Six ways the city has wrecked a vital agency. Two projects that work anyway.

Like most cities of its size, Kansas City gets millions of dollars in federal money to provide safe, secure and affordable housing to its residents. For 30 years, the city used an outside agency, the Housing and Economic Development Finance Corporation, as a middle man to divide federal money and handle housing programs. The HEDFC’s no-bid contract was renewed each year while it administered loans, bought and sold parcels of land, and oversaw the development of large multifamily housing projects.

It didn’t take an urban planner to recognize that the HEDFC’s business model wasn’t working. Even before the nationwide mortgage crisis tore through the metro, broken windows and empty lots announced neighborhoods in peril.

A 2004 scandal, concerning two homes that HEDFC rehabbed on Tracy Avenue, shone a light on potential financial wrongdoing, and Kansas City lost access to 1,100 loans and 360 parcels of land when a judge placed the assets of the HEDFC into receivership. On February 1, the city will go to court to try to get the former housing contractor’s assets back. How did it come to this, and who’s been trying to fix this mess? The mayor, the city manager, various members of the City Council and a supporting cast of city employees star in Six Ways to Screw Up Your City’s Housing Program.

Step 1: Blow up your old housing program without a plan to replace it.

Something was majorly wrong with the HEDFC.

After the HEDFC’s assets were handed over to David Bahner — U.S. District Judge Gary A. Fenner’s choice of receiver — the St. Joseph banker began uncovering the agency’s incompetence. For one thing, Bahner discovered that the HEDFC had been operating with no idea how many properties were in its charge. At the HEDFC’s last count, presented in court in April 2005, it controlled 174 parcels of real estate. Bahner’s count, after four months of searching county records, came to 381.

The HEDFC’s plans for the properties, some of which were just little slivers of land or drainage ditches, were unclear. All had been bought with federal money. Kansas City has received an average of $14.2 million in federal housing money every year since 2001. As one source close to City Hall tells The Pitch, “Do you see $14 million worth of housing going on in Kansas City?”

City Manager Wayne Cauthen had a solid argument for severing the city’s contract with the HEDFC and filing suit against it: The organization in charge of the city’s housing program operated with little to no city oversight.

Then he dissolved the housing department.

“The mind-set of many people in the housing department was that they were another layer of government because they were receiving federal dollars,” Cauthen explains. “They didn’t believe they had to be under the same city human resources classification. They could go out and buy furniture, they could go do different things because they were receiving federal dollars. I kind of wanted to break that culture away. What I wanted to do, and what is still my intention, is to break the housing department down and build it back up … after some degree of reform.”

But nearly five years and at least two housing task forces later, many of the duties that should be performed by a housing department remain on hold.

Cauthen says he knew the reform process would take at least three years, but he acknowledges that it has taken longer than he expected. The HEDFC’s records were in “deplorable shape,” he says, and 30 years of haphazard record keeping didn’t allow a fast turnaround. Cauthen argues that leaving receivership isn’t simple, either; he points out that the Kansas City Housing Authority has been under receivership for at least 15 years.

Councilwoman Deb Hermann, who headed the Neighborhood and Housing Committee between 2003 and 2007, has some choice words for the city manager’s approach.

“It’s very evident to me that the management of our city apparently doesn’t want us to have a housing program,” Hermann says. “In five years, we’ve built the Sprint Center; we’ve built the downtown,” she says. “All these wonderful things we’re doing, but we can’t put together a housing program? It tells me that we don’t want to.”

Step 2: Wipe out or ignore institutional knowledge.

Keeping housing money flowing from the federal tap requires staying in the good graces of the U.S. Department of Housing and Urban Development. When Cauthen demolished KC’s housing department, he scattered its veteran workers to other City Hall offices. The city’s most experienced handlers of complex federal-housing paperwork went out with the department’s staff. As a result, once-routine tasks foundered.

Jim Rice, the executive director of Northland Neighborhoods, Inc., and Joanne Bussinger, executive director of Blue Hills Community Services (two community-development corporations that receive HUD money through the city), say their contracts have been delayed as long as six months at a time in the years since 2004. Rice calls this logjam one of the housing program’s “symptoms of dysfunction,” a sign that city workers covering housing duties are slow even to execute relatively simple filings.

