If It Ain’t Broke

New year, new Kansas City government scandal. Call it the Great Housing Crisis of 2004. Just before the close of 2003, the city announced that its Department of Housing and Community Development was $5.7 million in the hole.

By committing to projects that weren’t backed up by federal dollars, the city had done the equivalent of writing checks for more than it had in its account.

To cover the supposed shortfall, new City Manager Wayne Cauthen proposed cuts in the 2004 budget that would eliminate dozens of programs aimed at helping the city’s poor, such as assistance for the homeless, community gardens and legal services for cash-strapped neighborhoods battling slumlords.

Naturally, the local media jumped all over the story. “Mayor Kay Barnes quickly backed up Cauthen’s recent actions. So did other City Council members. That’s good. He’s supporting much-needed reforms of an agency that’s been out of control for too long,” opined the Kansas City Star in an editorial two weeks ago.

But here’s what the Star hasn’t included in its coverage of the supposed scandal: The two council members most involved in housing issues, Deb Hermann and Jim Glover, have repeatedly and publicly raised doubts that the department’s financial crisis is as severe as has been reported.

In fact, they aren’t sure the shortfall exists at all.

Hermann began doubting the Housing Department’s numbers early on. She first learned that the department might be short of cash in November, less than 48 hours after Cauthen demoted Stan Barrett, the department’s director, and replaced him with longtime city employee DeBorah Williams.

At the time, Williams claimed the shortfall was nearly $9 million.

But the figures kept changing, Hermann says, making her uneasy. She met with Cauthen the day after Thanksgiving and expressed a “lack of confidence” in Housing Department officials, according to an e-mail obtained by the Pitch.

She urged the city manager to hire an outside auditor to verify the state of the Housing Department’s finances. Cauthen instead asked the U.S. Department of Housing and Urban Development to send a loan officer to improve the city’s financial-management system. This official has yet to arrive from Washington, D.C. According to John Franklin, assistant city manager, Cauthen also planned to hire an auditor after working with the HUD loan officer.

But Hermann questioned the wisdom of Cauthen’s proposal to cut programs before ordering an outside audit. On January 8, she introduced an emergency ordinance that would call for an immediate audit. The audit was set to begin on January 26.

Hermann and Glover both say that an audit could turn up some problems, but they doubt Cauthen’s and Williams’ claims of multimillion-dollar gaps.

The Housing Department has a unique accounting system. Most of its budget is based on guaranteed federal grants, and funds are disbursed through area nonprofits. The city essentially acts as a middleman but also uses some of this grant money for loans and, in some cases, to purchase property. Interest paid on the loans and profits from sales of that property generates income for the city. But the added income can cause budgeting problems because it is not as predictable as annual grants are, according to HUD officials.

Hermann says Cauthen was premature when he announced in a December 30 press release that $5.7 million was unaccounted for. His own staff soon found income sources that reduced that number to $4.2 million. And Williams tells the Pitch that the Housing Department has found another $500,000, bringing the potential shortfall to $3.7 million.

But it’s not hard to see why Hermann questions Williams’ numbers. During the same telephone conversation in which Williams told the Pitch that the discovery of half a million dollars had brought the supposed deficit to $3.7 million, she still insisted numerous times that the shortfall was actually $5.7 million.

Hermann’s distrust of the information she was receiving from the Housing Department grew more severe during the January 7 meeting of the Housing and Economic Development Committee. At the meeting, council members received a memo explaining the city’s quandary written by Comptroller Gary Morris and Budget Director Troy Schulte. The memo included a spreadsheet that reportedly showed examples of the city overestimating how much money it could collect.

Hermann quickly determined that the spreadsheet relied on bad information. It implied that the city would receive only about half of a promised $10.9 million HUD grant, for example. Surprised, Hermann put it directly to Williams — wasn’t it true that HUD would actually come through with the additional $5 million?

Williams admitted that HUD would, indeed, pay the money missing from the spreadsheet.

Hermann also noticed that the spreadsheet failed to mention a $700,000 payment the city had received just a few days earlier from a debtor.

Glover expressed doubts of his own that there would be any shortfall at all. “We need an audit to find out if it happened.” he said.

Star reporter Lynn Horsley attended the meeting. But her story the next day — headlined “$5.7 million error examined; officials question housing staff members” — made no mention that Hermann and Glover had objected to the city’s examples of a shortfall or that Williams had admitted that supposedly missing HUD money would be paid. Horsley declined to comment to the Pitch on why she left out details that would undercut the notion of a Housing Department scandal.

“The headline should have been aDeb Hermann Finds $5.7 million,'” Hermann says.

The Pitch has obtained an e-mail Hermann sent to Cauthen the day after the meeting.

“Considering the pattern that has developed over the last several weeks it is difficult not to come to the conclusion that there is an intentional attempt being made to deceive the … council…. Information has been provided to the press that is absolutely untrue,” Hermann wrote.

“You don’t make statements about shortfalls when we won’t know until we have an audit,” Hermann tells the Pitch. “And I think for the press to accept that information without an audit isn’t responsible, either.”

Asked why he announced a shortfall before an audit, Cauthen tells the Pitch, “We feel comfortable with the figure. I didn’t want to promise agency money that wasn’t available.

“No disrespect to Councilwoman Hermann, but I’m going to rely on the auditor and the people in [the Housing Department].”

On January 14, six days after Hermann called for an emergency authorization of an independent audit, Budget Director Schulte recommended in a memo that council members refrain from cutting the housing budget until a definitive study comes in. Both Hermann and Glover have seized on Schulte’s memo as further evidence that the shortfall might disappear.

In the meantime, Hermann says, she has received private assurances from HUD officials that the city will be safe if it waits to make cuts. And people long involved with the city’s housing programs tell the Pitch that they predict the shortfall will likely be less than the figures announced by Cauthen and Williams. They suggest that Cauthen’s personnel changes may have caused the confusion because new housing leaders had to wade through complex records. Williams, however, denies that charge. “We’re aware of all our accounts,” she tells the Pitch.

The wide disparity of views between Hermann and Glover and the city’s staff may have not garnered much media coverage, but the drama has played out in front of large crowds. Dozens of community activists showed up to voice their concerns at a January 14 council meeting. The following week, on January 21, even more people showed up at the council’s chambers, standing in the aisles and filling seats in the balcony.

“I don’t think I’ve ever seen this many people,” said Glover, who served two terms on the council during the 1990s. Assistant City Manager John Franklin also was surprised at the reaction to the Housing Department’s prediction of a shortfall. Although the city manager’s office delayed an audit, Franklin says he’s now eager for one to happen.

“That’s all I’ve asked for,” Hermann says.

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