S.F. Housing Authority digs out of scandals, financial ruin
Kate Hartley was in the back of a cab when she got the call.
It was October 2018, and Hartley, then the director of San Francisco’s Office of Housing and Community Development, was en route to a city event to celebrate an affordable housing program.
The phone rang, and Hartley picked it up. On the other end was Barbara Smith, then the head of the San Francisco Housing Authority. “I’ve got some bad news,” Smith said. The Housing Authority, which tens of thousands of vulnerable San Franciscans rely on for affordable housing assistance, was facing a huge budget shortfall.
For more than a year, the U.S. Department of Housing and Urban Development and a specialized accounting firm had been scouring the Housing Authority’s books. The agency had a long history of alarmingly poor bookkeeping, and financial analysts wanted a clear picture of the authority’s red ink.
That morning, Smith had been briefed on
the audit’s results. The agency would post a $30 million shortfall, a staggering figure that imperiled housing stability for the 12,000 households who relied on federally funded rental assistance programs, like Section 8 vouchers. If the agency went bellyup, they could have wound up without a place to live.
Hartley struggled to wrap her mind around the astonishing figure. She recalled thinking, “This is insane. This can’t possibly be . ... This is a disaster of epic proportions.”
The shortfall might have marked the nadir for the longbeleaguered Housing Authority, which has spent much of 2019 clawing back from the disaster, with some modest success.
After spending years as a poorly managed, scandalplagued agency, the Housing Authority has made strides, city and federal officials say, toward righting what was once a sinking ship.
“The San Francisco Housing Authority is transforming,” said Tonia Lediju, the agency’s acting director. She was appointed by Mayor London Breed in July after Smith retired in the wake of discovering the deficit.
Smith did not respond to a request for comment.
“We’re making progress, and I don’t believe we’re the same agency we were five months ago,” Lediju said. In the past, she said, “we didn’t manage our books well. We have to have excellent financial reporting to run the program and provide the vouchers needed to house our families.”
Convinced that it could no longer be entrusted to handle its own bookkeeping, HUD ordered the Housing Authority in March to submit to a takeover by the city.
HUD also ordered the agency to outsource its core functions — including administering and tracking housing vouchers — to third parties. HUD officials said that, to date, the transition has gone smoothly.
“The city of San Francisco has become a collaborative partner in assisting the Housing Authority to create better communities for publichousing residents to live in,” said Ed Cabrera, a HUD spokesman.
It also mandated that the city accelerate its plans to shift management of the last two public housing projects — Sunnydale and Potrero — to nonprofits, as San Francisco has done with the rest of its affordable housing portfolio. By May 2021, the Sunnydale and Potrero housing complexes must be managed by a private entity.
It’s not unusual for housing authorities to ask HUD to cover a budget shortfall at the end of the year. HUD calculates how much money to send to each housing authorities based on the previous year’s budget, plus a little extra to cover inflation. Particularly in places with soaring housing costs — like San Francisco — the department tends to underestimate how much money to send, which leads to the shortfalls. But they’re usually manageable amounts that HUD can easily cover at year’s end.
But calculating the size of an annual shortfall requires meticulous financial recordkeeping, which the Housing Authority chronically lacked.
“The only way they had been paying in the prior months was by gobbling up future month’s payments. To pay in July, they used proceeds reserved for August and September,” Hartley said.
Lediju said she also walked into a backlog of between 800 and 1,000 apartments that needed to be inspected to ensure their eligibility for the Section 8 program.
Part of the reason for Hartley’s panic was that if Section 8 households started missing rent payments, it would have cut revenue that’s essential to keeping dozens of affordable housing buildings operating. That could have endangered billions of dollars of affordable housing mortgage loans and investments, Hartley said.
To ensure that there was no interruption in housing voucher payments, Hartley arranged a $20 million loan from the city. HUD kicked in the remaining $10 million.
HUD had already labeled the Housing Authority a “troubled” agency in 2013 after a string of scandals. Much of the agency’s past woes trace back to its former director, Henry Alvarez, who was fired in 2013 after three employee lawsuits accusing him of retaliation and discrimination, dozens of bullying and intimidation complaints, and allegations he steered contracts to friends and political allies.
Extensive financial mismanagement and reports of squalid living conditions in public housing projects eventually compelled thenMayor Ed Lee to shift the management of those buildings to nonprofits.
The effects of the shortfall are still being felt. For those two dozen employees to avoid a gap in employment that could affect their retiree medical benefits, officials placed an initiative on the March 2020 ballot, Proposition C. It’s a City Charter amendment that would allow the workers to bridge their benefits to their new positions.
Though the worst seems to finally be over, the Housing Authority still expects a shortfall of $7 million to $8 million this year, though Lediju said that that no vouchers would be jeopardized.
She also said she’s trained her attention on making the Housing Authority a responsive, responsible agency.
“As the current leader here, my job is to ensure that we give unparalleled customer service,” she said. “We care so much about our residents, and we want them to have excellent customer service and beautiful spaces to live and raise their families.”