City Housing Officials Respond to Audit of Quake Loans

Responding to a critical audit that found lax oversight in the way they managed hundreds of millions of dollars in earthquake-repair loans, city housing officials Thursday reported significant progress in rooting out contractors who cheated workers of federally mandated wages.

But the housing department acknowledged that many cases of possible shortchanging have yet to be reviewed, as well as other cases in which loans were handed out with scanty information about the borrower’s finances.

In addition, the department agreed to an independent evaluation of its management practices, which have come under fire for being too diffuse and disorganized.

“It [was] a long time coming,” City Controller Rick Tuttle said of the progress report, which comes six months after Tuttle’s office released its audit of the housing department. “In general, it’s a good response. I’m especially pleased that they’ve agreed with our recommendations for there to be a management review of the department.”

But he cautioned that some questions still remain, such as why the department is planning to examine only a portion--not all--of the loans that were given out with insufficient information.

“There may be good answers,” Tuttle said. “We want to sit down and discuss it with them.”

In May, Tuttle’s office sharply criticized the housing department for inadequately enforcing a federal law that requires contractors to pay prevailing wages to their workers. In many of those cases, workers wound up receiving only half of the back pay that was due them under the law.

Housing officials said Thursday that they are examining nearly 170 cases for possible violations of the so-called Davis-Bacon Act. Several have already been referred to the city attorney’s office for further investigation.

To step up the process, the department plans to ask the City Council to have more people assigned to the probe. “There is a backlog of cases” that the department has not “been able to fully investigate,” the progress report said.

In one potentially troubling item, the report said it is now “not practical” to fine many of the contractors who violated the law, as the audit had called for.

“They ought to assess penalties, and I think the burden is on the department to explain why that should not be the case,” Tuttle said.

The controller’s audit also found that the loan program, the most expensive city-managed recovery program after the Northridge earthquake, often collected insufficient information from prospective borrowers. At the time, the department’s then-general manager, Gary Squier, said the main goal had been to repair quake-damaged homes as quickly as possible, which would have been too difficult under standard commercial loan procedures.

But the department has since mounted a review of the loan applications of all major projects--nearly 300 of them--funded under the loan program, which draws its money from the U.S. Department of Housing and Urban Development. Those reviews are expected to be finished by month’s end.

And in one of the progress report’s most encouraging findings, no claims or complaints have been brought forward from displaced tenants who were eligible for money to pay moving expenses but who may never have been told by the department about it.