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Like Finding Money on the Street

Steve Banko
(photo: Rose Mattrey)

Tony Masiello slipped out of the mayor’s office two weeks ago to little fanfare. Though he never won any flashy awards during his twelve years as Buffalo’s chief executive, Masiello and his administration ensured their legacy by placing the city among the nation’s “elite” in several categories, including poorest based on median household income (5th), highest percentage of people living below the federal poverty limit (8th, at 25.9 percent), highest percentage of children living in poverty (6th, at 38.7 percent) and worst urban hardship score (10th). The last score is based on factors including income, housing, unemployment and education.

All of this means that Byron Brown has some big shoes to fill. Perhaps holes is a more accurate word. Lucky for him, all those bad ratings add up to financial opportunities in the world of grants and government assistance. It sounds counterintuitive, but think of Buffalo as a child receiving special education, and the federal government as the well-meaning school district. The school district wants to level the playing field for our learning-challenged city, so it invests more money in special programs to help us catch up to our would-be peers. In this case, though, the difference isn’t a couple thousand dollars, it’s tens of millions of dollars.

The federal government’s colossal Department of Housing and Urban Development (HUD) is the country’s largest community development assistance agency, with an annual budget that hovers near $30 billion. Each year, HUD pumps millions into local housing and community development here, including roughly $20 million in community block grants, $30 million for the Buffalo Municipal Housing Authority’s budget and approximately $5 million in Home Investment Partnerships Program (HOME) funds. That’s a lot of money, to be sure, especially in a city whose annual budget is about $300 million, not including education. But there’s still more money available to Buffalo and, more importantly, smarter ways to use the money that we’re already getting.

Brownfields

All of this came to the surface recently in an unrelated interview with Steve Banko, HUD’s Buffalo Field Office Director. He mentioned in passing that he was frustrated because the city wasn’t taking full advantage of money offered by HUD. Really? The same Buffalo that’s now under a control board? That sounds like a hobo turning down a $10 bill. The money that Banko was specifically referring to is Brownfield Economic Development Initiative funds (“BEDIs,” in HUD-speak). “The program seems tailor-made for Buffalo,” Banko says, “especially given our industrial history and financial straits.”

He’s right, too. Buffalo has more than 20 federal Superfund sites and 50 locations on New York State’s hazardous waste registry. Many of these sites are stark, empty plots that simply bear the name of a once-proud local industry—Hanna Furnace, Republic Steel, Shenango Steel or Bern Metal—and, if properly remediated, have the potential to someday be reused. Admittedly, Banko has a personal interest in brownfields redevelopment since he’s lived in South Buffalo, the most ecologically defiled area of the city, his whole life.

Here’s some good news, though. In the past three years alone, HUD’s BEDI program has awarded over $75 million in grants to remediate such brownfields in cities all across the country (leveraged by nearly $400 million in guaranteed loans). Of course, that’s only good news if the right people take advantage of it.

So far Buffalo hasn’t. Worse, we actually gave back $3.25 million in brownfield money six years ago. “They have applied for one BEDI grant in my seven years here (in 2000), they got it, and they gave it back,” Banko says. “It was the only time anybody in this office ever remembers a municipality giving back money. It doesn’t make any sense. Getting a grant is like finding money on the street.”

In Buffalo’s case, the 2001 grant was for $240,000 and the loan was for $3,030,000, to go towards remediating the Union Ship Canal. The problem for the city, according to both Banko and the city’s Director of Strategic Planning, Tim Wanamaker, is the loan portion of the BEDI program. A BEDI award typically consists of Section 108 loan funds that are at least double the grant portion. In other words, at least two-thirds of the award must eventually be paid back. The Section 108 loans use the block grant as collateral. If the city can’t repay HUD, then the amount owed is simply docked from their block grants over time. Several of those loans came due at the same time as the Union Ship Canal grant was happening, and the city suddenly lost a third of its block grant to repaying those loans. So they balked on that BEDI, and gave it back to HUD.

Wanamaker admits that the city is gun-shy when it comes to Section 108 loans because it has managed them poorly in the past (a problem, it should be noted, that he had nothing to do with). “We’ve had some difficulty with getting borrowers to repay those 108 loans in the past, so we haven’t been doing any more 108s in the two and a half years that I’ve been here,” Wanamaker says. “We’re really trying to clean out the portfolio before doing that again.”

