Morrow Files $10-Million Suit Over Diverted Housing Funds

With the primary election just days away, mayoral hopeful Floyd Morrow has filed a $10-million, class-action lawsuit against the City of San Diego and the San Diego Housing Commission, accusing them of diverting $2.5 million designated for low-income housing into a “highly irregular transaction” with a prominent real estate broker.

Morrow announced the lawsuit, which was filed late Tuesday, at a Wednesday press conference outside City Hall. As the plaintiff’s attorney, he said he wanted to make public any conflict of interest he faces if elected mayor.

The suit centers on a 1984 housing commission loan of $1.5 million in federal funds to Robert J. Lichter with which the broker purchased a Barrio Logan office building and leased it back to the commission. The commission also bought the land on the site for $1 million.

Candidate Morrow bristled at suggestions that the timing of the suit was political.

“I could not wait simply because the campaign came along,” Morrow said, adding that the suit, if successful, could benefit at least 1,000 people who have waited years to receive housing subsidies from the commission. He said the timetable for the suit had been determined before he decided to run for mayor.

Morrow also criticized Councilman Bill Cleator, another mayoral candidate, for not preventing the Housing Commission’s deal with Lichter, president of John Burnham & Co. commercial brokerage firm and a longtime political supporter of Cleator. The Housing Commission’s offices are in the building involved.

“I am suggesting very straightforwardly that it is a dereliction of his duty not to discover what is going on, particularly when it has been reported to him,” Morrow said. “People have stood up in the council chambers and told him what’s going on, and they (council members) refuse to listen. . . .

“It’s the good-old-boy syndrome,” Morrow said. “You scratch my back, I’ll scratch yours. They appoint people to commissions. They appoint people to boards. And this is just one big game, at the expense of the public. That’s all that’s involved, and that’s what I’m trying to get to.”

Cleator said he has never analyzed the Housing Commission deal with Lichter in “complete detail,” and can’t recall if he even voted to approve it. Asked for his reaction to the Morrow lawsuit, Cleator replied: “His polls must not be showing too well.”

In addition to the city and Housing Commission, Morrow’s lawsuit names the commission’s executive director, Ben Montijo; Lichter and Gail F. Lichter, his wife. It is filed in the name of Wayne Ward, who applied for housing assistance in November, 1981, and has yet to receive any rental subsidies. Because Ward didn’t receive help from the commission, the suit says, his six-member family had to move in with another family in “overcrowded, unsanitary conditions.”

The suit alleges that the commission, with approval of the city, entered into a “highly irregular transaction” with the Lichters when it agreed to loan the couple the $1.5 million in federal funds to purchase the office building at 1625 Newton Ave. in Barrio Logan .

The Lichters leased back the building to the Housing Commission, which has also purchased the land on the site for $1 million. The $2.5 million used by the commission for the deal came from savings on its administrative costs for a federal rental subsidy program for the poor.

Housing officials have argued that the “public-private partnership” could net the agency $2 million in 10 years through savings in rents, interest income from the Lichter loan and the anticipated appreciation in the building’s value.

The deal is also worth more than $1.1 million to the Lichters, according to a previous Times analysis of the transaction. The figure includes an annual profit of $30,000 for operating the building and an annual income-tax deduction of $50,000 a year for depreciation.

Morrow’s suit alleges that the $2.5 million in federal money should have been used to pay rental subsidies for low-income people, instead of buying the commission new office space. In many cases, it says, those eligible for subsidies have been forced to wait three to five years for assistance.

Morrow said Wednesday that he served notice on the city and commission on Dec. 2 for damages in Ward’s behalf. The city did not reply within the necessary response time of 45 days, and Morrow decided to wait an additional 30 days before filing the suit on Tuesday, he said. If he is victorious, Morrow said, he stands to make $2 million in attorney’s fees.

Montijo said Wednesday that the commission can afford to pay rental subsidies for only 4,800 of the 70,000 families eligible for housing assistance. That is why, he said, many people must be put on a waiting list for the federal housing program.

He also agreed that the money used in the Lichter deal, which was consummated in 1984, could have been used instead to pay more rental subsidies, averaging about $200 a month per household. But the commission decided to invest the money with Lichter for a greater return in the future.

“We’re taking a long-range view and it is (that) we can assist more people by doing this, rather than take the short-sighted view of taking the available dollars and throwing them at 70,000 households and they (dollars) would be consumed in a short amount of time,” he said. “Then you wouldn’t have anything to plan a long-range program.”

Lichter’s secretary said he and his wife were out of town Wednesday and could not be reached for comment.