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New rules, stricter oversight after state investigates Detroit demolitions

Oct 18, 2016

Detroit’s rapid-fire demolition campaign under Mayor Mike Duggan was rife with questionable bidding practices and lacked major internal controls, according to state and federal reviews of that program.

That revelation emerged Monday, as the city announced the U.S. Treasury had released another $42 million in federal funds for the program.

But that funding had been suspended for two months, as the treasury department reviewed a Michigan State Housing Development Authority investigation.

Duggan declared himself “surprised and disappointed” with those findings, which he refused to detail on Monday.

“I was very disappointed by the some of the things that I learned. We just need to fix them, and we are fixing them,” Duggan said.

The demolitions will go forward with the next round of funding from the Treasury’s Hardest Hit Fit, Duggan said. But it’s contingent on a complete overhaul of how the program does business.

Two MSHDA employees will now be onsite to monitor the Detroit Land Bank and Detroit Building Authority, the agencies responsible for demolitions. Among other things, they’re charged with making sure that “all contracts are appropriately bid.”

Other requirements include:

  • Demolition bid packages will be restricted in size to no more than 50 houses.
  • Contractors required to disclose the names of all subcontractors.
  • Contractors required to limit markup work performed by subcontractors by no more than 10% and must attest to their compliance.

The corrective measures suggest that the problems centered around less-than-competitive bidding and pricing processes for demolition contractors, as well as inflated billing and questionable expenses.

Federal agencies and Detroit’s Auditor General were already investigating the city’s demolition program under Duggan. Average demolition costs have spiked, and the city appeared to work with and favor certain firms early in the bid process.

The Building Authority’s Deputy Director, Jim Wright, resigned abruptly in August.

Duggan wouldn’t say whether Wright or anyone else had been dismissed as a result of the investigations. He also declined to comment on whether any of the report’s finding amounted to criminal wrongdoing.

“I’ve seen no evidence of criminal activity, but that is a question that would be most appropriately directed to other people,” Duggan said.

MSHDA was similarly tight-lipped about the exact nature of their findings, though it’s required to provide the U.S. Treasury Department with “periodic updates” about its “ongoing investigation and forensic audit” of Detroit’s program.

“The state’s initial review raised questions about certain prior transactions and indicated that certain controls needed to be strengthened in connection with the HHF blight elimination program,” MSHDA Executive Director Kevin Elsenheimer said in a statement.

The statement goes on to say the program will continue with “new controls and remedial measures,” and that “Mayor Duggan and the Detroit Land Bank staff cooperated fully throughout the process.”

Michigan has received $381 million in HHF money for blight elimination programs, by far the most of any state. Detroit was awarded $260 million of that, and has already spent nearly half of that demolishing more than 10,000 properties.

Duggan had championed the program’s speed and success at removing blight, but acknowledged Monday that it may have moved a little too fast.

“I’d say the speed with which we went outstripped the controls that we had in place,” he said.