Feb. 8, 2011 -- Federal housing officials have suspended millions of dollars in funding to the Philadelphia Housing Authority as federal investigators continue to examine a wide array of allegations of questionable payments made by the nation's fourth largest public housing agency.
In a letter to the Philadelphia Housing Authority, the Department of Housing and Urban Development notified PHA that it would withdraw money for contracts related to "labor and employment legal services" until the agency can provide additional information documenting the expenses.
The suspension, first reported by the Philadelphia Inquirer, comes after a joint investigation by ABC News and the Center for Public Integrity found that the Department of Housing and Urban Development has struggled to combat waste, mismanagement and corruption mismanagement in the more than 3,000 public housing agencies nationwide it funds, including the Philadelphia Housing Authority.
Under the leadership of former executive director Carl Greene, the Philadelphia housing authority spent lavishly on gifts for managers and a party with belly dancers, and secretly spent more than $500,000 in housing authority funds to settle sexual harassment claims against Greene. Greene was forced out of his $306,000 per year job in September after the housing authority's board of commissioners concluded that he was a "true serial sexual harasser" whose sought to conceal the payments from the board.
The housing authority, which receives most of its annual budget of $345 million from the federal government, has attracted the scrutiny of Congressional and federal investigators as a scandal involving allegations of waste, misconduct, and questionable spending unfolded this fall. Under Greene, the Philadelphia Housing Authority had spend more than $33 million in fees to politically-connected law firms over a three year period, according to the Inquirer.
The ABC News joint investigation found that the problems extend beyond Philadelphia, from an executive in New Orleans convicted of embezzling more than $900,000 in housing money around the time he bought a lavish Florida mansion to federal funds wrongly being spent to provide housing for sex offenders or to pay vouchers to residents long since dead.
"We're failing these tenants, we're failing the taxpayers," said Kenneth Donohue, who recently retired as the HUD inspector general in charge of rooting out waste, fraud and abuse from the federal housing program.
Mold, Vermin and Broken Plumbing in Florida
In Sanford, Florida, near Orlando, public housing residents say that conditions have been deteriorating there for years, despite promises from local and federal officials to turn things around. Residents say they have struggled to live with vermin infestations, broken plumbing, rotting drywall, mold and mildew growth, and walls that were literally crumbling around them.
"I'm so ready to get out of here. Not being able to give my kids what they need, the good environment," said Toveka Jones, a tenant living in a Sanford housing project.
A HUD assessment last May declared the Sanford housing authority financially insolvent with many of its units in a "fast state of decline." HUD cited the housing authority's executive director, Angel Tua, and board of directors for inadequate and deferred maintenance "indicative of mismanagement and lack of planning."
Tua, who was eventually fired by the board, says he did his best to turn the agency around despite inadequate funding and lack of assistance from HUD overseers who took over the agency during the Bush administration.
"We were set up to fail," said Tua. ""HUD did not address the real problems when they had a chance."
Tua says that a $4 million loan from HUD, arranged under a federal takeover of the agency, constrained his ability to address substantial maintenance issues at the Housing Authority. He added that roof work ordered by HUD administrators was done so poorly that it led to the water seepage and mold growth inside the walls that made Jones' and dozens of other units "uninhabitable."
In an interview with ABC News, HUD Assistant Secretary Sandra Henriquez said Obama administration officials have been quick to make corrective action when alerted that local housing agencies aren't living up to their obligations.
"I think we're doing a good job. More importantly, I think a vast majority of housing authorities across this nation are doing a good job," said Henriquez.
One of the public housing authorities Henriquez cited for superior performance: Philadelphia. The nation's fourth-largest public housing authority has long been praised by HUD as a model agency, supposedly far removed from the "troubled" class of housing agencies.
"I would say the Philadelphia Housing Authority did a good job," Henriquez said, asserting that the probe of the former director overshadowed the agency's successful efforts to revitalize housing.."I just find the before and after amazing, it's an incredible story to tell," she said during a recent tour of a redeveloped public housing complex.
