation of a single city housing department, which the city had until a scandal involving misuse of federal funds resulted in its dissolution in 1998.

The audit recommends the city “consolidate the grant program into one department under leadership with a proven record of compliance with clearly defined lines of authority and responsibility.”

Functions formerly managed in that single department are now split between two agencies. And that division of labor — not only in the eyes of HUD’s Inspector General, but in a review two years ago by the National Association for Latino Community Asset Builders — simply isn’t working.

The IG audit recommends that the city “consolidate the grant program into one department under leadership with a proven record of compliance with clearly defined lines of authority and responsibility.” It is particularly hard to argue with such a recommendation, given that the IG audit documents that disagreements between the two departments managing the grant program now caused significant delays and confusion over how disputes between the two units should be resolved.

The audit calls for HUD to force the city to justify its block grant expenditures or use non-federal funds to pay back the $16 million in grant money, as well as to create written policies, procedures and controls to comply with Block Grant program, federal and state guidelines.

Reasonable recommendations, all, and we would rank creation of a city housing department at the top of that list. Administration of the Block Grant program is hardly the only responsibility related to affordable housing where the city’s current organizational structure falls short, and we believe taxpayers would be well served by reverting to the single-department model unfortunately wiped out rather than reformed 18 years ago.

How much longer the city will continue to flail and struggle on affordable housing is anyone’s guess. The HUD audit ought to be not only required reading for every City Council member, but a blueprint for change.

There are now 16 million reasons to focus on this matter, and the city’s response to the shortcomings noted throughout this report may well have bearing on HUD’s ultimate decision and how deeply into its non-federal funds the city must dig to rectify its mistakes.

Read the audit, including the city’s responses to the draft audit, below.

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