In Wake of Funding Failure for Housing Project Security Plan, City Drills Down on What Went Wrong

An independent review has found that “significant gaps in communication and misunderstanding” of agreement terms could have played major roles in the recent failure to get required approvals for $420,000 in federal money for a much-needed security project.

The City had been counting on using the funds for security upgrades at Pasadena’s Community Arms complex, an affordable housing project located at 131 E. Orange Blvd.

The project’s last-minute failure seemingly came as a complete surprise to the City Council when it received the report on September 12. Councilmembers apparently had thought the project was on track and had begun construction September 1.

Councilmember John Kennedy said the failure was “a loss for the whole city.” Mayor Terry Tornek said the deadline was passed and the money was “gone. Game over. Time expired.”

Councilmember Steve Madison requested a review be conducted to determine what exactly had gone wrong.

The review was conducted by the City’s Internal Audit group and focused, in part, on why Community Bible Community Development Corporation (CBCDC), which owns the rental housing complex, refused to commit to use funding.

CBCDC, in turn, said their limited partner in the project, Denver-based Alton Torch Finance, reasoned that they were in the process of exiting the partnership and wanted no more encumbrances of any kind.

When CBCDC told the Housing Department they couldn’t sign a loan agreement, the Department when to the City Council to convert the agreement into a grant, just two weeks before the HUD funds were to expire. Before any grant agreement could be signed, the funds expired on August 31.

In her report to City Manager Steve Mermell dated October 25, Internal Audit Manager Ruthe Holden said both City staff and private partners in any housing project slated for funding under HUD’s HOME program should be made aware of the timetable for completing documentary requirements to avoid loss of the funds.

“The Housing Department staff should request HUD’s Los Angeles office review of eligibility requirements early in the process rather than at the end, to avoid last minute changes of funding allocations,” Holden said in reference to the Community Arms project. “This will help in identifying eligible projects to match available funding in sufficient time to meet federal time requirements.”

Holden also recommended that the City, especially in this case the Department of Housing and Career Services, should adopt formal project management standards including a written project plan agreed to by all parties, a draft of the grant or loan agreement terms and conditions at the beginning rather than at the end phase of the project, and in the case of Low-Income Housing Tax Credit (LIHTC) partnerships (like CBCDC and Alton Torch Finance), a written agreement saying the terms of the agreement will not impact the partnership negatively.

Holden also suggested clear and consistent communication between the City and project partners should continue from the time a project is conceptualized until its realization.

“There appears to have been some misunderstandings of key issues including the funding mechanism, terms required to accept the funds, and key deadlines and deliverables,” Holden said. “Communication is important to a project’s success, so establishing a project communication plan at the outset helps to ensure clear, consistent communication occurs throughout the process and can help to mitigate misunderstandings.”

The City’s Housing Department offered the HUD HOME program funds in spring 2014 after the Northwest Commission disapproved a proposal by CBCDC for a grant of $50,000 for security cameras. The independent review noted that after a site visit in October 2014, no other documented discussions CBCDC about the HOME funded loan occurred until February 2015.

Further gaps were noted as the Housing Department waited for CBCDC to engage a Project Manager, which they were able to do only in August 2015.

It was only in August 2016 that Community Arms indicated they were “surprised” that the funding would be a loan, the report noted.

Even after the City Council had agreed to change the agreement terms to a grant instead of a loan, there was not enough time for CBCDC and Alton Torch Finance to agree on what to do with the offer.