The same month as one of the housing authority's parties, 12-year-old Ebony Gage suffered a near-fatal asthma attack that occurred after her mother says poorly trained housing authority inspectors failed to properly inspect her home for dangerous mold. The PHA later settled with Ebony's mother for $9.6 million, but denied any wrongdoing.
Housing Executive Buys Mansion With Stolen Money
Lawmakers like Sen. Charles Grassley, R-Iowa, wonder how such problems could go undetected for years by HUD.
"We expect that the agency in Washington, D.C. ought to be making sure that every taxpayer dollar is spent in a responsible way. And it seems to me that we have not had that proper oversight," Grassley said.
The joint investigation by ABC News and the Center for Public Integrity, however, found allegations of mismanagement spread across the country.
For instance, HUD's inspector general discovered that one senior official -- Elias Castellanos, chief financial officer of the long-troubled New Orleans Housing Authority -- used taxpayer money to buy a million-dollar mansion in Florida, with a Lamborghini and Mercedes parked out front.
Castellanos was convicted of embezzlement and sentenced to nearly four years in prison, one of 43 housing officials across the country convicted of crimes over the last two years.
Donohue, the former inspector general, said corruption and fraud have flourished at HUD-funded housing agencies because federal officials in Washington have been asleep at the switch. And every dollar lost to fraud or mismanagement, he said, punishes the already vulnerable populations who live in public housing.
"Public housing often is the last resort for many people, and to take money away from them is a sad commentary," he said.
Donohue's office cautioned HUD officials about awarding stimulus money to troubled agencies, identifying many that had past problems managing money.
The public housing authority in Chattanooga, Tennessee was cited by the inspector general for doling out about $600,000 in employee bonuses, cost-of-living increases and severance awards in 2008 while on the brink of financial collapse.
An audit by Donohue's office also found the public housing provider misused $788,000 in housing vouchers for the poor to pay unrelated expenses and diverted $1.2 million from a Fannie Mae loan.
Even though Chattanooga's housing authority was on the troubled list and had a history of financial problems, HUD distributed at least $11 million to the agency from the American Recovery and Reinvestment Act.
HUD officials said they took Donohue's concerns seriously, developing a strategy that included comprehensive and substantive reviews of all troubled housing authorities that got stimulus grants and preventing the agencies from drawing down funds without prior HUD approval.
During Donohue's tenure as chief watchdog, his investigators uncovered some headline-grabbing examples of other mismanagement problems, like an estimated $7 million worth of payments to provide housing vouchers for dead people.
The investigative findings have begged the question of whether the root of the problem is incompetence or fraud.
"I think it's a little bit of both," Donohue said.
Sex Offenders in Public Housing
Investigators also found an estimated 2,000-3,000 registered sex offenders living in subsidized housing, courtesy of taxpayers, in violation of HUD's own rules.
"I don't know exactly how that happened," Henriquez said when asked about the sex offenders uncovered by Donohue's investigators. "This is truly a difficult issue. People make mistakes, we correct those. It's again, what do our actions say when it comes to our attention? That is the bottom line."
But for the public housing residents in Sanford, the bottom line remains one of private frustration over what they perceive as neglect from Washington.
"We have been living like this for years," said Jones. "We deserve better conditions."
Late last year, after a decade of complaints and deterioration, officials moved to relocated Jones and more than 300 families and announced plans to demolish much of the city's public housing.
Shown pictures of the conditions at Sanford before the move, Henriquez insisted that HUD did what it could.
"I don't think this speaks to a larger failure at all," Henriquez said. "There is a sense of urgency to make sure that conditions that you've shown me here are corrected as quickly as possible."
A HUD spokeswoman declined to comment on Tua's allegations, citing a lawsuit brought by Sanford public housing tenants who are fighting the housing authority and HUD on the proposed demolition of two of the five projects.
John Solomon is executive editor of the Center for Public Integrity, a nonprofit, investigative reporting outlet in Washington, D.C.