In February 2005, Cauthen hired Stacia Johnson, then a housing-department head in Dallas, as housing administrator. Despite the fanfare that greeted her arrival (she told reporters that her tenure would mark “the end of business as usual”), she lasted about a year and a half before resigning in October 2006, claiming illness due to stress and a “discriminatory and retaliatory” relationship with her supervisor, Tom Coyle, head of the City Planning and Development Department.

While working for Kansas City, Johnson received a memo from HUD listing discrepancies in the city’s programs that needed to be resolved to satisfy the feds. Some of the problems described in the memo dated back to 2003. When Johnson left Kansas City for Oklahoma City (where she now works for HUD), the list disappeared.

Step 3: Let historic properties rot.

The problems in Beacon Hill might have been avoided with a working housing department.

In 1998, when U.S. Rep. Emanuel Cleaver was mayor, the city used HUD dollars to acquire nine acres of land from Troost to Vine between 22nd and 27th streets. Buying up a chunk of the grid was a departure for the city. Because dropping new houses in run-down neighborhoods can raise property taxes to uncomfortable levels for the owners of the old properties, building usually occurs on a smaller scale — a new house here and there to fill a vacant lot or replace a ramshackle structure. Beacon Hill was a legacy project for Cleaver, an ambitious plan to revive an entire neighborhood all at once.

Ten years later, a big concrete sign engraved with the neighborhood’s name faces Troost, and a handful of new homes have been built. But much of the ground leveled in the initial demolition still sits empty.

In 2004, HUD inspectors found that numerous historic properties in Beacon Hill had been improperly demolished. To make up for the mistake, the city agreed to allocate $100,000 in HUD funds to survey properties and identify other possible historic buildings. But HUD found during a 2008 audit that the $100,000 had been, according to the agency’s report, “diverted to other purposes.”

Still standing on 27th Street are three Italianate or Queen Anne houses built in 1888 and listed on the National Register of Historic Places. In October 2006, they were sold by Bahner, the HEDFC’s receiver, to three private buyers. One house was rehabilitated in accordance with the register’s strict guidelines. The other two have gone untouched.

A letter sent to Coyle on February 14, 2008, from Theresa Porter, director of HUD’s local Office of Community Planning and Development, indicated that HUD was watching the Beacon Hill project for signs that the city’s housing program was getting its act together. The letter registered disappointment: “HUD found the City has made precious little progress to adequately protect historic properties in the CDBG-assisted Beacon Hill project, leading HUD to have continuing reservation about the City’s capacity to implement environmental decisions.”

A city staff member tells The Pitch by e-mail that historic preservation and renewed construction are under way in Beacon Hill, with Beacon Hill Developers, LC (a partnership among Taliaferro & Browne, Inc.; Zimmer Real Estate Services, LC; and J.E. Dunn Construction Co.), ready to restart work on 12 new townhomes. The partners in Beacon Hill Developers, LC, made a similar claim two years ago, according to a May 12, 2006, Kansas City Business Journal article.

Step 4: Hire people with no prior experience in building a housing program.

In October 2007, Cauthen hired Shirley Winn as the city’s new housing administrator. She had worked for Fannie Mae, the lending-assistance corporation later at the center of the subprime mortgage crisis.

Just before Winn’s hiring, Mayor Mark Funkhouser created a housing committee and appointed City Councilwoman Cindy Circo as chairwoman. Circo’s housing experience had been limited to a stint serving on her neighborhood association, but she jumped at the opportunity to help solve Kansas City’s housing problems. “This is our natural disaster,” she tells The Pitch.

On May 15, 2008, Judge Fenner approved a September 2008 deadline for the city to come up with a new housing plan that detailed how it would manage the properties, loans and liquid assets (from sales made by the receiver) if they were returned. At the end of the hearing, Circo asked Fenner for permission to communicate with the receiver, which Fenner granted.

On June 3, Circo met with HUD representatives and learned about the list of compliance issues that HUD had sent Johnson, the former housing administrator. Circo didn’t know where it was, and neither did HUD.