Since the beginning of the Griffin administration, Buffalo has issued 36 Section 108 loans totaling $61.5 million. Thirteen of those loans (accounting for 61 percent of the money loaned out) defaulted, and unfortunately with 108s, the city assumes most of the risk. In the past, the city has funded very risky projects, ones that banks and other lending institutions turned down. When those projects fail, often there is no money to go after.

One such risky loan was for $800,000, and it was given to former City Judge Wilbur Trammell in 1994 to renovate a low-income apartment complex on Elmwood. That project failed when Trammell went to jail for falsifying the job’s expense reports. Another example of how Buffalo’s been screwed is the $1.5 million that developer Peter Elia borrowed in 1996 to develop plans for a trade center near the Peace Bridge on Porter Ave. There’s clearly no trade complex there, and Elia never repaid the majority of the city’s loan. Such projects, of course, cost the city much more in interest than they were ever worth. Currently, Buffalo spends as much as 20 percent of its annual block grant on repaying Section 108 loans.

While this debt seems to validate the city’s hands-off approach to 108 loans, it doesn’t exactly present a proactive solution. Other upstate communities are successfully taking advantage of BEDI grants all the time. Since 2001, Syracuse has received close to $10 million in brownfields grants from HUD, which they’ve used to expand a pharmaceuticals company and an insurance company, creating jobs and reclaiming land. Troy got $5 million to aid with waterfront revitalization. Rochester won $2.2 million to buy land and remediate it so a private business could expand. But we’re afraid that 108 loans’ll burn us again. Two simple solutions are to either be more cautious about who we loan the money to (reputable, financially sound companies with carefully scrutinized plans, for instance), or to just figure on losing the block grant money down the road (esentially making it a grant in loan clothing). The grants we receive could be enough incentive to get our overly cautious local developers interested in brownfields redevelopment. Maybe then we can stem the tide of suburban sprawl into empty countryside, and instead fill the gaping holes in our cityscape.

The BEDI program is just a chip off the block when it comes to HUD community development programs. “If you can imagine it [a development project],” Banko says, “we probably have a program that can help you get it done.” And that could be the problem in this city—lack of imagination.

Lakeview Hope VI project on Buffalo's lower West Side, the result of a HUD grant.
(photo: Rose Mattrey)

HUD also has grants with no loan component to provide rental assistance for the homeless (Shelter Plus Care); grants for the construction, acquisition or rehabilitation of transitional or permanent housing for battered women, women with children, or veterans (Supportive Housing Program); and Youthbuild grants, which help disadvantaged young adults earn their GEDs, learn a trade and get valuable job experience. All of these grants are primarily awarded to private and not-for-profit organizations who could use the city’s help. “With competitive grants, what we’re really encouraging is the partnership of public governments with private organizations,” says Nancy Peacock, HUD’s local Director of the Office of Community Planning and Development. “The city can leverage additional funds, which makes their applications more competitive in bringing federal dollars into the area.” The local HUD office can lobby for grants here, but if the local government is showing financial support for their projects, the folks in Washington are more likely to be confident in the program. Besides, when the city makes an investment, it gets the fringe benefits of a stronger workforce, fewer citizens on public assistance and fewer people living on the streets.

In addition to the city’s past reluctance to take advantage of HUD dollars, battles between the Common Council and mayor’s office over who gets block grants have squandered the millions that Buffalo does get.

Past Failures

Buffalo’s recent history planning and development can only be called dumbfounding. Given ample money and little oversight, our bloated government has pissed away hundreds of millions like cheap beer on a Friday night. Time and again, Buffalo’s housing programs have been botched because there was no plan in place, or just as likely, the plan was poorly executed.

Take, for instance, Community Development Block Grants (CDBGs). Block grants are large blocks of money intended to help distressed cities “meet their housing and community development needs,” according to HUD’s program materials. But those are about the only guidelines HUD provides. Oh yeah, and 70 percent must be used for projects that benefit low- and moderate-income residents. Those are pretty broad criteria for spending $20 million in block grants ($22.85 million in FY 2005).

