CHICAGO -- Mayor Rahm Emanuel's housing agency has been pulling hundreds of millions of dollars from a fund earmarked for its affordable housing program and using the money instead to boost its pension, purchase government debt and build up a staggering cash reserve.
Meanwhile, Chicago's most vulnerable are bearing the brunt. The Chicago Housing Authority's waitlist tops 280,000, with a sizable portion of the city's population hoping for a shot at affordable housing. Ninety-seven percent of the people receiving housing assistance are black or Latino, and 85 percent are women, according to the agency. Some 15,000 families on the list are homeless.
Early in Emanuel's term, the size of the housing agency's reserves began hitting eye-popping levels. Instead of pouring that money into housing, it found other ways to chip away at the pile. In 2011 and 2012, the CHA pumped more than $55 million into its pension fund, nearly 10 times the amount it was required to. But because the amount of federal money the agency was receiving outstripped what it spent by such a large amount, the reserves remained high. So in late 2012, the agency took $185 million and paid down its debts early. Of what remained, millions were pumped into state and local bonds.
Despite the more than $200 million the agency moved from the reserves, the fund was still sitting on at least $440 million at the end of 2013, according to its most recent audited financial report.
In a statement, CHA spokeswoman Wendy Parks noted that federal rules allow the agency to maintain some reserves, which CHA plans to use to finish developing 25,000 new units of housing.
"The increase in reserves was driven by the significant downturn in the real estate market that slowed the expenditure rate of funds," Parks said, adding that the pension contribution and bond purchase will help the agency save money on interest payments or otherwise reduce costs in the future.
The decision to hoard cash while tens of thousands of families are in need of housing appears to be a strange one only if the goal is to find housing for the people the agency is supposed to serve. Yet developers, bar and restaurant owners and other interests who want to see the city of Chicago continue to gentrify have little interest in assisting the poor, black and brown single moms who populate the waitlist. Instead, they'd prefer the women and their children leave the city and find housing somewhere in the distant suburbs or beyond. The trend was underway before Emanuel took office, with the 2010 census finding 182,000 fewer African-Americans living in the city than a decade before, when Chicago began demolishing its public housing.
The agency's massive cash reserves were first noticed by the Chicago Housing Initiative, a coalition of tenants. The Center for Tax and Budget Accountability, a Chicago-based watchdog group, later produced a report on the stockpile, leading to a spate of news coverage over the summer. But the fate of much of the money the housing agency has stashed away has so far gone unreported. Through a series of open records requests, the Chicago Housing Initiative and the Center for Tax and Budget Accountability obtained internal documents revealing that under Emanuel, the CHA has become as much an investment fund as a housing agency.
Several days after providing its initial statement to The Huffington Post, the CHA, through the mayor's office, provided a new statement from CHA CEO Michael Merchant. While reiterating that the massive surplus was the result of the real estate downturn, he added that CHA was going to spend much more of it this coming year.
"CHA's mission is to create strong, sustainable and inclusive communities throughout Chicago and I'm committed to ensuring that low-income families have access to quality housing options. The increase in CHA’s reserves was driven by the significant downturn in the real estate market however this year CHA will invest $240 million to build affordable housing units across the city on top of the $135 million spent last year to develop affordable housing for low-income families and seniors," Merchant said in the statement. "Additionally, last year we issued more than 3,000 housing vouchers and are on track to exceed that in 2015. Through paying down our pension liabilities we've saved more than $2 million and used those savings to directly invest in new and revitalized affordable housing helping families in need increase their potential for long-term economic independence and success."
By the end of 2015, he said, the surplus would be down to $50 million, assuming every penny is spent. That figure doesn't include, however, the $115 million reserve the CHA says the Department of Housing and Urban Development allows for, meaning the cash on hand will be closer to $165 million. Still, if the investment happens as Merchant forecasts, it would represent a dramatic turnaround and a boon for low-income residents in Chicago.
The CHA's long-term goal, set 15 years ago, was to dismantle its high-profile public housing high rises and replace them with 25,000 new units of affordable housing. The city received extra funds to pull off the task and succeeded in knocking down many of the high rises, yet hasn't managed to create all of the 25,000 new units. Each year from 2008 through 2012, the agency issued 13,000 fewer vouchers than it could have, according to the Center for Tax and Budget Accountability's analysis.
Emanuel, who faces a runoff against Jesus "Chuy" Garcia, was elected mayor in 2011. In the four years before he took office, the CHA delivered an average of 843 new affordable units each year, either through new construction or rehab. The year Emanuel took office, the number plunged to 424. In 2012 it dropped to 112, and in 2013 it fell again to 88, according to the agency's annual reports. For 2014, the CHA set itself a goal of 40 new units. Meanwhile, it was stockpiling unspent cash.
"It might be that a desire to reduce the number of low-income and minority families in Chicago is what motivates those who control CHA to withhold available housing assistance," said Leah Levinger, the executive director of the Chicago Housing Initiative. "Chicago activists have long questioned whether Emanuel's 'world class city' is contemporary code for rich and white -- a way to name development strategies that have obvious racial impact without all the racial overtones."
The reverse Robin Hood strategy implemented by the CHA is not an aberration when it comes to Emanuel's politics. The deregulation that the agency has exploited was made possible by a law passed in 1996, the same year President Bill Clinton signed welfare reform legislation that capped federal welfare spending and gave states more leeway to administer benefits. It was part of a strategy of triangulation that Emanuel, then a top Clinton aide, pushed as a way to win back working-class white voters and distance the party from traditional liberalism. The pinnacle of the new approach involved "ending welfare as we know it," a move Emanuel aggressively lobbied for as an aide.
