Santa Barbara County Grand Jury looks into LHCDC

BY AMY ASMAN - SantaMariaSun.com

After much public scrutiny over whether it would investigate the demise of the bankrupt low-income housing nonprofit LHCDC, the Santa Barbara County Grand Jury released on June 13 a report titled, “A Failure of Oversight: Lompoc Housing and Community Development Corporation.”

“In January 2012, residents of Lompoc and indeed all of Santa Barbara County were shocked to learn that two homeless shelters in the city, Marks House and Bridgehouse, had closed with only five days’ notice on a holiday weekend,” the report begins. “Public officials should have anticipated the closing of the shelters, as it was clear that the Lompoc Housing and Community Development Corporation (LHCDC), the non-profit organization that owned and operated the shelters and many other affordable housing projects in the city, was failing.”

According to the report, LHCDC was the city of Lompoc’s primary agency for providing affordable housing. It owned nearly two thirds of the affordable living units in the city and received funds for these developments from at least 12 identifiable sources. Virtually all of the money was funneled through two overseeing bodies: the city of Lompoc or its redevelopment agency, and the county of Santa Barbara.

As the lead entity for the U.S. Department of Housing and Urban Development’s HOME program, the county invested $2.89 million in LHCDC properties. The estimated potential liability to the county is $1.4 million.

As of June 13, the report says, the city of Lompoc “does not know for certain how much it and its Redevelopment Agency loaned LHCDC nor the extent of its losses.” As of October 2009, it’s estimated the redevelopment agency disbursed $1.8 million to the nonprofit.

Under the HOME agreement, agencies that receive loans must demonstrate “affordability” by submitting records to the lead entity—in this case, the Santa Barbara County Housing and Community Development Department. The federal government holds the lead entity accountable for repayment of funds if loan recipients fail to meet HOME requirements.

The Lompoc Redevelopment Agency had similar requirements.

According to the grand jury report, starting in 2007, the Lompoc RDA sent numerous letters informing LHCDC that it was out of compliance with various affordability requirements.

However, when the Santa Barbara County Housing and Community Development Department inspected all of the county’s HOME-funded rental projects one month later, it failed to identify any noncompliance issues.

In a 2011 memo, the Lompoc Community Development Department told the City Council that LHCDC had a property out of compliance as early as 2003. Correspondence included in the grand jury report clearly documents LHCDC’s unresponsiveness to such notifications.

The Lompoc RDA loaned LHCDC approximately $1.7 million while the agency was technically out of compliance.

“It did not enforce its loan agreements and covenant restrictions when there was a clear pattern of failing to respond to the agency’s requests,” the grand jury report says. “The Redevelopment Board, and ultimately the Lompoc City Council, bear the responsibility for this inaction.”

The grand jury placed blame on the county as well. The report noted that while audited financial statements wouldn’t necessarily affirm compliance with loan agreements, the county should have taken the initiative to conduct its own inspection of LHCDC’s financial records, especially when there was an increasing pattern of noncompliance.

In its report, the jury recommended that the Santa Barbara County Board of Supervisors establish a policy directing the county auditor-controller to conduct an audit of all organizations that receive county funds in excess of $100,000, and report his findings to the board. The jury recommended the Lompoc City Council direct the city management services director to conduct annual audits for organizations that receive more than $50,000. Finally, the jury recommended that the county and city withhold funding if an organization fails to supply complete records for the audits or fails to meet requirements of existing contracts.

The county, the auditor-controller, and the city of Lompoc now have 90 days each to respond to the report.

To view a complete copy of “A Failure of Oversight: Lompoc Housing and Community Development Corportation,” visit sbcgj.org/2012/LompocHousing.pdf.