Block Grants Went Unspent Under Riordan

During the end of former Los Angeles Mayor Richard Riordan’s administration, the city government allowed millions of dollars in federal grants for poor neighborhoods to accumulate unspent, building up an account that violated federal guidelines and jeopardized the city’s ability to secure future funding.

Aides to Mayor James K. Hahn discovered the surplus when they took over in July. Since then, they have rushed to spend the money to avoid angering the federal government.

“We were going to be in violation of the law,” Hahn said. “The consequences could have been very dire.”

Officials said the city could have been fined or lost future grant money if it did not quickly use the money, which is intended to provide low-income communities with better housing, economic opportunities and other improvements.

For Riordan, the disclosures come as he is campaigning across California to become the state’s next governor. As part of that campaign, Riordan has criticized Gov. Gray Davis’ handling of the state budget and economy. Last week, for instance, he said Davis has “failed to manage the state’s finances in a responsible manner.”

In an interview Monday, Riordan defended his record in overseeing the grant money, saying that his administration’s efforts to use it were bogged down by the slow pace of the projects involved.

“The problem is if you’re trying to use money well, it sometimes takes longer,” he said.

During the period that the grant money built up, Riordan was speaking frequently on the need to help the poor, and he chastised other officials for failing to do enough in that regard. At one point, the mayor charged that some other leaders were enriching “poverty pimps.”

The money at the center of the current debate comes from the U.S. Department of Housing and Urban Development, which gives Los Angeles about $93 million a year in Community Development Block Grants to improve life in low-income census tracts.

The money can be used for a variety of projects, including housing, health clinics and parks.

There is one important rule: The federal agency bars cities from holding onto more than 150% of their annual grants at any one time.

When Hahn took office, his aides discovered that Los Angeles had about $221 million in unspent block grant funds on hand--about 237% of its annual allotment, and $80 million more than the city is allowed to have on hand at one time.

“It was vitally important” that the money be spent quickly, said Lillian Kawasaki, general manager of the city’s Community Development Department, which distributes the money. “That sanction would most likely be a cut in future allocations.”

The money all was earmarked toward specific projects, but had not been spent because the projects were moving slowly or no longer needed the money, Kawasaki added.

“It was a horrific risk, not only a risk to lose those dollars, but to earn a very bad reputation with the federal government and have the appearance of being a city that doesn’t need or want those dollars, which is far, far from the truth,” said City Controller Laura Chick, who was a frequent critic of Riordan during his administration when she was a city councilwoman.

Kelly Martin, who was Riordan’s chief of staff at the end of his administration, said Riordan worked hard to find suitable uses for the money, but was stymied by delayed projects and slow-moving bureaucracy.

“We were aware there was a problem, and during the last year, we were working to solve it,” Martin said.

Much of the slow pace was caused because much of the money was earmarked for low-income housing developments, which were stalled by zoning problems and other funding issues, she said.

Another large portion had been allocated to the mayor’s Targeted Neighborhood Initiative, which gave 11 poor neighborhoods $1 million each for three years to revitalize the communities. But the mayor’s office discovered that residents had trouble deciding how to spend the funds.

“This is very well-intentioned money,” Martin said. “Its purpose is very admirable, but there are lots of strings of attached.”

City officials said there were other problems as well. In 1996, HUD changed the program’s fiscal year from April to July, cramming a year’s worth of grants into nine months. In addition, multiyear capital projects were allocated their entire share of the grant at once, meaning large amounts of money were set aside and not spent right away.

Despite those difficulties, Martin said the Riordan administration managed to spend a large share of the federal grants on projects that helped poor neighborhoods, including after-school programs, sidewalk-repair efforts, free lunches and alley closures.

“It was a big challenge,” she said. “We worked very hard and did our best.”

Riordan hired a staff member to try to shepherd through some of the programs, and the city formed a task force to push along projects and use the block grants. The administration even made four efforts in Riordan’s last year to move money from slow projects to ones ready to spend money--attempts to reduce the overflow by about $18 million.

But the federal government was impatient.

In letter to city officials on March 30, Robert Ilumin, deputy director for HUD’s Office of Community Planning and Development, urged Los Angeles to work faster.

“While we recognize actions taken by the city to meet timeliness, our office continues to have a major concern about the amount of [block grant] funds which remain undisbursed,” Ilumin wrote.

In a meeting with Los Angeles officials that same spring in Washington, D.C., HUD officials warned that the city’s failure to spend the money quickly was becoming a problem, Kawasaki said.

“They made it very clear this was a serious issue,” she said.

Hahn said that to meet the federal guidelines, the city needs to spend about $30 million of the block grant money by Jan. 30. Combined with the city’s typical monthly $10-million expenditure, that would bring Los Angeles back down to the 150% limit.

In September, the mayor asked all 15 City Council members to examine whether projects in their districts could actually spend the funds by the end of the year. In addition, City Councilman Eric Garcetti, chairman of the Economic Development and Employment Committee, prodded council members to seek out projects that were ready to go.

By the end of October, Hahn and the City Council had moved $26 million worth of spending from stalled or defunct projects to fast-moving ones.

Much of the mayor’s effort to spend the money hinged on working within city government and building support from other elected officials. Riordan was sometimes faulted for failing to build and nurture alliances among council members.

Although many programs have temporarily lost the promise of grants, Hahn said they have been guaranteed the money soon. Meanwhile, the mayor said he believes the accelerated spending will close the gap and satisfy federal officials.

“I don’t know what they were thinking,” Hahn said of the previous administration. “It seems to me when someone gives you a gift you need to utilize that.”