Custer County Housing in shambles
Published: Thursday, August 1st, 2013
By Jason Ferguson
Further details are coming to light about the financial situation and overall health of the Custer County Housing and Redevelop-ment Commission (CCH) — an investigation revealing the entity is in disarray and teetering on the verge of collapse.
Discoveries being made by new members of the CCH board are startling. CCH has $3.819 million in mortgages through different federal and state agencies, thousands more in money owed to private citizens and is broke, prompting a sweeping change throughout the organization.
Former director Connie Gorsuch resigned earlier this year, as did former CCH board members John Preston and Stan Neugebauer. Former CCH employee Karla Efird was hired as acting director and a new board was appointed by the Custer County Commission. New CCH board secretary/treasurer Tim Holland said the chain of events that led to the near demise of CCH began in 2003 and was expedited by the failed Carriage Hills project in Hermosa. That project came apart in 2007 from a combination of financing not coming together and a downward turn in the economy. The plan originated out of the need for low income housing in Hermosa. Although no one can say for sure, some speculate the plan was for the money brought in from the Carriage Hills project to be used to pay back many of the other outstanding debts CCH was piling up.
Over the years, Gorsuch came before the county commission to assuage fears that CCH was in financial trouble. The commission pressed her for financial records and audits of CCH’s financial situation, but it was records she could not—and never did—produce. The reason is simple: CCH has not had a completed final audit since 2005. Two accounting firms declined to sign off on a final audit, saying they were not given enough information to do so.
It was eventually learned that CCH no longer had a complete board, as some members had termed out and were not replaced.
“This was bad management,” Holland said. “We demanded payroll reports (from Gorsuch), which we never got. We wanted to know numbers and how much money CCH owed. We never got a straight answer. I guess we can assume we were demanding things she wasn’t used to being asked for.”
Soon after she resigned, Gorsuch was given a cease and desist letter, instructing her not to contact any stakeholders in CCH on behalf of CCH or as CCH director.
Holland said initially, the new board considered selling a portion or all of the facilities to get out of debt, but soon learned because of contract verbiage and the programs the facilities are used for, that was not an option. Bankruptcy was not an option either, as CCH does not own the buildings and has no assets with which to declare bankruptcy.
Custer County Commis-sioner David Hazeltine said the financial status of CCH has been an issue for him since he first joined the commission years ago. He said he felt whenever Gorsuch would address the commission, he got the feeling she wasn’t being entirely forthcoming.
“I have been around enough people and enough meetings to know when someone is avoiding an issue,” he said. “I have to say, I feel (Gorsuch) was never up front with us. That’s why I always had that feeling something was wrong.”
Hazeltine said it is the county commission’s stance, one he said has been affirmed by legal counsel, that the commission’s only affiliation with CCH is to appoint directors. It is the CCH board that has the responsibility of oversight of CCH’s director and overall operation.
“We go by our legal advice. That is what we met—our responsibility to appoint those board members, and those board members are then responsible for oversight of the director,” he said. “I wish earlier in my responsibility as a commissioner I would have pushed a little harder to try to get something done, but I was always told there’s nothing we can do.”
Hazeltine’s stance is one echoed by fellow commissioner Jim Lintz.
“I’m not going to blame anybody yet. I still don’t know the full extent of what has gone on and what has been found,” he said. “I was told the only thing we could do was appoint board members. That’s what I was told to start with and I still believe that to be the case.”
What CCH manages
CCH manages 102 units in seven facilities in the City of Custer: Landover Estates one, two, three and four, Trail View Estates one and two and Horseshoe Park.
The U.S. Department of Agriculture supervises the three projects funded by them through construction and now in subsidy: Landover one and two and Trail View one and two. South Dakota Housing supervises the projects funded through construction by it totally or partially: Landover three Landover four and Horseshoe Park.
Tax credits were used for construction of both Trail View facilities and South Dakota Housing contributed monies to construction at Trail View Estates two.
The facilities not subsidized, Horseshoe and Landover three and four, have rent-based income instead of the government-subsidized rent the other facilities have.
Tax credits used on some of the construction further complicates things.
When a bid for tax credits is put out by the U.S. Department of Housing and Urban Development, (HUD), large corporations may choose to fund some or all of the project by buying tax credits. When the corporation does so, the business plan for the facility becomes more restricted and more pressure is forced upon an entity, in this case CCH, to keep those facilities full and viable.
If the facilities drop below a certain occupancy, the managing entity must produce a business plan to show how much advertising is being done for them and how the managing entity plans to get them full as soon as possible. Otherwise, default on the tax credits occurs.
Rent at the subsidized CCH facilities had not been raised in almost a decade, while the rent in the unsubsidized housing, which is controlled by the state, has not been raised since 2002. Because of that, CCH applied for, and was approved for, a rent increase in the subsidized facilities.
However, that does not mean tenants’ rent will increase. Instead, the amount of subsidy CCH receives from the government will increase, which will improve CCH’s cash flow situation. CCH cannot profit, however, since it is a 501(c) 3 nonprofit entity.
CCH receives $54 per unit from the government for managing CCH facilities. However, the cost to manage the facilities exceeds the money coming in, meaning CCH is sinking further into debt. The new CCH board has turned to Metroplains Management out of North Dakota to manage the facilities as of Aug. 1.
Holland said, amazingly, CCH had not collected its $54 per unit management money from the government since 2005, since it cannot be received if there are no up-to-date audited books for CCH.
