Lindsay administration, council agree to repay $3.7 million in misspent housing grant funds, some of which went to city employees and employee relatives through 2004 and 2008
LINDSAY – Lindsay’s annual city budget will be almost $90,000 lighter over the next 30 years thanks to a previous administration’s misspending millions of housing grant funds.
According to a city staff report on the item California Department of Housing and Community Development (HCD) staff discovered, in June 2018 and December 2018, that the city was in “non-compliance” with grant program funds. HCD also concluded the city failed to meet numerous programmatic requirements and contractual obligations owed to them.
“These actions constituted defaults in each of the  city agreements and require that the city repay to HCD the grant programs funds,” the city staff report stated.
The Lindsay City Council voted unanimously during their Sept. 8 meeting to settle with HCD to pay back $3.79 million in misspent housing grant money. Negotiations had taken place over the course of 2019 and into 2020. Delays in negotiations occurred entirely because of the global pandemic interrupting workflow for the two agencies, according to Lindsay city manager Joe Tanner.
In an agreement with HCD signed in September by Tanner, HCD staff found that, “the city paid for city-sponsored activities and used program income to cover operating deficits in its general fund, both of which are ineligible uses of grant program funds.” The agreement goes onto state that, “HCD also determined that the city failed to meet numerous programmatic requirements and contractual obligations owed to HCD.”
The Lindsay staff report stated that the city admitted full liability, acknowledging and agreeing they owe: $180,100 to the CalHome program; $2,764,690 to the Community Development Block Grant program; and $845,996 under the Home program.
The city agreed to pay the total in annual installments over 30 years at $89,360 per year. $10,00 was due upon signing. Tanner said the money will be paid out of the city’s general fund. And missing almost $90,000 per year will be a bit of burden on city finances.
“$90,000 a year could be an extra employee. An extra service to the community…it could be a number of items. Now it’s an obligation for HCD. So that’s tough,” Tanner said.
However, Lindsay is catching a break on the deal overall. HCD agreed to apply a $1.1 million credit to the $3.7 million balance conditional upon Lindsay making full and timely payments. As well. If the city meets all of their payments on time through 2050 the 9% annual interest rate will be waived entirely.
Tanner said HCD had given the city rather favorable terms overall.
“They did forgive a million of it. And its interest free so the terms of the deal are very favorable,” Tanner said. “I’ll say that if I were in negotiations from day one, I would have been surprised that they were going to go out [30 years].”
He said that HCD viewed Lindsay as a “financially challenged” city and asked themselves if they wanted to get something back or press really hard and perhaps get nothing. Tanner added that resolving the problem, even though it was going to cost him $90,000 a year, was better than the waiting game.
“I’m glad it’s done,” Tanner said.
The HCD agreement found that, “As part of its operation of the grant programs, the city issued loans to income-limited borrowers within the city’s jurisdiction, and as a result, the city currently holds a portfolio of open, unpaid loans.”
Exhibit B in the agreement shows 425 loans in their portfolio. Loans range from paid in full to hundreds of thousands of dollars outstanding, all of which were through CalHome, CDBG or HOME programs. In some cases, people received two or more loans for the same house from different housing grant programs. And while many of the borrowers were not getting kickbacks from city administrators who were there between 2004 and 2008, a number of them were.
Sandy Perez, an account clerk with the city at the time, received a CDBG loan for $87,791 and a Home loan for $79,920.97 for one house. Both loans were for 30-year terms. Juan Andrade, brother to Vanessa Andrade who was a dispatcher for the public safety department, accepted four loans. A CDBG loan for $72,664 below market interest rates, two deferred no interest loans for $40,000 through the Home program and a CalHome loan worth $57,460.30.
Others who received loans but whose relationship with the city was only identified by the city as either an employee or a relative of an employee and are still included on Exhibit B of the agreement signed in September are: Sergio Romero who received $119,905; Joseph and Angelica Avina who have a loan of $436.16 and a CalHome loan for $100,000; Raquel Perez who received a CalHome loan for $100,000 and a Home loan for $17,597.68.
At least the loans described above stem from the now disbanded Lindsay Redevelopment agency (RDA) agreement with the California Housing Finance Agency (CalHFA) on March 30, 2004 for a Help loan with a principal amount of $1.25 million. The initial purpose of the loan was to provide funding for 35 homes. The RDA requested two withdraws between 2006 and 2008. In all the money only funded 11 homes.
A 2011 auditors report prepared by Brown Armstrong Accounting Corporation found that the city was listed as a lender on 17 deeds of trust on first-time home buyer loans for city employees and/or their family members between March 30, 2004 and April 19, 2008.
The auditing firm wrote in their findings that the city failed to include borrowers’ total income when determining the amount of the loan.
“As a result, the loans were provided to applicants that only appeared to have met the income and debt requirements. However, many individuals exceeded the [California Home Financing Agency] income and debt requirements, deeming them ineligible to receive funding,” the 2011 audit report stated.
Now that the annual obligation to HCD has been settled at just under $90,000 Tanner is not looking backward.
“I don’t play the blame game or point fingers I just want to move the organization forward,” Tanner said. “We are going to do things the right way from here and moving forward.”
Had former city administrators employed an organization like Self Help Enterprises to administer home loan program dollars the city may have saved themselves $3.7 million and years of grief. The 2011 auditors reported that specialists in the city’s community development department did not review the various grant guidelines and eligibility requirements and that several recipients were not even eligible for any kind of first-time home buyer loan because they had owned a house within three years of receiving the loan.
And even more concerning to residents is the prospect that those who would have qualified for homes were passed over because they never knew there was funding available.