City said Martindale overcharged government

A public-private deal to provide low-income housing in Hillyard was doomed soon after it began when the city concluded the government was being overcharged for rental units for the chronically homeless, the project’s former manager says.

The resulting reduction in rental payments left the project unable to pay its bills, and the eventual collapse should have been foreseen by everyone involved, said Jim Delegans, president of REM Association, the nonprofit group that managed the historic building.

Now Spokane is scrambling again to locate affordable housing for 41 residents of the Martindale Apartments, 5313 N. Regal St., which will close in less than three weeks when the city and Avista discontinue utility service to the building for lack of payment.

The city maintains its hands were tied. Among other things, a 2006 audit found that the Martindale was charging more for rental units occupied by families receiving government subsidies than for units rented by those receiving no public assistance. Federal guidelines prohibit the city from paying more than fair market value with the grant money.

Delegans, however, contends the city misinterpreted the guidelines on fair market value.

The cost of sheltering the chronically homeless is greater than for others and the rental rate should reflect that, he said.

“If the mission is to keep these people off the streets … then fair market rent should not have been reduced,” Delegans said. “That’s the crux of the whole problem.”

Mayor Mary Verner has asked the Spokane Neighborhood Action Programs to help relocate the building’s residents who received notice last week that they would have to find new housing in a city with a rental vacancy rate of less than 2 percent. Last year, the agency helped find housing for nearly 200 dislocated residents of three downtown low-income apartment buildings, two of which also had been owned or managed by Delegans.

But there had been hints the Martindale was headed for demise.

Neither the building’s owners, Martindale Place LLC, nor the building’s former manager, REM Association, has received a crucial federal rent subsidy since December, Delegans said.

The U.S. Department of Housing and Urban Development subsidy, known as Shelter Plus Care, is administered by the city to house the chronically homeless. About half of the Martindale’s 51 units have received this subsidy based on fair market rent, which was determined in September 2004 by the Spokane Housing Authority.

Built in 1912, the Martindale, formerly the Hillyard High School, was converted into apartments in 1946 to accommodate returning World War II veterans. The building, which is on the National Historic Register, had fallen on hard times before being acquired by Martindale Place LLC in cooperation with the Spokane Community Housing Association.

According to Delegans, the project was predicated on REM Association receiving the HUD subsidy in the previously agreed upon amount.

“The project would not be financially viable without fair market rents,” Delegans said.

But in February 2006, HUD notified the city that the Martindale project was out of compliance with “rent reasonableness” requirements of the Shelter Plus Care program.

Tipped by a city employee, HUD determined that REM was renting subsidized studio apartments for an average of $398 while renting comparable units to unassisted tenants for $335. For one-bedroom apartments, the rents were an average of $466 for a subsidized renter and $365 for an unsubsidized renter.

HUD recommended that the city contract with a third party to conduct a rent survey at the Martindale. The city hired Lembeck Appraisal and Consulting Inc., which confirmed in May 2006 that Martindale’s Shelter Care Plus unit rents were higher than rents for the other units.

As a result, the city determined the subsidy program was overcharged $16,000, and it reduced future subsidy payments to REM Association to accommodate a studio rent of $325 and a one-bedroom rent of $385, according to a June 12, 2006, letter to Delegans from the city Human Services Department.

According to Delegans, this reduced the monthly rent subsidies by about $2,000 a month, an amount “no longer sufficient to pay all of the project’s monthly operating expenses.”

Since then, Delegans said, REM Association has loaned Martindale Place LLC more than $175,000 to help subsidize operating expenses while trying to persuade the city to restore rent subsidies to the previous amount. Attempts to contact a principal in Martindale Place LLC were unsuccessful.

“The on-site support services provided for the people under the Shelter Plus Care program was far in excess of management and maintenance services that were provided for anybody else in the building,” Delegans said.

Between July 2004 and April 2006, he said, subsidized renters were responsible for 228 incidents requiring police or fire response or repair of property damage. This compared with 15 incidents involving unsubsidized renters.

“You can’t say HUD fair market rents are inappropriate when you are dealing with this population,” Delegans said.

Despite repeated requests by the city for REM Association to conduct an independent audit of its finances related to the Martindale, an audit has not been completed. Delegans said an audit is continuing when he can afford it.

Last November, the principals in Martindale LLC, Cory Colvin and Joseph Harwood, advised the city that it was removing REM Association as manager of the Martindale Apartments, which would now be managed by Harwood.

On Dec. 4, the city wrote Delegans that it was suspending Shelter Plus Care payments to the project “as it appears REM is no longer in a position to perform its contract obligations.”