HUD Probing Possible Housing Commission ‘Favoritism’

The U.S. Department of Housing and Urban Development is investigating whether the San Diego Housing Commission broke any laws when it became involved in a complicated 1985 housing project that the federal agency later warned smacked of “favoritism” toward the developer, The Times has learned.

HUD Regional Administrator Duncan Howard said Tuesday that he called for the investigation by the agency’s inspector general after Housing Commission officials refused to let a HUD employee last week examine commission files on the Island Gardens Apartments, which were rehabilitated under a federal program.

Howard said he wants to determine whether the commission acted improperly, including “any criminal activity with regard to its dealing with the developers.”

Richard Fix, the man who will conduct the probe as HUD’s regional inspector general, said he has already contacted the FBI for help.

Housing Commission officials said Tuesday it was “absolutely false” that they failed to cooperate with HUD.

“We have nothing to hide,” said Ken Guyer, who blamed the problem on miscommunication. “They can come down here and look at the files anytime they want. We are absolutely disappointed if that’s what somebody has stated.”

The unusual confrontation between HUD and the Housing Commission comes after The Times submitted a series of questions to the federal agency more than two weeks ago about how Housing Commission Director Ben Montijo and his staff helped arrange a deal for a developer to rehabilitate the 122-unit apartment complex under a special federal program. The developer was a partnership called Conruba, which includes state Coastal Commission member Gilbert R. Contreras.

The questions prompted HUD’s office in Los Angeles to send an employee to San Diego last Thursday and Friday to look through the Island Gardens files, said Howard, who oversees HUD operations in Arizona, California, Nevada, Hawaii and U.S. territories in the Pacific.

“When they said they wanted to respond in writing but they didn’t want us looking into the files, that created enough suspicion that I wanted the inspector general to look into it,” said Howard, who formally requested the investigation Friday.

To date, Housing Commission officials have also repeatedly declined requests to answer written and oral questions posed by The Times about the Island Gardens project. Commission spokesman Guyer said the agency wants to research the questions and provide answers to all the queries at a later date, perhaps this week.

“There’s no way we’re going to leave any room for misinformation on this. None,” Guyer said.

The deal to fix up the Island Gardens Apartments and rent them to low-income tenants was a complicated transaction that evolved over several months and ultimately qualified under HUD’s Section 8 Moderate Rehabilitation Program. Island Gardens is in the 3500 block of Island Avenue, just a short distance from the Gateway redevelopment project in Southeast San Diego.

Under the Section 8 program, the federal housing agency agrees to make up the difference in rent between what a tenant can pay and what a landlord charges for an apartment unit. Most of the time, the Section 8 “certificate” is assigned to the tenant, meaning the government will pay the rent subsidy wherever he resides.

But the so-called “mod rehab” program is coveted by landlords because HUD awards the Section 8 certificate to the apartment unit, not the tenant. Once assigned, it means that the federal government will subsidize rents for the apartment up to 120% of the fair market rent for 15 years--guaranteed income for the landlord.

Although HUD retains final approval, the federal agency doesn’t pick which landlords qualify for the rehabilitation program. Instead, it relies on local agencies such as the Housing Commission to pick deserving developers, who promise to spend at least $1,000 in renovation for every housing unit that qualifies for a Section 8 certificate.

In the case of Island Gardens, the Housing Commission took unusual steps to make sure that Conruba could buy the apartments. At one point, the commission purchased the apartment complex and held onto it for nine months so Conruba could line up financing for the project.

When the commission sold the property to Conruba, the public agency loaned the partnership $709,000 so the private businessmen could buy the property.

That transaction was so unusual that it drew a warning from HUD last February.

“While we do not wish to take the position of advising you on the use of your non-moderate rehabilitation funds, this involvement could be construed as a conflict-of-interest transaction or favoritism to an owner,” a HUD official wrote to Montijo. “Therefore, the relationship between your agency, the owner, contractor and subcontractors, should be reviewed.”

Benjamin Bobo, director of HUD’s office in Los Angeles, said the Housing Commission’s actions in the Island Gardens deal were “highly unusual.”

In addition, a Times examination of the deal also showed:

- The Housing Commission apparently violated federal guidelines by not advertising the rehabilitation program. HUD regulations state that, once it grants a certain number of housing “mod rehab” units to a local housing agency, the agency must promptly “make known to the public through publication in a newspaper of general circulation as well as through minority media and other suitable means, the availability and nature of the program.”

But the commission apparently failed to do that after it received an allotment of 260 units between April, 1984, and January, 1986. When housing activist Mel Shapiro and his attorney, Charles Wolfinger, filed a public records request last August to obtain copies of all the ads, the commission handed over only one May, 1984, ad announcing the availability of 27 units.

“When I went down to the commission, I asked and said, ‘Are there any other advertisements?’ ” Wolfinger said. “They said, ‘If that’s all that’s there, that’s all we have.’ ”

Guyer confirmed that the commission often ignores the HUD regulations, depending more on “word-of-mouth” to spread the news about mod rehab units.

“Advertising is a word that some people have a stereotypical image of and that’s placing an ad in a newspaper,” Guyer said. “I think anybody in the building industry can tell you that that is not the best way. The best way is word-of-mouth through the Building Industry Association.”

Guyer declined to say if word-of-mouth was used to alert Conruba about the availability of mod rehab for its apartments. Contreras last week declined to say how he found out about the offering and other details of the project.

- The commission’s push for Island Gardens under the federal program contradicted the agency’s own goals for housing rehabilitation. In its application to HUD for rehabilitation assistance in 1984, the commission said it would give preference to landlords with seven apartment units or less. Island Gardens is 122 units.

