Manager’s Former HUD Role Angers Renters : Housing: Tenants are bitter about rent increases that Michael S. Damron worked on before a firm hired him to run their Pacoima complex. He and the agency deny wrongdoing.

A federal housing employee who worked on millions of dollars worth of rent increases and other benefits to the owner of a housing project last year was hired soon afterward to manage the same San Fernando Valley complex.

The change in jobs prompted allegations by tenants that they had been sold out and also sparked an official inquiry by the government.

The employee denies any wrongdoing, and the Department of Housing and Urban Development found that no law was broken. But tenants at the complex, the Lakeview Terrace Apartments in Pacoima, continue to complain bitterly.

This year, tenants have objected to accelerated rent increases at the low-income project and alleged that the new complex manager has retaliated against some tenant activists by ousting them from their apartments.

The manager is Michael S. Damron, who as a mid-level HUD employee worked on an agreement that gave the owner of Lakeview Terrace Apartments benefits, including rent increases for some tenants exceeding 100% over three years. Two months later, Damron left HUD to run a private management company created by Richard Tod Spieker, a Palo Alto real estate developer who owns Lakeview Terrace Apartments and five other Southern California properties.

“All of a sudden, he changes his side; he’s on the other side of the fence,” said Mary Cooley, a former tenant leader. “In my heart, I know that’s wrong.”

“If this thing is not illegal, it should be,” said Charles Lewis, executive director for the Center of Public Integrity in Washington, when the case was described to him. “This is exactly why people don’t trust government and why the revolving door is a serious problem that scares people.”

At least one HUD insider familiar with the case agrees. “It stinks to high heaven,” he said of Damron’s job switch.

Citing a lawyer’s advice, Damron, 38, declined requests for an interview for this article. But he has maintained that he had done nothing illegal and that Spieker’s management company, Spieker Cos. Inc., has received intense scrutiny from HUD. Spieker did not respond to telephone calls and a letter seeking his comments.

Lakeview Terrace Apartments are in a working-class neighborhood with a largely black and Latino population. They have a history of maintenance and management problems that have been documented by HUD since Spieker bought the property in 1986. State and federal legislators have echoed tenants’ demands for improvements at the 128-unit project.

Against that backdrop, Lakeview Terrace Apartments in December, 1988, became the first HUD-insured property in Los Angeles County to begin a process known as prepayment.

About 3,200 housing projects built with government financing in the 1960s and 1970s under the National Housing Act are eligible for the prepayment program. It grows out of a law allowing developers to pay off 40-year mortgages after 20 years and convert low-income units to more expensive residences or sell them if they wish.

In 1987, the 20-year point was approaching for many projects. Congress, fearing the loss of thousands of units of low-income housing, severely limited owners’ rights to prepay mortgages.

As compensation for the new limitation, owners can get such benefits as higher rents, low-interest loans against the equity and grants for repairs. The benefits must be negotiated with the government, with tenants a party to the talks. Landlords also may sell the property to tenant groups or nonprofit agencies.

Owners, including Spieker, promptly began applying for the money, and negotiations with HUD followed.

Damron, a Navy veteran, joined HUD in early 1989. He became a $40,601-a-year loan specialist in April, 1990. Lakeview Terrace Apartments was one of several projects he worked on as a member of a two-person team whose job was to recommend financial benefits for the owner in lieu of prepayment.

One issue was rents. Some increases were certain to be granted, and the law set a minimum phase-in time of three years. Exactly how much the tenants would pay and whether the phase-in would take longer than three years was up to HUD. The tenants wanted the biggest increases spread over a longer period.

A second issue was how much tenants could deduct from their rents for utility costs under HUD guidelines. The landlord submitted data based on a handful of apartments. The tenants maintained that those apartments had atypically low utility bills.

A third issue was a plan for painting and repairs, required for the owner to get HUD-supervised money for apartment improvements. The tenants attacked the company’s plan, saying, for example, that it addressed only maintenance problems that residents had complained about in writing.

HUD announced the results in November, 1990. Spieker won on rent and utilities. He had to change the maintenance plan, but not to the tenants’ satisfaction.

Over tenants’ objections, HUD authorized rent increases for moderate- and lower-income tenants and required future tenants to pay 30% of their incomes as rent. Spieker received a $4.4-million HUD-insured loan and access to additional money for maintenance.

