City Housing Department Violates the Public’s Trust

“Like sharks at a shipwreck,” was how one Los Angeles City Housing Department official described the feeding frenzy of contractors working on federally subsidized earthquake repairs. It’s an observation that seems a little odd considering that the Housing Department itself was the one chumming the waters.

According to an investigation by Times reporter Hugo Martin, some contractors who received federal earthquake repair loans have repeatedly violated labor laws by underpaying their workers. The zero- or low-interest loans demand that contractors pay the prevailing wages required by state and federal law. In some cases, though, contractors paid workers less than half what they were owed. Yet none of the contractors were turned over by the Housing Department for criminal prosecution. Four contractors have been charged by the city attorney’s office with criminal violations, but only after a carpenters’ cooperative conducted its own investigation.

The reason: Housing officials contend that they could find no criminal intent on the part of contractors--a critical distinction necessary for prosecution. So, after ordering contractors in violation to pay back wages, the Housing Department went no further. Although it is encouraging that all the workers were eventually paid in full, it is troubling that Housing Department officials think they can determine criminal intent better than the trained lawyers of the city attorney’s office. Last week, Housing Department head Gary Squier admitted the mistakes under fierce questioning from the City Council and federal officials. The city controller’s office has launched an audit.

Taken in isolation, the Housing Department’s lack of oversight might be excused in light of the overwhelming workload it faced after the Northridge earthquake. But this is the second time in a month that the department’s ability to monitor contractors and developers has been called into question. In January, another Times investigation revealed that a politically connected--but inexperienced--nonprofit development company had not completed most of the rehabilitation work it was awarded in North Hills. To be sure, the Housing Department deserves considerable credit for ensuring the recovery of wide swaths of Los Angeles, but there can be no excuse for not keeping closer tabs on millions of public dollars.

The city attorney’s office is now prosecuting one of the 17 wage cases housing officials determined not to be a criminal violation. Another 26 cases are under investigation by the Housing Department, but the city attorney’s office must be involved as well. Lawyers know what to look for, how to tell the difference between a contractor’s sloppy mistake and a scam. Given that all contractors and subcontractors receiving federal loan money were handed a 15% grant to pay prevailing wages and required to sign documents promising to pay at that level, it’s difficult to believe many smart employers can claim honest mistakes.

Without the kind of penalties levied through criminal prosecution, dishonest contractors have little motivation to change their ways. It’s a pretty lucrative deal paying workers half what they’re due if a contractor gets caught only one time out of three--and then faces no penalties. By not handing questionable contractors over to the city attorney’s office, the Housing Department encouraged the kind of behavior that harms honest employers--who, for instance, suffer unfair competition in the bidding process.

Hundreds of hard-working, honest contractors brought the San Fernando Valley back from disaster in record time after the Northridge earthquake. They do right by their employees and their clients. The “sharks” take big bites out of these honest employers’ business--not to mention out of the public pocketbook. And the Housing Department lets them.