The application also said the commission is committed to using the mod rehab program to promote the “deconcentration” of assisted housing to areas that are not predominantly minority and low-income. Island Gardens is in a census tract that is predominantly low-income and, according to the 1980 census, 54% black, city Planning Department statistics show.

- Shortly after the Housing Commission received an allotment of 150 units under the rehabilitation program in April, 1984, the agency wrote to San Diego landlords, telling them that there were not enough units to go around to those who had inquired. In May, the commission turned down five landlords “due to a shortage of Section 8 certificates allocated for the bedroom sizes you desire,” letters obtained by The Times show. It is unclear whether the commission was referring to number of bedrooms or to the specific dimensions of bedrooms in the units.

One of those owners, Florella Del Mar, said her request was for two, two-bedroom homes on 65th Street.

In January, 1985--eight months after those rejections--Conruba officially applied for the program, and by the next month, the Housing Commission agreed to award 122 units to Conruba, records show. Island Gardens has 109 two-bedroom units and 13 three-bedroom units.

- Conruba subsequently hired Montijo’s teen-age son, Randy, to work on the renovation of Island Gardens. Contreras said he hired Randy at $600 a week for three weeks last spring after the 17-year-old youngster applied for the job on his own. Montijo also said he checked with the commission’s attorney to make sure no conflict of interest existed.

Randy Montijo’s mother, however, said it was her former husband who found the job for the youngster. “His dad got it for him,” said Patricia Bright, now remarried and living in the Chicago area.

These findings formed the basis of The Times’ questions to HUD and the Housing Commission about the Island Gardens deal.

Contreras and his business partners--his brother Sal, Robert Rubalcaba and others--first approached the commission in late 1984 for aid in buying the 122-unit apartment complex. A November, 1984, analysis of the deal, performed by an officer at Great American Savings and Loan, shows that Conruba could expect to make a $2-million profit if it fixed up the property and sold it in five years.

Yet Conruba was caught short. The previous owner of the complex wanted to complete the $4-million sale before the end of the year for tax reasons, too soon for the partnership to line up the required financing, commission records show.

Montijo suggested a way to save the deal. He proposed that the Housing Commission buy the property outright and hold onto it until Contreras and his partners could secure the financing. As a part of that financing, Montijo proposed that the Housing Commission itself lend the businessmen a portion--$709,000--of the money they needed, at market rates, to buy the property from the public agency. In addition to the loan, the Housing Commission eventually put up $1.3 million in letters of credit to back the deal. It is unclear where the agency got the money for the purchase and loan.

Housing commissioners approved the deal, subject to the City Council’s passage of a $3.6-million multifamily revenue bond issue to help Conruba buy and renovate Island Gardens. On Nov. 19, 1984, the council approved the bond issue.

The next month, the commission purchased the apartment complex and held it for nine months--until September, 1985--when Conruba bought the apartments for $4.2 million.

In the interim, the commission recommended to HUD that the 122 units at Island Gardens be included in the Section 8 mod rehab program. The commission also wrote to Conruba and said it could expect to receive monthly rents of $523 for a two-bedroom unit and $658 for a three-bedroom unit.

HUD agreed to include Island Gardens in the program, but it wasn’t until last year that Conruba began renovating the apartments, using Contreras Brothers Development Corp. as its contractor.

One day in April, Gilbert Contreras said, Randy Montijo walked into the construction company’s office, looking for a job.

“We were short three laborers and we hired him,” said Contreras. “When he got to the job, we took down his name for an application. When they saw it was Randy Montijo, the foreman called me and I called Ben.”

Montijo said he called the agency’s attorneys and was assured that his son’s employment did not constitute a conflict of interest. He released to The Times a memo from the law firm, dated Aug. 12, 1986, that confirmed the advice given in the conversation.

Montijo said he had no role in his son’s employment, and Contreras said the housing director never contacted him about the job, which lasted three weeks and paid about $15 an hour on the cleanup detail.

“You can’t control everything somebody else does and, in some cases, you don’t have a right to control it,” Montijo said. “He’s getting a job and he’s working at something and I don’t have a right to tell him he can’t do it.”

But Randy’s mother said in a telephone interview that it was Montijo who arranged for the job.

“I was shocked,” Bright said about how much her son was being paid. “That was a big mistake as far as I was concerned. They hired Randy for something like $20 an hour for some project and now that’s ruined him because he thinks he’s worth $20 an hour.

“He doesn’t want to work for minimum wage. He said, ‘Mom, I can get $20 an hour.’ I said, ‘No, you’re not. You made that because your dad got you the job.’ ”

After Randy Montijo’s employment with Contreras Development, the elder Montijo went back to housing commissioners and asked them in September, 1986, to change the terms of the agency’s loan to Conruba. He wanted them to lower the interest rate to guarantee that the rehabilitation project would remain “economically viable,” according to a report he presented to the board.

Now that HUD wants to reexamine the deal, the federal agency is being barred from looking at Housing Commission files, Howard said. Even after assurances by the local agency on Tuesday that it will open its records, Howard said he will not call off the investigation.

Inspector Fix said he has contacted the FBI because it has offices in San Diego and can help with the investigation.

“The allegations could possibly involve criminal matters,” said Fix. “You’re dealing with federal funds. If they have been diverted and misused, you’ve got a possible criminal offense.

“It could turn out to be nothing but legitimate. It’s also a possibility that it is a matter that could be handled by HUD officials administratively. I’m not sure at this time.”

HUD officials said they do not know when their investigation will be complete.