HUD officials point out that some tenants had been paying as little as 10% of their incomes as rent and some rents were cut under the plan.

In January, Damron switched hats, which raised questions under two areas of federal law.

First, ex-government employees are prohibited from representing private employers on federal matters in which they participated “personally and substantially” as government workers. The law says this can mean making recommendations as well as decisions.

The tenants contend that Damron, as a HUD expert, played a key role at Lakeview Terrace Apartments. As a manager, he often works with his ex-bosses in HUD.

Critics inside and outside HUD said Damron’s expertise gave him influence at Lakeview Terrace Apartments. In a Sept. 14, 1990, meeting with tenant leaders, after the plan received preliminary approval, Housing Management Director L. Joseph Lagerbauer deferred to Damron, said Elaine Mallette, a former attorney for the tenants, and the tenant leaders.

“Lagerbauer introduced Damron as a prepayment expert assigned to Lakeview Terrace and someone who had had lengthy negotiations and meetings with the owner of the complex,” Mallette recalled. “Sitting in that meeting, it was clear that he had much more knowledge of the intricacies of the plan of action than his boss. So his boss relied on his opinion relative to the plan.”

HUD spokesman Scott Reed said Damron attended the Sept. 14 meeting only because Damron’s supervisor was unavailable. Lagerbauer does not recall specifics, but would have introduced Damron basically as a technician, Reed said.

Details about Damron’s role in the prepayment process were not available. The Times sought relevant records under the Freedom of Information Act. HUD said they were not public under the law. The Times is appealing.

Beverly G. Agee, HUD’s regional counsel in San Francisco, said privacy law prohibited her from giving details of the agency’s 1990 inquiry into the circumstances surrounding Damron’s new job.

Charles Ming, manager of HUD’s Los Angeles office, insisted that Damron was never in a position to make decisions or participate substantially. Officials said he was a technician who started work on the plan after negotiations were nearly completed. And the agency’s inquiry found that he had the right to go to work for Spieker Cos., Ming said.

A second area of federal law that raised questions involves potential conflict of interests by job-seekers.

Federal employees are barred by law from participating in a matter in which someone with whom they are negotiating for a job has a financial interest.

HUD officials would not say if they determined when Damron began job talks with Spieker, who approached whom or how far the discussions had gone when HUD learned of them.

Lawrence Wahl, vice president of Alpha Property Management Inc., the previous Lakeview Terrace Apartments manager, said Spieker told him as early as October, 1990, that he might establish his own management firm. Spieker said in December, 1990, that he had hired a regional manager, Wahl recalled.

On Jan. 18, Spieker’s new company informed Alpha that it was taking over, with Damron in charge, Wahl said. On Feb. 15, Spieker wrote to HUD that Damron would be regional manager.

“Evidently, Tod Spieker had to be talking to the man during the period,” former tenant council President Lillian Price said.

Ming acknowledged that he became concerned when Damron informed a supervisor in November, 1990--after the Lakeview Terrace plan was approved--that he had discussed a job with Spieker. Ming said he immediately “had him stop working on anything that related to Spieker Cos.” and referred the matter to HUD’s San Francisco regional office. He said it determined there was no impropriety.

Since then, controversy has marked Damron’s tenure as manager of the apartments and has left many residents bitter.

The first fight was over whether Damron’s company should be allowed by HUD to manage Lakeview Terrace Apartments.

A HUD loan servicer who reviewed Spieker Cos.’ application to manage the apartments recommended against approving the firm on the grounds that it had “no occupancy experience and the general attitude appears to be one of indifference to HUD.” The review also cited past problems at Spieker-owned properties.

But a HUD supervisor overruled that recommendation. Citing conversations with Spieker and Damron, he granted Spieker Cos. conditional approval to manage from February until June. HUD officials said that such an action is not uncommon.

Price, the tenant council’s former president, fought the renewal of the company as manager. In May, five days after she wrote a letter giving her views, Damron announced that management would hold elections to form a new tenants council. Shortly thereafter, Price and a fellow tenant leader, Mary Cooley, were told that they would have to change apartments because their families were too small for their three-bedroom units.

Price and Cooley called it retaliation. They said their apartments were not needed for larger families and that two other families in identical situations were not told to move.

In a July 8 letter to HUD, Damron said he decided to form a new tenants council because HUD had questioned whether the incumbent council had been properly elected. He backed off and canceled the election after meeting with tenants, a HUD official and an aide to Rep. Howard L. Berman (D-Panorama City).