Contrary to popular belief, there are some facilities in Custer CCH does not manage. Winchester Apartments, Laughing Water Apartments, Harney Street Apartments, Crook Street Apartments and Valley Hi Apartments were not constructed by and are not managed by CCH.
Trail View Estates has been the biggest problem uncovered by the new CCH board. Holland estimates there is around $25,000 in unpaid back rent owed by several tenants, one of which owes $3,500 in back rent. Because the rent at Trail View is subsidized, it is hypothesized by some that Gorsuch and some former CCH board members didn’t make a concerted effort to go after rent from some Trail View tenants and continued to let them live there because receiving the subsidy was better than receiving no money at all for an empty apartment.
As the bookkeeping fell apart at CCH, so did its insurance. At some point, CCH decided to switch insurance companies, and with the lack of audited books and a pending lawsuit by Rapid Construction over the failed Hermosa project, insurance became harder and harder to obtain.
At one time the insurance was $17,000, but later, CCH resorted to getting insured through Lloyd’s of London for $70,000 a year. Holland said Gorsuch and the former board went to a lender in California for the insurance and borrowed the $70,000 at 10 percent interest. Between that payment, in lieu of taxes payment to the city for its buildings (around $60,000), outstanding loan payments and the day-to-day expenses, such as electricity, CCH was rocketing toward insolvency.
“There’s no extra money. We have no funds — no anything,” Holland said. He said CCH has had to use reserve accounts to pay day-to-day bills, and USDA has to sign off on the usage of those accounts, which are nearly depleted.
As rent checks come in, the new CCH board is focusing on trying to pay the debts on local bills first, as well as getting private lenders their money back. Holland said both state and federal agencies, admitting they should have been more diligent in monitoring the situation, have been flexible in working with the new board to let CCH get a fresh start and fix its problems.
Some lenders learned of the difficulty CCH will have paying them back at Monday morning’s CCH board meeting (see separate story).
The new board is still working to track down a litany of missing paperwork, from leases to housing applications to payroll information. Holland said because of missing payroll information, the board initially had no idea how much Gorsuch was being paid or how often she was being paid, because she did not provide payroll information. It was eventually learned she was paying herself $17,000 a year, but at one time was making $55,000.
With the lack of financial data available, many have wondered aloud if there were illegal actions, such as improper funds transfers, pocketing cash, etc., taking place during the past eight years. Holland declined to speculate on if any illegal activity took place, reiterating the CCH board is not on a witch hunt and is more focused on getting CCH back on stable financial footing.
“It’s a great question, but I’m not an attorney or a police officer,” he said. “There is more to be discovered. There’s no paperwork on anything. We have been told by counsel it’s not against the law to be a bad manager.”
Holland said as he digs through CCH’s books, each issue he comes up with that he does not have an answer for he puts in a file. As the digging continues, CCH hopes to find answers to those questions.
Just last week Holland said he had to spend $500 to get hard copy bank statements from the bank for CCH’s last seven years of transactions because no bank statements could be found. Superfluous bank accounts were discovered as well, some of which were delinquent or not being used but still acquiring service charges.
State of the union
CCH has sent all of its residents letters informing them of upcoming changes and the need to pay back rent. It has been met with a mixed reaction. When the new board started, there were three vacancies at Trail View. Now there are 15. Many tenants, unhappy with the stricter enforcement, have opted to leave.
CCH plans to use collection agencies to get back rent from current and former tenants, while others are making deals that will see their back rent forgiven if they thoroughly clean, paint and fix their apartments before moving out.
“People are going to be held accountable,” Holland said. “You have to pay rent and you have to keep things clean. We’re starting to run it like a business.”
CCH has started the physical cleaning of the apartments and every person who lives in a CCH facility has to be recertified, since many tenants were never asked to sign a lease before moving in.
Holland said a sprinkler system at Trail View has been repaired, but there are many issues to address, such as the playground, which he said will more than likely have to be taken down after years of neglect.
CCH is also working with the sheriff’s department to weed out troublemakers at Trail View. If a tenant has two verified police calls to their apartment, they will be asked to leave.
What the future holds
Holland said the focus of the new CCH board has been to “stop the bleeding” and focus on getting CCH back on its feet and heading toward breaking even. To that end, CCH’s bylaws were amended and a county commissioner will sit on the board to prevent a situation such as this from ever occurring again.
“A lot can be done that’s positive, but it’s going to be hard,” Holland said. “This has a black eye. People have had negative feelings about this for a long time. The money thing is a disaster, but I don’t think the people in these developments should be held responsible for the bad management.”
CCH will soon move into a new office with the county weed and pest department on Hwy. 385 and plans to have an open house once things settle down. Holland said CCH should be able to hold its head above water in the interim and should be able to replenish its bank accounts within three years, if it sticks to its planned budget.
Holland said CCH would eventually like to have a maintenance schedule that includes replacing carpets, cleaning windows, sealing parking lots, installing a security system and taking care of lawns on a regular basis. CCH also plans to have an office on site at Trail View in the future to better monitor what happens there.
“I want everybody to see a new face on Custer County Housing. You’re going to see qualified people live in our housing,” he said. “These could be your parents, my parents, your grandparents — they need a home. It’s a nice place to live and we should be able to have people who want to live there and need to live there in a safe, clean environment.”
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