The City and County of Honolulu may have to pay nearly $16 million to the U.S. Department of Housing and Urban Development for allegedly wasting federal grant money from 2012 to 2015.

An audit by the HUD Office of Inspector General published Aug. 26 concluded Honolulu spent $15,918,909 on property acquisitions and contracts that were unnecessary or violated federal and city guidelines governing the use of Community Development Block Grant funding.

“The City’s decentralized grant administration process created dysfunction, inefficiency, and wasted grant funds,” the audit stated. “The dysfunction and inefficiency caused the City to be repeatedly at risk of failing the HUD timeliness test. The City made decisions based upon its need to spend grant funds, which resulted in noncompliance with requirements and wasting grant funds.”

A federal auditor said the City & County of Honolulu shouldn't have approved the use of federal grant money to subsidize the purchase of Hibiscus Hill Apartments.
A federal auditor said the City and County of Honolulu shouldn’t have approved the use of federal grant money to subsidize the purchase of the Hibiscus Hill Apartments. Screenshot via Google Maps

The grants are part of a federal program administered by HUD to support affordable housing, as well as other services and economic opportunities for people with low to moderate incomes. Honolulu received $22.9 million from July 2012 to June 2015.

Despite the city’s high demand for affordable housing, Honolulu has a history of failing to spend Block Grant funds in a timely manner. Earlier this year, HUD sent the city a letter urging it to follow federal guidelines or risk losing funding.

The audit found that the city approved nearly $16 million in questionable expenditures, partially in an effort to spend grant money more quickly:

  • Granting $10 million to fund the purchase of the Hibiscus Hill Apartments, an affordable housing complex in Waipahu, for $21 million, more than $4.2 million over the property’s assessed value.
  • Spending $2.9 million to acquire the Kaneohe Elderly Apartments without documenting why it was necessary to do so.
  • Restricting competitive procurement for a $1.6 million award to purchase firetrucks.
  • Approving $1.45 million for a contract despite the appearance of a conflict of interest.
  • Failing to review and record program income for active projects.

The audit recommends that HUD require the city to justify its expenditures or use non-federal funding to pay the nearly $16 million back. The Office of Inspector General also wants HUD to force the city to develop written policies and procedures for the Block Grant program and implement adequate controls to ensure compliance with federal and state guidelines.

Local HUD officials Mark Chandler and Ryan Okahara were unavailable for comment Monday.

Nelson Koyanagi, who leads the Honolulu Department of Budget and Fiscal Services, wasn’t available for an interview Monday but said in a statement that he believes the city administers its Block Grant program in accordance with HUD requirements.

“We anticipate that, as we continue to work with HUD to address the audit’s recommendations, (the Office of Inspector General) will recognize that the city and HUD have together made sound, well-reasoned decisions for the benefit of the low and moderate-income individuals, families and communities served by the CDBG program,” Koyanagi said.

One of the audit’s key recommendations is 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.”

Two-Department Management

It’s not the first time an outside organization has urged the city to reorganize how it manages its Block Grant funds. Two years ago, HUD enlisted the National Association for Latino Community Asset Builders to analyze the city’s Block Grant program administration.

The group “concluded that roles and responsibilities were unclear, policies and procedures were undocumented, human capital was not deployed in the most efficient manner, and serious issues of communication existed and had impacted staff morale and performance,” the audit stated.

While the association recommended that the city administer the grants within a single department, that hasn’t happened. Right now they are administered by both the Department of Community Services and the Department of Budget and Fiscal Services.

21 may 2015. photograph Cory Lum/Civil Beat
Gary Nakata is director of the Honolulu Department of Community Services, one of two departments that manages Honolulu’s Community Development Block Grant program. Cory Lum/Civil Beat

The Office of Inspector General audit similarly blamed the city’s organizational structure for misspending.

“The two departments involved with the CDBG program did not function well with each other, and the additional layer of the second department slowed grant administration,” the audit stated, citing how duplicative reviews of environmental compliance delayed projects.

“Due to unresolved issues that the two departments could not agree on, projects could sit idle for a significant length of time,” the audit stated. “The two departments’ directors were supposed to resolve issues among the departments. However, the City had not clearly defined which department was responsible for specific program administration, the directors had equal authority, and there was no clear resolution process.”

The city used to have a single housing department but got rid of it in the late-1990s following a scandal.

Read the full audit and the city’s responses below:

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