Feds Subpoena Detroit for Blight Removal Records

by | May 3, 2016

By Joe Guillen

Federal investigators have subpoenaed Detroit's Auditor General's office requesting records related to the use of federal funds in the city's massive demolition program, the Free Press has learned.

Detroit auditor general Mark Lockridge, whose office has been investigating Mayor Mike Duggan's demolition program since October, said the subpoena delivered to his office on Thursday is from the investigative division of the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.

"They're not just doing an audit of course," Lockridge said today. "Some type of investigation."

Detroit's blight demolition program under Duggan largely has been paid for with federal dollars from the Hardest Hit Fund, a TARP program. Detroit so far has been allocated $172 million from the federal Hardest Hit Fund and has torn down more than 8,000 blighted homes since 2014.

Duggan's blight elimination program has been under fire for rising demolition costs since last fall. The average cost to tear down a blighted home went from $8,500 to $10,000 under former Mayor Dave Bing to an average at one point of $16,400 under Duggan.

Lockridge said he was on a conference call with SIGTARP officials a couple months ago and believes the agency is interested in the rising costs under Duggan's program and bidding practices in the early stages of the program.

"They are looking at why costs went up," Lockridge said.

Detroit's demolition program is carried out by the Detroit Land Bank Authority and the Detroit Building Authority -- both public agencies over which Duggan has influence. Federal money for the program is funneled to the city by the Michigan Housing Development Agency.

Duggan spokesman John Roach said in a statement: "The Land Bank has not received any subpoenas but welcomes all investigations into its operations. We are confident it will continue to cooperate with all reviewing agencies as it has from the beginning."

On Friday, a spokesman for SIGTARP said the agency, as a general practice, does not comment on questions about subpoenas.

As a law enforcement agency, SIGTARP has the power to seize, search and arrest. SIGTARP was established in 2008 to audit and investigate spending of the economic stimulus money.

Lockridge, who was appointed by the City Council in 2012 to a 10-year term, said his office has until May 20 to fulfill the request. He said he can't remember ever receiving a subpoena before.

Lockridge said he did not know why SIGTARP subpoenaed the records as opposed to just asking for them. He speculated that the subpoena may have been prompted by his office's recent report that found a conflict of interest for David Manardo, a Duggan appointee who has served in at least two roles with the city. The report found that Manardo's two job responsibilities created a situation in which he essentially reports to himself.

The city's top lawyer, Melvin (Butch) Hollowell, rejected the auditors' findings after the report was released because, he said, it is impossible for the city to be in conflict with itself.

In addition to rising costs, there also have been questions raised about the way demolition contracts were handed out under Duggan's program.

Specifically, the Free Press reported in December that a state consultant who worked closely with Detroit demolition officials said he refused to attend meetings where city officials and handpicked companies agreed to a contract price for a massive project before others could submit bids.

That consultant is embroiled in a legal battle with the state and is facing charges of submitting false billing statements to the Detroit Land Bank.

The Free Press report also included e-mails related to contract awards between March 2014 and January showing Duggan appointees Manardo and James Wright making decisions on the contracts.

The messages show some uncommon accommodations afforded to three companies that received the majority of demolition work early on -- Adamo, Homrich and MCM Management -- a group that attended the pre-bid meetings in June 2014 and was referred to in messages as the "big three."

Together, Adamo, Homrich and MCM received $38.2 million, or about 74%, of the $51.5 million in demolition contracts awarded between March 2014 and January and paid for with the city's first allocation of federal money for blight elimination.

According to the e-mails, Detroit demolition officials gave Adamo, Homrich and MCM a break on bonding requirements offered to no other firms. The e-mails also show that the "big three" convinced city officials in the middle of a job to pay extra for asbestos removal, despite an earlier understanding that such work would be included in the up-front price. The change orders that followed ended up costing taxpayers at least $3.7 million.

Officials with the U.S. Treasury -- who oversee the Hardest Hit Fund and have lauded Detroit's blight program -- did not immediately comment late Sunday; nor did U.S. Sens. Debbie Stabenow and Gary Peters, D-Mich., who have fought to add funding for Detroit's blight program as well as other blight efforts across the state. Both have defended Detroit's program, as has U.S. Rep. Dan Kildee, D-Flint Township, an expert on land redevelopment efforts.

Less than two weeks ago, Stabenow, Peters and Kildee announced that Michigan was getting another $188 million in Hardest Hit Fund money, which, as the Free Press reported, was largely due to Detroit's efforts to raise more for blight removal. If recent history is a guide, much of the $188 million will go to Detroit to pull down abandoned residences and Michigan's members of Congress say they even would like to see some of it used to tear down abandoned commercial structures.

While Detroit's is the most aggressive blight removal effort in the country, Treasury has noted in the past that it has never come close to hitting the $25,000-per-structure cap on Hardest Hit Fund expenditures. Kildee said recently that he thought critics of Detroit's program didn't seem to understand that costs often go up as a program begins to tear down more building and demolition companies begin to reach their capacity.

SIGTARP, meanwhile, has for years now been raising concerns about Treasury's foray into allowing Hardest Hit Fund money to be used to eradicate blight, arguing in past reports to Congress that the department has no experience in overseeing such programs.

(c)2016 the Detroit Free Press