Controller Wants Audit of Quake Loan Program

Citing lax oversight, the city controller’s office Wednesday recommended an audit of a $321-million earthquake loan program, saying money from the program has been used on questionable home improvements such as landscaping and the replacement of undamaged appliances.

In a letter to city officials, Controller Rick Tuttle also charged that the housing officials who run the program have not adequately monitored construction projects to ensure that borrowers abide by federal labor laws.

Failure to meet federal labor laws--which require paying “prevailing wages” and hiring local workers--could force the city to repay the federal government for the grants used to fund the program, he said.

But Housing Director Gary Squier rejected the criticism, saying most of the charges are “unfounded or based on a misunderstanding of the program’s intent or guidelines.”

Squier agreed with Tuttle, however, that the department needs to more closely monitor contractors to ensure they are paying the prevailing wages. He has requested funding to hire a private firm to help his department do the monitoring.

The emergency loan program has been the city’s main engine in helping rebuild the thousands of apartments and homes that were damaged in the January 1994 Northridge quake.

So far, the city has issued about $310 million in zero- and low-interest loans and has another $10 million or so remaining in the program. The City Council recently requested a $40-million federal loan to help make repairs on the 5,000 quake-damaged apartments and homes that are still without loans.

The investigation into the loan program was prompted by complaints from the Carpenters/Contractors Cooperation Committee, a Los Angeles-based labor-management group that routinely investigates labor issues on public works programs.

Based on information from contractors, the group investigated and concluded that the program was “grossly mismanaged.” It also suggested that the program be audited before additional loans are made.

In an interview, William Luddy, executive director of the committee, said his organization launched the investigation to uncover contractors who fail to abide by federal labor laws because such contractors have an unfair advantage in competing for public projects.

“We are doing this to level the playing field,” he said.

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In response, Tuttle’s office launched a preliminary study of the program and found “that there are operational deficiencies and questionable oversight practices that can best be addressed through an independent audit of the program.”

“There is so much money that went out so fast and the monitoring was so loose there is an opportunity for finding money” that was misused, said Deputy Controller Tim Lynch.

In one example, Tuttle’s study found that the city provided a loan to the owners of a green-tagged (safe to occupy) building who used some of the money to improve landscaping and replace cabinets and appliances that were not damaged by the quake.

With the program almost out of money and many homes still in need of repairs, Tuttle’s study questions whether emergency loans should be used for such improvements.

“Is it better to restore buildings to their pre-earthquake condition or is it better to replace undamaged appliances?” asked James Armstrong, Tuttle’s director of auditing.

But Squier said the council has agreed to issue loans for such expenses because the money lets apartment owners make improvements that will attract new tenants, thus improving the chances that the city’s loan will be repaid.

“We don’t expect buildings to come back unless you loan money on some ancillary needs,” he said.

Squire said that he would not oppose an audit to help his department monitor compliance on the “prevailing wages” issue, but that he opposed an audit of the other allegations, saying it would be a waste of time.