By David Seaton
The Press-Enterprise
October 16, 2000
Riverside County will lose $500,000 in affordable housing money over the next five years because it misspent that amount on an apartment project in Indio, federal housing officials have ruled.
The county's error will not hurt the 144-unit Indio Desert Palms complex because it has been opened and partially occupied. It could reduce the number of loans given to low-income, first-time home buyers, however. The county provides about 35 such loans a year.
The U. S. Department of Housing and Urban Development is penalizing the county because it gave the apartment builder money near the end of the construction process.
Housing laws say Home Investment Partnerships Program funds must be spent at the beginning to ensure they go toward new housing and do not bail out foundering projects.
The county paid $1 million of the $15 million complex. It paid half of the $1 million up front and the other half at the end because the developer, Palm Desert Development, was coming up short, said Bradley Hudson, executive director for the Riverside County Economic Development Agency.
Hudson said that the county believes it had stayed within the guidelines, but accepted the department's conclusions to avoid a lengthy appeal.
"We thought we complied," Hudson said. "It's basically a settlement. We're pretty happy with it."
The county had the choice of paying back the half million or agreeing to have future housing dollars withheld. The department will reduce the county's annual allocation under the program of $2.6 million by $100,000 per year through 2005.
The county ranks seventh in the state in the number of housing units subsidized with taxpayer funds, Hudson said. The penalty will not jeopardize any future housing projects but could force the county to scale back the number of loans to first-time home buyers by two or three a year, Hudson said.
"We're leaders in affordable housing," he said. "We'll continue to do that, and this won't stop us at all."
The action against the county comes after an investigation last year, which was triggered by a complaint lodged with the federal department's Office of Inspector General. Local jurisdictions have some flexibility in spending funds under the program but "the regulations are pretty clear as to what are eligible expenses," said Alex Sachs, a department spokesman in San Diego.
In addition to having the funds withheld, the county also agreed to fully compensate several families displaced by construction of the Indio I-10 Auto Mall two years ago. The county helped buy land for the project with federal Community Development Block Grants.
Apartments were bulldozed and the developer gave about a dozen families a $5,000 lump sum payment, which the department says did not follow the Uniform Relocation Act. The families may have gotten more had the county followed the act.
In a different project, potato-producing giant Agri-Empire also did not receive full restitution after the county helped build low-income apartments on land the company had leased from the county, the federal department said. Hudson said that Agri-Empire had written a letter waiving its rights to compensation.
The county also agreed to the department's demands to better monitor the finances of projects under the program and to conduct an open bidding process in allocating the money.
"You have to welcome the scrutiny," Hudson said. "HUD folks are the experts and they can make some good suggestions."
The agreement also reminds the county to follow the Davis-Bacon Act, a 1931 law that requires fair wages and benefits for workers on government-funded projects.
Sachs and another regional HUD official said there was some evidence the act was circumvented during construction of two other apartment projects.
The wage laws apply when 11 or more units are built with government subsidies. Often counties and cities will pay developers to reduce rents on 10 units inside larger complexes so the developer doesn't have to pay the higher wages, federal housing officials said. Hudson said the county did not intend to sidestep the law and that HUD offered no proof it had.
David Seaton can be reached by email at dseaton@pe.com or by phone at 320-7820.
Published 10/16/2000