Housing body runs big deficit

David Kihara

Tuesday, April 19, 2005 | 11:07 a.m.

The North Las Vegas Housing Authority could face foreclosure on a $20 million low-cost housing project and is facing multiple financial problems, including a nearly $400,000 deficit in its 2004 budget, according to a recent audit of the agency.

The independent audit, by Rector & Moffitt P.C., revealed numerous accounting mistakes at the housing authority as well. The errors ranged from employees improperly calculating public housing tenant files to not collecting more than $50,000 in Section 8 low-income housing money owed to it by other housing agencies.

The North Las Vegas Housing Authority commissioners are expected to formally accept the audit today at a regular meeting.

The audit comes at a difficult time financially for the agency. Already, the authority is facing a reduction in HUD funding and will propose several layoffs this week, said Don England, executive director of the authority.

"We just don't have a lot of money," he said.

According to the audit, the agency had $14,423,787 million in revenues during fiscal year 2004 but spent $14,815,559, leaving a $391,000 deficit. Most of the expenditures -- $10.5 million -- went toward housing assistance payments.

One of the most prominent issues disclosed in the audit is the housing authority's Desert Mesa low-cost housing subdivision project. The project is an initiative of the housing authority and not funded by the federal government. Completion of the 123 low-cost homes, originally financed with loans from the Nevada State bank, faltered because of construction delays and rising costs.

As of Jan. 13, the Housing Authority owed Nevada State Bank $1.9 million for financing of the project, according to the audit.

Desert Mesa, set to be built at Carey Avenue and Commerce Street, was supposed to cost $14.1 million, but recent estimates by the North Las Vegas Housing Authority place the cost at $20 million.

Problems with the project included the housing authority firing a subcontractor, American General Engineering, which in turn sued the housing authority.

Nevada State Bank pulled out of the project and stopped financing for the houses in April. The housing authority is now in negotiations with Joshi & Associates, a developer, for further funding and has a May 3 deadline to secure financing.

Joshi & Associates could buy the project, according to the audit. However, if Joshi & Associated pulls out of the project, the housing agency will likely face foreclosure on the project, England said.

He said he disagreed with the bank's decision to pull out funding but was optimistic that Joshi & Associates would go forward with the project. He declined to comment further, saying there could be possible legal action if the bank forecloses on the property.

The audit, however, goes into detail on how the authority already defaulted on the Nevada State Bank loan. In 2003, the bank loaned the housing agency $3.4 million for the Desert Mesa project, but the project faced major construction delays and cost overruns.

The bank then wrote a letter to the agency on Nov. 2 stating that it would loan a maximum of $2.6 million in additional money to continue the project, the audit stated. The housing agency had until Nov. 12 to accept the terms and agreements of the new loan but did not meet the deadline, according to the audit.

In December, the bank "demanded" that the authority begin repaying money it owed, but the Housing Authority "failed to deposit" the money it owed. This was considered an "event of default," the audit stated. By January, the authority owed the bank $1.9 million.

It also must re-imburse the Low Rent Public Housing program $2.7 million for the Desert Mesa project, and any proceeds from the sale of the project will go to the public housing program, the audit stated.

The audit looked at other troubles at the authority besides defaulting on the bank loan.

It stated that the authority had improperly calculated the incomes of public housing tenant files. Out of 20 files reviewed, auditors found four files that "did not have the income calculated properly," according to the report.

The agency also did not receive $57,500 in Section 8 funds from other housing agencies that it is due. Known as "portable" funds, the $57,500 are housing assistance payments that other housing authorities owe North Las Vegas when an individual on Section 8 housing moves to the agency's jurisdiction.

The audit also found that, for the second year in a row, the agency was facing a budget deficit.

England acknowledged that there were some accounting problems and attributed that to the mostly news staff at the authority who were unfamiliar with the accounting system. He said that all files are now being reviewed.

"The staff is going through all the files now and double-checking them," he said.

He also conceded that the $50,000-plus in Section 8 housing money it is owed likely will not be collected because possible legal action against another housing agency would likely cost more than the money it is owed.

"We just lost it (the money)," he said.

England disagreed with some of the audit's findings, especially that the agency has a $391,772 deficit.

England said that the only reason the audit shows that the agency is facing a deficit is because the audit included about $520,000 in "depreciation expenses." These expenses are only calculations by the auditor that take into account depreciations of property and equipment.

"Basically, we had a surplus of $92,000" without the depreciations, England said.

England, however, did not paint a rosy picture of the agency's finances. Because of HUD funding cuts, England said he would propose today at the meeting that three employees be let go from the agency. The staff would be reduced from 30 to 27 if the staff cuts fo forward, he said.

Those who could be let go include two staff members in the development division -- the department responsible for accessing and finding new low-income housing for North Las Vegas clients.

"We're under a very tight budget," he said, describing a situation where the staff is already overworked and handling heavy caseloads. "No one likes to see layoffs happen."