Federal Red Tape Cited in Closure of Agency

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June 30, 2012; Source: The Arizona Republic

In Mesa, Ariz., the 24-year-old Housing our Communities, a nonprofit promoting homeownership, is closing its doors due to a lack of cash. But the description by observers of what led to the crisis is what interests us.

Teresa Brice, who helped to cofound the agency now works at Local Initiatives Support Committee, along with John R. Smith who retired from the board in January, suggested that confusing federal rules and delays in government payments are complicit in the problem that this and many other groups have when facing what the article calls “inflation bloated workloads.”

HOC has always worked with federal grant money, so it is no babe in the woods as far as administering this kind of money is concerned. So when, in 2009, HUD made two foreclosure-prevention grants totaling $12.1 million to the towns of Mesa and Avondale, HOC was an obvious partner for the work.

But in February 2011 HOC received one audit from HUD that demanded the return of $22,000. The money was apparently repaid. Then in December 2011 another audit found that a HOC had “used a subsidiary for the sole purpose of inflating invoices and overcharging the federal government” and that the use of this subsidiary constituted a conflict of interest. HUD demanded repayment of $787,000.

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HOC has not been charged criminally, receiving only a recommendation for civil or administrative action. The agency has disputed the report, saying that the language is inflammatory and paints a misleading picture of HOC. HUD agreed to tone the language down but stood by their findings.

It seems clear that increased red tape is generally thought to have played some part in the closure. Louis Kislin, program manager for community planning and development in HUD’s Phoenix office, said federal oversight of the Neighborhood Stabilization Program has been unusually stringent because of the Obama administration’s transparency policies.

During a March City Council meeting, Tammy Albright, Mesa’s Neighborhood Services Director is reported to have said, “We are constantly getting new rules … Administering these grants (is) becoming more and more difficult, yet we’re seeing less and less money to do that.”

Then the mayor asked, “Are we approaching the point where we just throw up our hands and say, ‘Why do this?'”

A city councilor replied, “We’ve talked about it … it really is getting difficult.”—Ruth McCambridge

  • Sarah

    First, consider that the contention that the federal government’s red tape is to blame comes from Arizona, where railing against the big bad federal government is a bigger sport than baseball. Could it be that the mistakes or malfeasance of the agency is real and that blaming the federal government is a way to cover up misdeeds?

  • Jeremy Gray

    I recently witnessed the demise of a 20-year-old nonprofit housing developer in my own community. The nonprofit similarly tried to make the case that HUD’s rules had become too complex and cumbersome for the organization to be successful. There is some truth to the argument. Over the years, layer upon layer of regulation certainly has had the effect of making program administration more challenging. But has it stifled the work of all organizations working under the same rules? Not by a long shot. While it is a shame to lose a veteran nonprofit, in my own experience, the void is soon filled by other, better-capitalized organizations more willing to adapt their program and business models to the changing regulatory environment. Rather than protest and argue over each new regulation that is rolled out, these organizations instead adapt and find a way forward. Mesa may well find that its community is better served by the successor organizations that will surely move in to fill the vacuum left by Housing Our Communities.