Nevertheless, Price moved out of Lakeview Terrace Apartments, and Spieker Cos. filed an eviction suit against Cooley, which she lost. A judge ruled she was not a victim of retaliation.

The tenants got more bad news when Damron’s company announced that it was raising rents beyond what the tenants had expected under the negotiated prepayment plan. Some rents went up the second year to the amount tenants had expected in three years. Tenants were told the increases were legal because their incomes had gone up since the plan was written.

School maintenance worker Dorothy Pitts’ rent went from $337 to $578 a month, a 72% boost. Earlier, she had been told to expect rent increases of no more than $70 a month for each of the three years.

Her rent went up so precipitously in part because the second and third year of the phase-ins under the plan were both imposed in the second year, said Pamela Brown, a San Fernando Valley Neighborhood Legal Services attorney representing the tenants.

In addition, her pay increased $2 an hour, to $12. That brought her rent to 30% of her income in the second year of the plan.

“I had to cut down on the food I got because I had a lot of other bills to pay,” said Pitts, who lives alone in a two-bedroom apartment. “They told me it was because I got a raise. I told them even with the raise I didn’t bring home a thousand a month after they take out Social Security, unemployment and everything.”

Through a Neighborhood Legal Services attorney, the tenants protested that the latest increases violated the terms of the plan and were unfairly harsh on tenants. HUD officials acknowledged that further clarification was needed on regulations governing rent increases based on income, but they concluded that the landlord could raise rents as tenants’ incomes went up.

At one point, Damron went to HUD offices to help officials prepare guidelines in response to the rent dispute.

“Behind closed doors, HUD is working with the owner to develop a policy that validates their earlier decision on the rent increases,” Brown said in an interview. “It’s absolutely outrageous that Damron has this line of communication directly with HUD and uses it in a way to assist his employer to get more money out of low-income tenants.”

HUD officials said Damron merely provided them with information on tenants’ incomes. They deny that Spieker’s company got any preferential treatment either before or after Damron left the agency.

Indeed, Spieker Cos. received an unusually harsh “below average” rating for management that resulted from an in-depth HUD review in September. Nonetheless, HUD extended the Spieker Cos.’ conditional approval until December.

HUD turned down the Spieker Co.’ appeal of the low rating, which put it among the bottom 10% of HUD-funded properties. In a Dec. 11 letter to Spieker, the agency cited continued “poor practices” and scheduled a follow-up review in February.

Chronology of HUD Controversy

The following is a chronology of the controversy concerning Lakeview Terrace Apartments and the Department of Housing and Urban Development.

April, 1990: Loan specialist Michael Damron joins two-member “prepayment team” in HUD’s Los Angeles office to help prepare a package of financial incentives for Lakeview Terrace Apartments, owned by Palo Alto developer Richard Tod Spieker.

Sept. 14: Housing Management Director L. Joseph Lagerbauer and Damron meet with tenant leaders and their attorney, who says Damron was introduced as the person who handled negotiations with Spieker and is an expert on incentives.

Nov. 2: HUD gives final approval to plan for Lakeview Terrace, granting Spieker rent increases as high as 30% of some tenants’ income, and other benefits.

November: Damron informs HUD supervisors that he is considering a job with Spieker. He is reassigned from working on any Spieker projects. Agency determines that Damron committed no impropriety, HUD administrators say.

Jan. 2: Damron leaves HUD.

Jan. 18: Spieker informs Alpha Property Management Inc., which he had retained to manage Lakeview Terrace Apartments and his five other Southern California properties, that he plans to replace it with a company that he is creating.

Feb. 15: Spieker informs HUD in writing that Damron will be his regional manager.

Feb. 28: HUD grants conditional approval to Spieker Cos. Inc. to manage Lakeview Terrace Apartments.

May 20: Damron announces that management will hold elections to form a new Lakeview Terrace Apartments tenant council. He subsequently cites as justification a question raised by HUD about whether the incumbent council was properly elected. Tenant leaders charge this is retaliation.

July: Damron agrees to cancel new election after meeting with a HUD official, an aide to Rep. Howard L. Berman (D-Panorama City) and tenants.

September: SCI receives an unusually harsh “below average” rating in a HUD management review, which it is appealing. Despite this, HUD extends SCI’s conditional approval to manage until December.

SOURCE: HUD records and interviews