Winn found the memo before HUD did. The list showed that HUD had issues with every city department using community-development block grants — federal money used to fund community-development corporations, minor home repairs and other ongoing programs. Circo called the directors of the city’s departments of Health, Human Resources, Planning and Development, Management and Budget, and Neighborhood and Community Services. “Some of them were surprised to see themselves on the list,” she says. “After that first meeting, I said, ‘OK, everyone, go find me an answer, and we gotta bring it right back here.’ “

Circo and Winn streamlined communications with HUD, making Winn the single contact. It seemed simple, but for a housing apparatus with zero structure, it was a eureka moment.

Circo’s next breakthrough came when she met with Bahner, the receiver. After that, she says, “We started meeting monthly with HUD, with the receiver, staff and whatever technical person we needed for that month to work on whatever issue. We started just clicking away at all of our past problems.”

Many of those past problems involved the HEDFC’s lack of oversight on multifamily projects that it was supposed to have developed for the city. HUD had deeded these properties to the city for as little as a dollar each, in exchange for a commitment from the city, through the HEDFC, to redevelop the projects (Benton Square, Holy Temple Homes, Lincoln Gardens, Lovett Place, Registry Square and Seven Oaks). The city could have sold the land to private developers and used the proceeds to build other low- or moderate-income housing projects. Instead, the land sat for years after existing structures had been demolished.

When 10 years pass and a project isn’t completed as originally agreed upon, HUD can ask for its money back. The city would have to repay HUD from its general fund. Circo says her team was able to negotiate in most cases. “Most likely, the money is gone,” she says. “They [HUD] don’t want the property back, and they don’t want to mess with it, either. As long as we had something moving on them [the projects], then HUD was willing to say OK.”

But sometimes negotiations didn’t work. Case in point: the Rockford Hills apartments. In August 2004, HEDFC sold land at 8208 Troost to a man named David Brassfield and lent him $300,000. (The $1,398,000 project budget included a first mortgage loan of $920,000 from a private bank and an additional $178,400 investment from Brassfield.) He never made payments on the $300,000 loan and defaulted in October 2007 without completing an additional $135,000 worth of repairs to the property’s 18 units.

Circo says the staff decided to cut its losses in Rockford Hills. In December 2008, the city passed an ordinance to repay HUD $300,000 from the city’s general fund.

Meanwhile, the city’s plan to take back its assets from the receiver was about to come due. At the city’s request, Fenner extended the deadline until this February, but Circo realized that her seven-person staff, consumed with untangling 30 years’ worth of housing-compliance issues, wasn’t going to make it.

So she asked the City Council to request proposals to find a housing expert. Three national firms responded, and the city hired Applied Real Estate Analysis. Fenner approved payment of the Chicago consultant’s $350,000 fee from the $650,000 settlement of the city’s lawsuit against the HEDFC. The money, paid through the HEDFC’s insurance company, Carolina Casualty Insurance, had originally been earmarked for the Minor Home Repair Program.

Had Cauthen hired a housing administrator with experience running a citywide housing program, perhaps no consultant would have been necessary. Mayor Funkhouser complains: “I don’t understand why we haven’t assembled the expertise ourselves in the last five years. It seems like everything we do, we have to go hire some out-of-town consultant because we don’t have the expertise.”

Step 5: Fail to communicate.

In a September 17, 2008, update posted on the city’s Web site and his own blog, Funkhouser addressed the city’s housing programs. He said community leaders, especially from the inner city’s 3rd and 5th districts, were particularly vocal about the lack of progress they perceived in the city’s housing program. “As you probably know, the city manager chose several years ago to put the City’s housing program into federal receivership,” the update read. “This was supposed to be a short-term solution, but we continue to operate under this problematic arrangement in which an out-of-town agent is essentially calling the shots for us. Meantime, our city has not added a single unit of affordable housing.”

New units of housing have been built this year, though at a much slower rate than in previous years. The homes have been built mostly by the few remaining community-development corporations that receive HUD dollars from Kansas City. For example, in 2007, Blue Hills Community Services began construction on five new homes on the 4900 block of Olive Street, all of which are now for sale.

“He hasn’t read this,” Circo says, motioning toward a collated copy of a Consolidated Annual Performance Evaluation Report that details how HUD funding was spent between June 1, 2007, and May 31, 2008. In a letter, Circo corrected the mayor, pointing out that at the beginning of the year, the housing committee decided to focus its efforts on minor home repair rather than on building new homes in a lagging market. “If you look at our past history of building homes, there are several of those homes that the city had to buy out because they couldn’t find a buyer,” she says.

