Financial information from the D.C. Housing Authority was wrongly excluded from the District’s most recent financial statements, according to a report by the Office of the D.C. Auditor that was issued Thursday over objections from the city’s top fiscal official.
The omission of information about the housing authority — which the auditor says should be considered a unit of city government — exposes the District to legal risk under federal securities law, said D.C. Auditor Kathleen Patterson. And it shows a lack of reporting rigor that makes her nervous, she added in an interview.
“We could get a black eye, our great bond rating could be threatened — there are things that could be harmful to the District’s financial status,” she said. “And the reason for pointing out that risk is to address it before anything like that happens.”
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The city’s chief financial officer, Glen Lee, disagreed with the auditor’s report, saying in a written reply that he saw “no basis” to follow its recommendations. He said the city’s independent auditing firm had reviewed the housing authority’s relationship to the city and agreed.
The auditor’s report spotlights a problem for the housing authority. The agency, which remains under enhanced federal scrutiny following a damning report in 2022, still has not completed a HUD-mandated, audited accounting of its books beyond those of fiscal year 2021, which it finished last month. State and local governments are generally required by law to publish annual, audited financial statements, which in addition to providing information to federal agencies give insight to bond buyers and others into governments’ fiscal health.
The housing authority’s new executive director, Keith Pettigrew, told the agency’s stabilization and reform board last month that he hoped to finish its 2022 report early this year, and its 2023 financials soon after that.
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“My goal is to get all that because HUD is breathing down my neck,” Pettigrew said. “So we’re going to bring in some more help.”
Alison Burdo, a spokesperson for the authority, said the new administration could not say why the agency fell behind on its 2021 and 2022 reports, but she said its understaffed finance department has faced a challenging software conversion.
Pettigrew, who took charge in November, inherited an agency accused by federal authorities of allowing its public housing stock to fall into unacceptable disrepair, among dozens of other shortcomings related to poor leadership and mismanagement. He is tasked with overseeing the agency’s continuing responses to urgent directives issued in September 2022 by the U.S. Department of Housing and Urban Development.
The D.C. Council also has increased its focus on the agency, which serves about 30,000 households through housing vouchers, traditional public housing properties, and mixed-finance developments. Last year the council passed legislation beefing up the agency’s financial reporting requirements, mandating that statements audited by D.C.’s inspector general be submitted within four months of the end of each fiscal year beginning in 2024.
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Thursday’s report does not take the housing authority to task for tardy financial reporting. But it nods at the issue, noting that if city officials determine “that DCHA’s financial information cannot be included because the information is incomplete or unaudited,” the city should at least disclose that inability in the District’s financial statements.
The auditor’s report also circles — without directly confronting — the issue of mayoral control that hung in the air last year and in 2022, as Mayor Muriel E. Bowser (D) led a successful effort to replace the Housing Authority’s board. At issue was how much independence the agency has from Bowser’s office and who is ultimately responsible for its successes and failures.
The housing authority was administered by the mayor’s office until the 1990s. But after HUD deemed it the poorest-performing authority in the nation, and after a lawsuit by advocates for the homeless, a judge turned the agency over to a receiver. The federal receiver, David I. Gilmore, later brought Pettigrew on board to assist in the turnaround, and Pettigrew went on to hold multiple senior-level positions at the agency in the early 2000s, after the D.C. Council turned the agency over to “an independent authority.”
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That independence, however, has long been in question, with Bowser, like her predecessors, appointing a majority of DCHA’s board members. She at times has distanced herself from its performance, but in recent years has taken a more visible role in trying to steer its fortunes.
In late 2022, after the scathing report from HUD, Bowser launched successful legislation to turn the authority’s governance over to a temporary reform board appointed by her.
Bowser’s office noted Thursday in response to a request for comment that her administration has made significant financial investments in public housing and asked the Office of the Chief Financial Officer to evaluate the authority’s properties to guide those investments. “All of those actions are a reflection of this Administration’s sense of responsibility and commitment to improving DCHA and improving access to safe and affordable housing,” said a statement sent by Susana Castillo, a spokesperson for Bowser.
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In the wake of the authority’s governance change, District finance officials reassessed whether the housing authority should be considered a “component unit” of District government — concluding as officials had previously that it didn’t.
Patterson argues that the decision — which meant the authority did not need to be included in city financial statements — failed to adhere to government accounting standards. This, she said, could threaten the city’s strong bond rating, graded AAA in November by Moody’s Investors Service.
The subsidies the city provides the authority warrant its inclusion, Patterson said. Her report notes, among other financial infusions, capital allotments from the District totaling $151.8 million between fiscal years 2021 and 2023.
“And yet [the city] does not want in financial statements to acknowledge that relationship,” Patterson said.
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