As you might expect, the city has screwed that up famously over the 30-year history of the program. On paper, HUD has given Buffalo $579 million in block grant money in that time, but try and find the physical evidence of that spending and you’ll likely come up empty. Instead of creating blocks of tangible progress (large-scale brick-and-mortar projects and concentrated economic development efforts), the city has traditionally employed the scattershot method of distributing its block grant. That includes using it to pay city employees, doling it out to dozens of local community-based housing and human service organizations and repaying risky loans.

Over $100 million has been spent on city employees (a practice that continued in 2005, when 124 salaries were paid with block grants). Also, according to a recent investigation, over the years $75 million went to as many as 70 unproven community-based organizations a year with little regard to their performance—there were dance companies that never danced, daycare centers with no children, tutoring companies with no pupils and so on. Usually it was discovered later that these companies had a relationship with a member of the Common Council. Many of those organizations clearly weren’t providing levels of service that justified their allotments, but the city was unawares because it wasn’t measuring their individual performances. While the city’s policy in regards to these community groups is improving (they are now building in performance guarantees), Buffalo continues to spread its money thin. “What’s happening is they’re dividing the money up into very small chunks,” says Banko. “So instead of having that block of ice in the glass chilling it, you have the little tiny pieces that dissolve faster.” The national trend, on the other hand, is to concentrate block grant funds in specific neighborhoods, which produces long-lasting, tangible results. It’s a concept that Buffalo is apparently still working on.

Another HUD program that has dogged the city in the past is the HOME Investment Partnerships Program. A formula program, HOME has been providing grants since 1992 to promote homeownership among low- and moderate-income residents, as well as for building and renovating houses and apartment buildings. Buffalo’s HOME allocations had become a yearly routine, until 2003. That was when HUD first denied the city of $6 million worth of HOME funds and withheld $1.5 million that had previously been set aside for an East Side housing project, citing mismanagement of its housing programs, poor record-keeping, lack of HOME project oversight and sluggishness to spend previously granted awards. Buffalo was slow to learn its lesson, though. In 2004, HUD again shot Buffalo down by withholding $5 million. The allegations were the same as the first time. In both years, the specific projects that were under fire were the conversion of two former schools and the Sidway Building (which was not eligible) into housing, as well as the city’s Willert Park Home Ownership Plan.

Later in 2004, after the city made major management changes and agreed to return money from two botched projects, HUD agreed to release $8 million of that money to the city. Still, Buffalo’s net loss from mismanagement of HOPE funds was over $5.5 million.

Willert Park was another situation where proper planning could have saved the city millions. The $40 million project set out in 1997 to build 344 new houses in a blighted district on the near East Side. Of that money, $12.7 million came from HUD in the form of a $6 million grant and $6.7 million in loan guarantees, which was to be used to build more than half of the houses as low- and moderate-income homes. By 2004, only 124 of the 344 houses had been built, and only 42 of them sold to low- and moderate-income residents (the rest were sold at market rate). And this after HUD’s share of the cash had already been spent. Last month, HUD demanded a repayment of $3 million from the city for not living up to its contract. “They’ve got to pay us back on that one,” says Banko. “They didn’t do it, but they had a great plan initially in place. It’s a two-step process, though. Once you get the money, you’ve got to spend it wisely, you’ve got to do what you said you would do, and in this case they didn’t.”

For years, the city has been dealing with a surplus of dilapidated housing, primarily on the East Side, that needs to be demolished for safety and aesthetic reasons. There are over 22,000 vacant houses in Buffalo at last count, but at $7 to 9,000 a job, the city oftentimes lacks the resources to carry out a sufficient number of demolitions (last year, in fact, the city complained of being short on demolition funds). Back in 2000, however, HUD offered a program where it would demolish any homes it had listed in the city for less that $5,000, pending a joint inspection by HUD and a city inspector. “If they both decided that it was beyond hope, HUD would pay for the demolition, pay to clear the lot and the city of Buffalo’s only responsibility would be to take title to the lot, to take it off our inventory,” says Banko. That program came crashing down, however, when the city failed to take title to the majority of the lots. After 52 homes were knocked down in 14 months, the city had only taken control of four. The problem for the city is that processing is so sluggish that it takes two years for the city to transfer ownership of its lots. In the meantime, since those lots are on city tax rolls, they need to be maintained—garbage picked up, grass cut, etc.—at the city’s expense. Rather than fixing that process so the city can perform simultaneous closings—HUD gives it to the city for $1, who gives it to a church, a homesteader or a developer, all in the same transaction—they just chose to ignore that program, so HUD dropped it.

