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Blight reduction effort used in Illinois slammed by U.S. watchdog

Blight reduction effort used in Illinois slammed by U.S. watchdog
A home in the 300 block of South Joliet Street in Joliet is demolished June 27, 2016. The South Suburban Land Bank and Development Authority was awarded $2.4 million to help with demolition efforts. (Terrence Antonio James / Chicago Tribune)

Illinois blight fighters are disputing a taxpayer watchdog's report that casts doubt on the effectiveness of a federally funded effort to demolish vacant and abandoned homes left over from the nation's housing crisis.

The report, by the Special Inspector General for the Troubled Asset Relief Program, or TARP, blasted the $621.7 million Treasury Department program, saying it was "significantly vulnerable" to overcharging and other risks by not requiring bids, and could be used to tear down even more eyesores if the dollar cap for each demolition was less.

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It also said Illinois received $20.5 million in TARP funds to reduce blight but had not demolished a single home as of March 31. Illinois disagrees with that math, saying it has been authorized to spend $15.9 million, 10 homes were demolished by March 31 and many more are underway.

TARP was known for bailing out banks during the financial crisis, but it had other initiatives, including providing funds for state housing agencies to help struggling homeowners pay their mortgages. Starting in mid-2013, Treasury also began allowing housing agencies in Illinois and six other states hardest-hit by the housing crisis to distribute funds to local partners and their contractors to demolish and spruce up vacant and decrepit properties. In theory, that cleanup would help neighboring homeowners protect their own home values.

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But TARP's inspector general, in a report earlier this month to Treasury Secretary Jacob Lew, outlined what it believed were problems in the blight program. In Evansville, Ind., for example, TARP dollars were "abused to demolish lived-in, rather than abandoned, homes so a car dealership could be relocated."

The report praised another blight-fighting effort, the Department of Housing and Urban Development's $300 million Neighborhood Stabilization Program, for having more protections than the twice-as-big Treasury plan, which the inspector general said was "significantly vulnerable" to "unchecked" risks. The watchdog also questioned whether TARP's demolition reimbursements of up to $35,000 per property were "necessary and reasonable," while, in contrast, HUD limits blight expenses considered excessive.

In an initial response, the Treasury Department said its blight program is already "accountable," but it will study the audit's suggestions. Treasury also said the program has seen successes, citing a study showing that Detroit demolitions are boosting the values of homes within 500 feet by 4.2 percent. Michigan has been authorized to spend $381.2 million and has torn down 8,531 homes as of March 31.

Illinois' share of TARP blight funds is overseen by the Illinois Housing Development Authority. Its partners include Fox Valley Habitat for Humanity, Cook County Land Bank Authority and South Suburban Land Bank.

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The state has been authorized to spend $15.9 million, and by the end of June, local groups will have torn down about 70 homes, said Cami Freeman, Illinois Housing Development Authority spokeswoman.

The inspector general argued that the Treasury's maximum allowable demolition cost per property of $25,000 or, in the case of Illinois and South Carolina, $35,000 doesn't protect against waste and fraud because it doesn't reflect "necessary and reasonable costs" but rather allows for a "worst-case scenario." For example, the median demolition cost reported to Treasury has been $10,558, with an additional median greening cost of $2,700.

But Russ Rydin, executive director of the South Suburban Land Bank and Development Authority, said demolition reimbursement of up to $35,000 is "very reasonable."

The land bank, which is receiving $2.4 million to aid its demolition efforts, just completed and was reimbursed for three demolitions in Joliet, of which one "had a bunch of asbestos" and hit the $35,000 limit, Rydin said. "The other two were in the mid-$20s, and we could have put in additional expenses that we didn't, and those should have totaled around $30,000 each."

The Cook County Land Bank Authority was awarded $2.3 million to demolish at least 66 properties and has several demolitions in process, Freeman said.

Rob Rose, Cook County Land Bank Authority executive director, said the Greater Englewood CDC and Sunshine Gospel Ministries pick the sites for which his group oversees demolition. The land bank then acquires the site, conveys it to the nonprofit and picks demolition contractors through a bid process. So far, three firms have consistently bid on work, and the lowest bid is picked, Rose said. The land bank is trying to generate interest from more demolition firms, he said.

The inspector general's report noted Illinois' blight effort requires contracts to comply with municipal purchasing policies but said those procedures might be weaker than HUD's requirements and insufficient.

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