The separate housing deregulation, approved by Congress with much less scrutiny, is called "Moving to Work." It allows a small number of city housing agencies to be part of a "demonstration project" that gives them more leeway to shelter the poor. Instead of having to inspect every apartment where a poor person wants to use a housing voucher, for instance, landlords in participating cities can be allowed to vouch for themselves. Crucially, separate federal funding streams for rental assistance, capital improvements and maintenance of existing housing stock can slosh together in an agency's general fund, instead of remaining segregated in separate accounts. And an agency's annual allotment from the federal government is no longer based partly on how many vouchers it distributed the prior year, removing an incentive to help as many people as possible.
While he was a White House aide, Emanuel was a close political ally of Andrew Cuomo, who was secretary of the Department of Housing and Urban Development during Clinton's second term. Cuomo and Emanuel share a hard-charging style and a rejection of traditional liberalism in favor of a more business-friendly politics.
When Emanuel left the White House, he became vice chairman of the CHA from 1999-2001. Those were pivotal years for the agency, during which it applied for the special status that allows it the flexibility it is now using to short its would-be clients. The application to deregulate was approved by Emanuel's friend Cuomo. In 2000, Emanuel was also appointed by Clinton to sit on the board of Freddie Mac, stepping down the next year to run for Congress.
While Emanuel was on the CHA board, he was also working for the private equity firm Wasserstein Perella, where he made $18 million in just over two years. In 2002, he was elected to the House, before going on to become Obama's chief of staff and then Chicago mayor.
The Obama administration wants to extend the Moving to Work program to 2028, beyond its planned 2018 sunset. Republicans in Congress have proposed increasing the number of agencies eligible to participate in Moving to Work, which currently stands at 39.
The inspector general for the Department of Housing and Urban Development, which oversees Moving to Work, reported in 2013 that HUD's oversight of the initiative had been insufficient, and that the department was basically in the dark about whether the deregulation had allowed housing agencies to serve more families.
The Center on Budget and Policy Priorities, a liberal D.C. think tank, reported in January that in 2013, the most recent year for which data is available, Moving to Work agencies issued 86 percent of the vouchers for which they had received funding, compared to 99.5 percent for agencies that are not part of the program. In 2013, Moving to Work agencies diverted more than $350 million of rental assistance to other purposes or left it unspent, with Chicago accounting for just under a third of the total.
HUD spokesman Brian Sullivan said in an email that HUD is working with Chicago to accelerate the pace of spending so more families could get help.
"While CHA enjoys greater flexibility under the Moving to Work Program, we believe it's critical to get this housing assistance in the hands of the very people who need it most," Sullivan said.
On Nov. 20, 2012, according to a CHA document obtained as the result of an open records request and provided to HuffPost, the agency sought authorization from its board to use $185 million from its "existing MTW excess reserves" -- the Moving to Work slush fund -- in order to pay down its debt.
The national average wait time for a Housing Choice Voucher is 12-24 months. In Chicago, the average wait for the rent subsidy is 10 years, according to CHA's 2012 Moving to Work report.
CHA's reserve hit $349 million in 2010 and ticked up to $471 million in 2011, when it began diverting money to its pension fund. In 2012, despite the pension fund payment, it was still at $432 million.
In September 2013, the CHA, its coffers having grown to unmanageable heights, put out a request for an investment portfolio software package to help manage what it said was a $500 million fund, according to one internal document obtained through the records request.
In November 2014, the agency authorized itself to increase its municipal investments by 50 percent, so that it can now make up 7.5 percent of its total, according to another document.
The CHA gets tens of millions each year for apartments it controls but leaves vacant. One of the CHA's larger sites, Lathrop Homes, has a staggering vacancy rate despite the fact that the most recent November 2014 housing lottery saw more than 282,000 applicants. Lathrop Homes has 925 units, but according to longtime resident and co-chairman of the Lathrop Leadership Group, Miguel Suarez, only about 150 of them are occupied today.
"In 2000, CHA froze all leasing in Lathrop with the promise that in 2001, they would start rehabbing," Suarez told HuffPost. "And of course, that never happened."
Suarez said that by 2007, developers still hadn't made improvements, though roughly 45 families were still living on the north end of the site. Shortly after, those remaining families were moved to the south end of the site and CHA "went in and boarded all of the north end up."
Suarez, who has lived in Lathrop Homes for 25 years and is a chairman for the residents' leadership team, said some families left after years of what he characterized as neglect by CHA.
"There are apartments that have mold issues, leakage from the outside, and things of that nature," Suarez said. "When I first moved in, it was totally different: [Lathrop Homes] was fully occupied. Along [North Hoyne Avenue] had a canopy of trees. It was beautiful. Somewhere along the line they got rid of it. Ladies had their flower gardens up front, vegetables in the back. People would even hang their laundry."
"It was a very different thing -- it was a true community," Suarez noted.
But as the surrounding neighborhoods of Bucktown, Lincoln Park and Roscoe Village hit new levels of prosperity, Suarez called the situation with Lathrop Homes "gentrification at its worst."
"It's no secret that today, Lathrop Homes is on some of the most valuable property in the city," Suarez said. "For developers to come in and say, 'We want to make this a revitalized community," well, it already is. They want to move the current residents out to give this property to people with greater means."
Suarez said that knowing the agency is sitting on hundreds of millions of unspent dollars while Lathrop deteriorates is a clear sign of the city's priorities. "Knowing very well that CHA has $400-some-odd million stashed, knowing that money is there, and seeing that Lathrop Homes has had no major rehab done to it, it's evident that the CHA as a whole is not willing to make these units [livable] that could be made available," he said.