The most flagrant symbol of government waste and mismanagement in the city’s housing strategy is the Buffalo Municipal Housing Authority, which is currently being investigated.

These sorts of problems with spending federal housing and urban development dollars are not brand new by any means. The Hickory Woods development in South Buffalo was built in 1996 next to a known hazardous waste site with federal money; a lengthy, federally-sponsored program to remove lead paint from houses finally flopped in 2001; and a court order in 1996 called on the city to desegregate its federally funded low-income housing. Past administrations have been slow to change, and have done a poor job of oversight in these departments. The pressure is on the Brown administration to make urban planning and development and housing top priorities, and find creative new ways to take advantage of federal, state and private funds available to the city and the various private entities who rely on the city.

A Model City

Whenever local HUD officials talk about Buffalo’s inability to take full advantage of big-ticket federal projects like the community block grant, they always contrast it with Rochester. “If Buffalo wants to see someone getting it right,” they say, “they don’t need to fly to California or visit the sunny South; all they need to do is take a drive down the Thruway to Rochester.” Rochester? What do they have that we don’t? According to Steve Banko and Nancy Peacock, Rochester had Bill Johnson, a progressive mayor whose administration restructured the city to improve its development and housing efforts.

“Rochester has been an excellent example of sector planning,” says Peacock. “They’ve really empowered their citizens by dividing their city into ten sectors, each of which hold citizens’ hearings.” Each of those sectors has developed its own Sector Action Plan, a blueprint for development and improvement in their community. Representatives from each of those sectors then meet to develop a city-wide comprehensive plan for economic development and housing. Each year, then, the city targets one sector with its block grant. That’s the plan they stick to.

There are incentives for businesses to move into that particular sector, and none for businesses moving into another sector. Improvements are made in large chunks in one sector and only in that sector. Each sector understands that its turn will come in the comprehensive plan, a factor that cuts down on infighting. This is also partially attributable to the fact that Rochester’s Common Council has only seven members, four of whom are at-large. “That way the Council can vote for what’s best for everyone, and avoid the fights between constituencies,” Banko says. By contrast, Buffalo has nine councilmembers, each representing his own small constituency. The at-large seats were eliminated when the council was restructured in 2002.

Another important factor, Peacock says, is that “Mayor Johnson had a deputy mayor who was the nuts and bolts guy. He was definitely able to focus on the big picture concepts of planning and development, while he deputy took care of the day-to-day stuff.

Forecast

The point of this article isn’t just to point out where the city has messed up in the past, although that’s not hard to do. It’s also a way of planting new ideas here in Buffalo, of offering suggestions on where improvements can be made. The city is certainly moving in the right direction on several fronts already.

When Tim Wanamaker came to the city in 2003, he started making some important changes to the city’s housing and development operations. He was able to recover $8 million in HOME funds by hiring new staff to oversee the program, including two CPAs. He has brought new accountability to City Hall, and he understands very well the way HUD operates.

The Commercial Area Revitalization Effort (CARE), initiated last July, promises to help breathe new life into six older, troubled commercial areas through building and sercurity improvements. This focused attention will help, if only in a small way, to make up for all the attention that has been lavished on Elmwood and Hertel in the past.

Byron Brown will have two deputy mayors, allowing him more time to focus on his real job—policy. Steve Casey will handle the daily administrative duties of City Hall, while Angela Joyner will use CitiStat to monitor and manage the operations of many of the city’s major departments. Masiello tried to micro-manage City Hall, and it completely consumed him.

The city has said that when it again ventures into Section 108 loans, it will use them for less risky loans.

But, at the same time, we know there’s more that can be done. More creative steps need to be taken to increase development without adding to the City’s financial burdens.

Why not create an office whose sole purpose is to seek out and apply for grants? When Masiello was elected, he created the Grants and Resources Network Partnership, a three-person office that was led by Stephen Keller. That office cost the city $140,000 per year, but it brought in $4 million in its first two years. Now there was a department that actually paid for itself. It also helped streamline the numerous grant applications that various city agencies had floating about, and made sure that grant applications were well-written and consistent. We couldn’t find any evidence of that office’s existence past 1996, and Wanamaker said he’d never heard of it.

Buffalo needs to take advantage of every dollar possible. After all, it’s like finding money in the street.