Millions of dollars at risk in Houston after GLO review of Houston housing

HOUSTON, Texas (KTRK) -- Months after the City of Houston's then-housing director accused the mayor of "bankrolling" a developer instead of prioritizing the interests of low-income families, the Texas General Land Office sent a letter outlining five key findings that need to be addressed before any more taxpayer funds can be awarded to projects as part of the city's Multifamily Rental Program.

The findings push pause on at least six apartment and multi-family projects the City of Houston wants to help build until Houston sends corrections to its plan. It puts at risk $91 million in taxpayer-funded housing subsidies and the future of 933 apartments, many for low-income Houstonians.

GLO reviewers say their overall conclusion is that, "The City of Houston does not have appropriate processes and the necessary controls in place to meet (the multi-family program contract requirements)."

The program is designed to provide affordable housing to low-income families using federal funds, but the GLO found multiple instances where the city didn't follow its own housing recommendations - the ones developers were given before planning finding the city lifted lower scoring projects above those that scored higher.

The GLO said that "result(s) in a competitive process that is not fair and open."

The state's five findings say the city needs to strengthen its process when deciding which projects to award funds and strengthen the Notice of Funding Availability/Request for Proposal scoring method used to rank developers who submit proposals. The GLO said Houston also needs to ensure documentation supports project awards, strengthen the execution of conflict of interest functions and provide better documentation of justifying award recommendations.

Houston's Local Action Plan for the funds "require the development of new multifamily rental housing, the acquisition and/or rehabilitation of flood-damaged multifamily rental housing, and strategic land acquisition for multifamily development to address this shortage and meet the needs of disaster-impacted rental households, including those in public housing," according to the GLO.

Houston uses a NOFA/RFP process where developers can apply for funding to go toward multifamily rental properties. Three NOFA/RFPs were issued on February 1, 2019, January 17, 2020 and June 4, 2021 to procure proposals and select awards based on certain criteria.

"By October 2021, the City of Houston submitted 29 proposed projects valued at $282,349,262 to the GLO for approval following the City of Houston's NOFA/RFP process. The GLO approved 26 projects, with three projects under review and pending approval based on the outcome of the GLO's monitoring review," according to the GLO.

A review of those projects found "lack of internal controls necessary to reasonably ensure" consistency in how the NOFA/RFPs were developed and published for owners and developers to consider.

It also found lack of controls regarding the "the accurate application of the evaluation and scoring methodologies specified in the NOFA/RFP" and concerns with "the issuance of awards based on a fair and open competitive process."

In one instance, GLO reviewers found a project that scored 30th out of 59 applicants was awarded $10 million but, "it is unclear why."

Mary Benton, Houston Mayor Sylvester Turner's communications director, said in a statement, "it is important to note that the GLO previously reviewed the City's Notice of Funds Availability (NOFA) 1, 2 and 3 and took no exceptions. The GLO also reviewed and approved all program guidelines before they were sent to the city council and subsequently approved. The City has operated under the GLO-approved guidelines for all issued NOFAs and will determine if changes are needed."

She went on to say, "indeed, the report does not identify any violations of law, regulations or contractual provisions, as asserted by the City during the review process. The report found no conflict-of-interest violations of law or regulation."

Former Houston Housing Director Tom McCasland, who was fired in September, questioned Turner's decision to award millions in taxpayer funding to a Huntington at Bay Area development that would have provided fewer affordable housing units than other projects which submitted proposals in response to the latest NOFA/RFP.

The mayor previously said it was not a process where he had to pick the winner based on the point system the city laid out.

"This is not an RFP, okay," Turner said on Sept. 21. "That's Tom's objection, that the mayor did not take his recommendation. Well, I am the mayor. It is true. "

Turner claimed the scoring rules laid out in city documents were only a guide and despite the fact that the Huntington project scored eight, the mayor alone could lift it to the top.

But, the GLO report says the mayor was wrong and that scores have mattered all along.

According to the GLO, June 2021 Notice of Funding Availability said "bid proposals will be reviewed, underwritten, and scored to select awardees based on a predetermined set of criteria."

Contrary to that evaluation process, the "Huntington at Bay Area development project was recommended for an award despite being eight in the overall scoring tabulation," the GLO says.

If the city wants more money for already approved projects, the GLO says "Houston must limit its use of mayoral discretion to instances of extenuating and unforeseen circumstances," and document why it's done.

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McCasland previously said the way the city awards some projects is putting low income Houstonians at risk.

"It is something that you should care about because of the way it damages the way the city does business," McCasland said on Sept. 21.

Reached by 13 Investigates this afternoon, McCasland said he did not have comment on their findings.

After weeks of concern about the Huntington project, Turner said last month that he no longer supported the project in question because it had become "too much of a distraction" so that project was never funded.

Huntington at Bay Area development was not included in the projects the GLO reviewed since it was never funded. However, the GLO said that project raised concerns with possible business ties between Turner and his former law partner, Barry Barnes, who was listed in documents as the co-developer and co-manager of the Huntington project.

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The NOFA/RFP also said, "it is the responsibility of the developer to disclose any potential conflicts, including those with city officials at the time of application submission, or as soon as a potential conflict is identified."

Turner previously said he was unaware of Barnes' involvement. Barnes has not returned 13 Investigates' calls for a request for comment.

Due to the findings, the GLO will not approve at least six apartment projects. The decision puts nearly $91 million and future of 933 apartments up in the air.

Houston has until Dec. 10 to "respond with a corrective action plan addressing the overall conclusion and the five findings identified in the report."

The full statement from the Mayor's office reads:

"The City of Houston Housing and Community Development Department has received a copy of the Texas General Land Office's monitoring review of the Multifamily Rental Program.

"HCDD is in the process of assessing the report. It is important to note that the GLO previously reviewed the City's Notice of Funds Availability (NOFA) 1, 2, and 3 and took no exceptions. The GLO also reviewed and approved all program guidelines before they were sent to the city council and subsequently approved. The City has operated under the GLO-approved guidelines for all issued NOFAs and will determine if changes are needed.

"Indeed, the report does not identify any violations of law, regulations or contractual provisions, as asserted by the City during the review process. The report found no conflict-of-interest violations of law or regulation.

"The GLO believes, like the City, that the Administration may consider qualitative factors in the selection process. GLO recommends though, that such qualitative factors be reflected in the published NOFA for the project, and that the use of Administrative discretion for items not reflected in the NOFA be limited to instances of extenuating and unforeseen circumstances and documented accordingly.

"Once the City completes its review, we will send a timely response to GLO. The City is committed, as it always has been, to transparency and improving its Housing processes."
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