The head of the Troubled Asset Relief Program recently called on the U.S. Treasury Department to reform its blight elimination program, claiming the program operates without the proper safeguards to prevent waste, fraud, and abuse.
The special inspector general of TARP (SIGTARP), Christy Goldsmith Romero, released a lengthy treatise asserting that Treasury’s $622 million Hardest Hit Fund Blight Elimination Program (HHF) does not require full and open competition for blight contracts and does not have a way to ensure that federal money is used only “necessary and reasonable” costs.
According to the audit, SIGTARP found that Treasury’s HHF program “is significantly vulnerable to the substantial risks of unfair competitive practices and overcharging than HUD’s [Neighborhood Stabilization Program]. These risks could lead to fraud, waste, and abuse. While two Federal programs fund similar activities and entail similar risks, only HUD’s program has Federal requirements to protect the Government against substantial risks inherent in contracting for demolition work—Treasury’s Hardest Hit Fund does not.”
Romero also said that HHF is especially prone to “favoritism, undue influence, contract steering, bid rigging, and other closed-door contract processes.” As a result, she wrote, substantial risks under HHF blight elimination continue unchecked for a program that, at nearly $622 million, is double the size of HUD’s program.”
HHF was initiated in 2010 to help fund the states that suffered the most from the aftermath of the housing crisis.
Only HHF South Carolina has a requirement for full and open competition, the report stated. This is 6 percent of the program. The report covered the seven Treasury-approved states participating in HHF: Alabama, Ohio, Illinois, Indiana, Michigan, South Carolina, and Tennessee.
“We believe the fundamental structure of HHF and the existing controls and compliance measures implemented by [the Office of Financial Stability] and the HFAs have made HHF blight elimination programs effective, flexible, and accountable.”
Mark McArdle, Department of Treasury
“State and city competition rules that Treasury relies on exclusively may not even apply because 87 percent of the partners are not municipalities or public agencies,” Romero wrote.
SIGTARP gave Treasury 20 recommendations made in this report, which, in essence set up a way for Treasury to follow HUD’s program as a model.
“SIGTARP recommends that Treasury’s program have the same protection as HUD’s blight elimination program for competition, and the same limit on only covering those costs that are necessary and reasonable,” the audit stated.
In response to the SIGTARP audit, Mark McArdle, deputy assistant secretary for financial stability at the Treasury, said HHF has helped eliminate nearly 9,300 blighted properties, thereby increasing neighborhood values almost immediately. In Detroit, McArdle said, blight elimination helped raise neighborhood values up 4.2 percent.
McArdle also said that SIGTARP’s audit unfairly compares HHF to non-TARP programs, failing to take into account the unique nature of the HFF program. He added that Treasury has modified the way it monitors HFF and “has tailored its compliance approach to address the specific risks and requirements of blight elimination programs.”
He concluded: “We believe the fundamental structure of HHF and the existing controls and compliance measures implemented by [the Office of Financial Stability] and the HFAs have made HHF blight elimination programs effective, flexible, and accountable.”
Click here to view SIGTARP’s complete report, with Treasury’s response at the end.