The letter further chilled an already awkward relationship between Circo and Funkhouser. City Hall insiders say Circo’s dislike of Funkhouser is visible when he walks into a room; one source says she “seethes with contempt” for the mayor. The grudge likely began when the mayor first clashed with the council by trying to fire Cauthen without consulting council members.

Over the holidays of winter 2007, Circo canceled her regular meetings with Funkhouser, saying she was too busy. Besides, the mayor had often waited until the day of a scheduled meeting with her to scrub the appointment.

“He got mad at me about that,” Circo says.

In 2008, Funkhouser continued to cancel meetings with her on short notice, Circo says. Annoyed, she sent him a terse note, which she describes as having read: “More than happy to meet with you on anything, anything at all … I assume you have staff people watching housing, and anytime you need to contact me, feel free.”

Funkhouser tells The Pitch that he has called off no more meetings with Circo than with any other council member. He says mayors with whom he worked as city auditor canceled meetings with him for the same reason: a full schedule.

Step 6: Fire the best worker on the job.

On November 7, 2008, Circo invited Cleaver, Sen. Claire McCaskill and Sen. Kit Bond to one of her monthly meetings with HUD representatives and Bahner. The three members of Congress had inquired on the status of various housing projects. No one from Bond’s camp could attend, but representatives from Cleaver’s and McCaskill’s offices were there.

Circo thought the meeting went well.

Four hours later, Circo played a message from the mayor on her city-issued BlackBerry. “I’m calling to let you know I’m removing you from the housing committee,” he said.

“No one’s given me a reason, even if it’s good, bad or anything else,” she says.

He replaced Circo with 3rd District Council­woman Sharon Sanders Brooks.

“I felt that Sharon has experience with HUD and I thought, based on my conversations with her … my chances of getting the outcomes I need and the community wants are better with her,” Funkhouser says.

Seating Brooks, whose 3rd District is one of the city’s most blighted, at the head of the housing table sounds a conciliatory note. Unimpressed with the shakeup, however, is Clinton Adams, a lawyer who is a regular and outspoken voice at meetings of Urban Summit (weekly gatherings of black community representatives at Bishop James Tindell’s Metropolitan Spiritual Church).

“I’m not optimistic that Sharon will do much better [than Circo],” Adams says. “In her tenure on the City Council thus far, she hasn’t done anything that gives me hope that she will be effective in this position.”

Members of the Home Builders Association of Greater Kansas City stuck up for Circo, calling the mayor’s move “a setback.”

Bahner, the receiver, is also disappointed. In a November 2008 report to the court, Bahner wrote that he was “concerned that continued personnel changes will slow the development of a new city housing plan.”

Sequel: Get it right.

Some Kansas Citians have learned that housing services here are do-it-yourself projects.

A tour of the three homes that David Biersmith has rehabbed takes only 10 minutes — they’re all within a mile of his office on Truman Road and Topping. And that’s the point: He did it, for little or no profit, to make the neighborhood where he works more secure.

Just up the road, on Topping near 15th Street, is what Biersmith calls “one of the battlegrounds of the Northeast.” Here, fenced-in houses with peeling paint and littered yards make way for a convenience store and a housing complex that are police-blotter regulars. When a house goes vacant in this neighborhood, it stays vacant, Biersmith says, and that attracts more crime.

Over the past several years, Biersmith acquired three houses cheaply. One had been classified by the Drug Abatement Response Team as a former drug house. Another was owned by the Jackson County Land Trust. The third was tied up in foreclosure.

Each house was just a shell when he took over. Anything of value — copper wiring, furnaces, water heaters — had been stolen. After pouring roughly $10,000 worth of much-needed work into each, Biersmith sold the homes to buyers for $1,000 down and a small payment each month — sometimes as little as $300. (He first made employment and criminal history checks on each applicant.) In 10, 12 and 15 years, respectively, each home will be owned by its occupant, who has agreed to maintain the property.

Biersmith wants to live in a neighborhood with more owners than renters. People who own their homes, he says, are more likely to take proper care of them. He hopes that rehabbing houses while keeping them affordable will help tip the ratio toward owners.

