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Department of Housing and Urban Development Secretary Mel Martinez said yesterday that dozens of struggling nonprofit housing groups across the country owed more than $1 million by HUD will be paid in full by the first week in March.

Last November, the Center reported that a HUD division may have violated federal spending laws and that a congressional conference committee ordered a freeze on its grant funds earmarked for non-profit housing groups.

Martinez startled members of both the Senate Committee on Banking, Housing and Urban Affairs and the House Financial Services Subcommittee on Housing and Community Opportunity yesterday by telling them there was never any violation of the law, and that HUD would pay off the debt.

The suspension of payments to the community groups last November threatened their financial stability.

Since then, the situation has “gotten progressively worse” according to Michael Kane, executive director of the National Alliance of HUD Tenants in Boston, with workers losing their jobs and their organizations facing bankruptcy.

Ranking House subcommittee member Representative Barney Frank grilled Martinez about HUD’s freeze and subsequent delay in paying its debts, calling it a “very serious mistake.”

“I am sorry about that,” Martinez told the House subcommittee of the error. “And it’s a tragic situation.”

Frank told the Center he was pleasantly surprised by Martinez’ statement. “Especially since as late as yesterday, they were still stonewalling. I think the secretary realized he had an indefensible position.”

Frank was particularly irked because Congress had taken action to fix the problem, but HUD failed to follow through. After word of the plight of the housing organizations began circulating, Congress took the unusual step of tacking $11.3 million to the defense appropriation bill, earmarking part of that amount to pay the housing non-profits. President Bush signed the bill on Dec. 20, 2001, but the funds were still not released.

Martinez said the delay was caused by a failure to obtain paperwork from the Office of Multifamily Housing Assistance Restructuring (OMHAR), a government housing division that Martinez said is not technically part of HUD. Martinez said he wanted to make sure the division had not violated the Anti-Deficiency Act, a federal law that bans agencies from overspending their budgets.

Nancy Segerdahl, a spokeswoman for HUD, elaborated on those remarks in a written statement to the Center. “HUD had no control over OMHAR’s actions,” until Jan. 10, when OMHAR was folded into HUD, she wrote.

However, on November 6, 2001, Congress ordered HUD “to revoke OMHAR’s funds allotment privileges and provide vigorous financial and management oversight of OMHAR.”

More than 50 non-profit housing organizations have not been paid since October and are owed for services provided dating back to last summer. Among some of the groups affected by the cutoff in funds, according to the National Alliance of HUD Tenants:

  • People Against Homelessness in Rhode Island laid off all staff and lost its lease as of February 1. The director continues to volunteer out of another office.
  • The New Mexico Public Interest Education Fund lost all staff on its Tenant Assistance Project and dispersed volunteers working on the project to other organizations.
  • Housing Comes First in Missouri laid off staff and had its phone disconnected because of lack of funds.
  • All staff at the Hawaii Affordable Housing and Homelessness Alliance were laid off, although the director continues to volunteer.
  • Tenants United for Housing in Chicago laid off two of their four employees several weeks ago. Staff have also been laid off at the Indiana Housing and Homelessness Coalition, the New York State Tenants and Neighbors Information Service, the Community Resource Center in Denver, the Tenants Union in Seattle and the Texas Tenants Union in Houston.
  • New York State Tenants and Neighbors, whose office is two blocks from the World Trade Center, and was shut down for two months after Sept. 11, is owed some $100,000 in grants.
  • In Massachusetts, the Mass Alliance of HUD Tenants has been unable to fill a vacant staff position in Boston for two months and is two months behind in the director’s salary.

OMHAR was created by Congress in 1997 to fix the Section 8 program, which provides housing assistance to low-income renters in some 8,500 multifamily properties and 800,000 housing units across the country. The goal of the program is to save taxpayer money by restructuring HUD-insured mortgages of the properties to bring them in line with market rates.

As part of the program, OMHAR budgets $10 million each year to pay nonprofit housing groups to assist tenants on the restructuring process. Grants are also awarded to pay development costs to nonprofit housing organizations that want to buy HUD properties to keep them in the affordable housing inventory.

The funds help tenants become active in the process and assure them they will not lose their homes during the process.

Housing advocates are especially frustrated because over a three-year period, OHMAR was within its $30 million allotment, but overspent in two of those years. When HUD froze the funds committed to the nonprofits, some were left with cash shortages. Many groups had already finished work on projects for which OMHAR had promised to pay. (OMHAR has since been folded into HUD.)

HUD has been mum on the controversy, angering and befuddling the affected nonprofit groups. Forty-five of them sent a letter to Martinez in January saying in part, “This lack of communication has itself caused harmful consequences for numerous small nonprofit contractors, which must continue to make agonizing decisions regarding staff layoffs, unpaid vendors, given up their leases etc. HUD s inexplicable silence regarding a problem it has entirely created is both unprecedented and indefensible.”

Martinez said $550,000 would be paid by February 27 with the remainder of the $1.3 million to be delivered by the first week of March.

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John Dunbar worked for 15 years at the Center for Public Integrity, serving as its CEO from 2016 to 2018.