Feds release $42 million in demolition funds as Detroit Land Bank sets new rules

click to enlarge Feds release $42 million in demolition funds as Detroit Land Bank sets new rules
Photo courtesy of the Detroit Land Bank

Federal demolition dollars are again flowing to the Detroit Land Bank after they were suspended for two months by the Department of the Treasury due to a lack of internal controls, Mayor Mike Duggan said Monday.

New rules are being instituted at the Land Bank to address the Treasury’s concerns, including the presence of on-site Michigan State Housing Development staff, quality control audits, the creation of a $5 million escrow fund, and a 50-house limit on the size of demolition bid packages.

“The speed at which we went outstripped the controls that were in place,” Duggan said, later adding: “It’s a question of whether eligible expenses were all charged in the appropriate way.”

Two MSHDA employees will work at the Land Bank and Detroit Building Authority to provide "real-time compliance support, input on process improvement, and onsite assurance that all contracts are bid appropriately," according to Duggan's office. 

The Treasury suspended demolitions in Detroit using federal Hardest Hit dollars on Aug. 15 pending the agency’s review, and reinstated the city on Friday. During those two months, the Land Bank and MSHDA developed the new procedures announced Monday, according to Duggan’s office.

The $42 million in federal demolition dollars released to Detroit on Friday is the first piece of a $130 million allocation made in December.

The mayor said he was “very disappointed” by some findings of a MSHDA review of the Land Bank’s demolition program. He declined to release the agency’s findings, instead saying MSHDA or Treasury would “release that when it’s ready.”

When asked if any Detroit Land Bank employees were terminated as a result of MSHDA’s findings, Duggan said he would not discuss personnel matters. The mayor said he’s “seen no evidence of criminal activity” in the review of the Land Bank’s operations.

“Today is a fresh start,” Duggan said.

The money follows a $128 million award from the Hardest Hit program in 2010, which is largely spoken for — Duggan’s office said about 100 structures are awaiting demolition using the 2010 funds.

Of the 10,666 homes torn down since 2014, 7,953 were paid for using Hardest Hit dollars, according to the city. 

As Detroit has ramped up demolitions, news reports have questioned bidding practices at the Land Bank and increased demolition costs. The FBI confirmed in May that the city's demolition program was under investigation.

Detroit Building Authority Deputy Director Jim Wright resigned in August. The city did not give a reason for his departure. 

In July, demolition consultant Barry Ellentuck was found not guilty by an Oakland County jury after being accused of overbilling the Detroit Land Bank.

The felony charge was filed against Ellentuck by Michigan Attorney General Bill Schuette’s office one day after a Detroit Free Press story was published that said Ellentuck’s company, ADR Consultants, refused to participate in a pre-bid meeting between Detroit Land Bank officials and demolition contractors.

After he was acquitted, Ellentuck filed a civil lawsuit accusing city and Land Bank officials of malicious prosecution, abuse of the criminal investigatory process, defamation, and false arrest, according to the Free Press.

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