His primary business is Industrial Medical, an urgent-care clinic that also performs drug testing, DNA paternity testing, vaccinations and Department of Transportation-mandated physicals for truckers. He’s also the president of the Truman Road Corridor Association, which works with the Blue Valley Neighborhood Association and the 23rd Street Political Action Committee to keep tabs on this neighborhood.

Steering his old Lincoln Town Car down the 5800 block of East 12th Street, he points out a modest but solid-looking house with a stone foundation and a driveway. He sold it for $1,000 down and $600 a month to a Hispanic couple with two kids. The husband puts up drywall for a living, and the wife works nights. Biersmith likes selling homes to people with connections to trades because it’s easier for them to improve the homes themselves — an effort they wouldn’t put into a home if it were only a rental. The family has never missed a payment.

The next two homes are at 16th Street and Topping and on the 6400 block of East 14th Street. One is occupied by a black man who works as a mover; an older white man and his adult son, who work as painters, live in the other. “I love the diversity,” he says. He is about to start work on a fourth house, on the 6200 block of East 14th Street.

Though Biersmith has accomplished his work so far without assistance from City Hall, that may change. Kansas City will soon receive $7.3 million of foreclosure aid allocated by Congress. The money is meant to be used to acquire, rehab and resell foreclosed houses that have been empty 90 days or longer. Proposals were due to HUD by December 1, 2008; HUD hopes to allocate the funds by next month. Biersmith and the Truman Road Corridor Association are submitting a proposal to the city’s housing committee, outlining the work they could do with $1 million of that money.

Of his three houses, Biersmith says, “I did it to see if it works.” Confident of the results, he adds, “It would be neat to do a whole block.”

Other ambitious neighborhood activists have their eyes on that $7.3 million. The Ruskin Heights neighborhood, just northeast of U.S. Highway 71 and Red Bridge Road, is one of the hardest-hit neighborhoods in the city when it comes to foreclosures.

It’s also one of the city’s most ignored neighborhoods, according to the Ruskin Heights Homes Association’s community liaison, Jerry Mitchell. “South of 75th Street, we have not existed,” Mitchell says.

It wasn’t always bad. Most of these one-story Ruskin Heights, Ruskin Hills and Ruskin Valley homes were built in the 1950s. They’re simple structures on concrete slabs, usually no bigger than 1,200 square feet. The construction is showing wear, so in 2006, the neighborhood association and a local faith-based group called Communities Creating Opportunity (CCO) applied for a grant of $500,000 from the Housing Asset Recovery Program. With that money, the two outfits were able to initiate minor home repairs on 120 houses in the neighborhood. Eligible residents received new water heaters, furnaces, siding, fences, driveways, garage doors, roof repairs or insulation.

The neighborhood leaders were proud of their accomplishments with the HARP grant. Then the mortgage industry exploded, emptying more than 400 of the neighborhood’s 1,875 homes.

The vacant houses, marked by foreclosure papers taped inside the windows and piles of discarded furniture on the lawns, became targets for vandals and squatters. According to Mitchell, one group of squatters, which had gone unnoticed, managed to get the electricity in a house turned on while living there illegally.

Without a city housing department to ask for help, Mitchell and fellow association members April Cushing and LaRieta Boyer formed their own task force. “We had to learn how to do this ourselves,” Mitchell tells The Pitch. “We became very proactive.”

Mitchell, Cushing and Boyer canvassed the neighborhoods and recorded the addresses of foreclosed houses, then researched to find the mortgage company attached to each. Eventually, Mitchell and his colleagues figured out that they could call the city’s Dangerous Buildings and Vacant Property Operations Division to get the vacant houses boarded up. When Mitchell isn’t on the phone with owners, mortgage companies or city departments, he’s driving around and taking stock of new piles of abandoned furniture, broken windows and kicked-in doors.

“You work and you work and you wonder whether you’re accomplishing anything,” Boyer says.

Recently, Mitchell attended a Housing Committee meeting to ask for the city’s attention. Applications were due December 1. The city is required to commit the foreclosure aid money within 18 months of that deadline.

“We have a nonprofit LLC called KC Heroes, which would be able to take over properties on the nonprofit side and resell them on the LLC side,” he says.

Mitchell is hopeful, but if Ruskin Heights is passed over, homeowners there won’t be alone. At least they know they can count on themselves.

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