While there is a significant need for capital repairs to various properties in the agency’s portfolio, the agency’s financial standing does not demonstrate enough cashflow to cover expenses incurred by capital projects. The agency continuously expresses a desire to obtain funds from City entitlement programs such as CDBG and HOME. While the agency has reduced several expenses from previous years, its cash flow projections show that net operating income has also decreased.
Community Development Block Grant (CDBG) and HOME Investment Partnership (HOME) FY 20/21 Request for Proposal (RFP)
On February 27, 2020, MBCDC submitted three applications for capital repairs to the CDBG and HOME FY 20/21 RFP process for the following projects:
- CDBG Capital repairs for 1551 Pennsylvania Avenue;
- CDBG Capital repairs and re-financing for the Allen Apartments, and
- HOME Capital repairs for 1551 Pennsylvania Avenue.
The applications did not meet the requirements of the CDBG and HOME programs for the following reasons:
- The organization shows a financial deficit based on the statements provided;
- Financial statements do not demonstrate sufficient cashflow to cover expenses that would be reimbursed by the CDBG/ HOME program;
- The timeline provided does not take into account a design phase or bidding time;
- The financial statements include findings related to compliance with federal requirements; and
- The submitted budget failed to clearly explain expenses related to construction and professional services.
On March 11, 2020, staff from Housing and Community Development notified the agency’s Executive Director that the projects would not be recommended for funding. MBCDC participated in the virtual public meeting held on March 17, 2020 and subsequently submitted a Public Records Request to view other proposals received during the RFP. City staff provided the information requested.
The following are MBCDC items being tracked for compliance as of this writing:
Financial Statements
The City continues to monitor the agency’s financial standing. On April 29, 2020, MBCDC provided the FY 20 cash flow projections for its umbrella organization. The document is provided as an attachment to this memorandum. City staff discussed the projections with MBCDC, to clarify reasons costs were not delineated for repairs and maintenance, elevator maintenance, building permits and utility costs. MBCDC staff explained that these costs are accounted for in each property’s corresponding budget.
On September 10, 2020, MBCDC provided Consolidated Financial Statements for 2019 (included as an attachment). The statements delineated a continued deficit and highlighted the subsequent events that have impacted the organization’s financial capacity and compliance with federal programs.
The report also listed a variety of current material weaknesses and significant deficiencies in connection to the agency’s internal controls, accounting processes and tenant management that have persisted for five (5) years. MBCDC provided a response that included corrective actions as part of a corrective action plan within the report. The audit included the following findings:
- Tenant Eligibility Records; Tenant Rent Overcharge; Annual Re-Certification
- Out of 13 filed tested, the audit identified seven tenants for whom an annual recertification was not performed within one year of the previous lease start date.
- A selected tenant file submitted for review was missing evidence of a current annual recertification.
- One HOME-assisted unit was found to have been charged a rental that exceeded the allowed rent limit.
Corrective Action: During fiscal year 2019, the organization transitioned its property management and affordable housing compliance to a reputable third-party management company with robust internal controls over compliance. Management does not expect to encounter these delays moving forward as all tenant files have been uploaded to the management system where internal controls are in place to ensure timeliness of reexaminations, including automated system reminders at least 60 days prior to the tenant’s annual renewal date.
City opinion: The City monitored several tenant files to ensure compliance throughout 2019, in response to tenant claims of expired leases and recertifications. One of the most critical factors of administering an affordable housing program is ensuring that all current tenants are income-eligible, have a valid lease and are charged rent in compliance with federal requirements. Several tenants in the agency’s portfolio receive vouchers from subsidy programs and can be at risk of termination if their leases are not maintained compliant. After close monitoring and consistent supervision by the City, RAM was able to complete outstanding certifications. MBCDC and RAM have advised their new software will notify tenants within 60 days their recertification date and should prevent future failings.
Financial Reporting
The organization has not complied with the financial reporting covenant set forth in certain of its loan agreements.
Corrective Action: The organization will contact the lender and associated parties in order to try to reach an agreement to make audited financial statements available after nine months after the fiscal year end instead of three months as this would coincide with its regulatory reporting requirements.
City opinion: These findings are of concern, as failure to comply with loan covenants can lead to the lender seeking remedies, including taking possession of the building.
Property Conditions
The Building Department inspected the Jefferson Apartments and issued a violation on August 15, 2019 due to observation of structure deterioration on the first floor. The relocation process for all tenants on the first floor began in March 2020. Tenants have been temporarily relocated to hotels or other units within the portfolio. MBCDC retained an engineering firm for the scope of work and subsequently bid out the project and selected a contractor. The building permit was issued on May 26, 2020. Construction is scheduled to begin February 15, 2021.
Units at the Shelbourne Apartments require extensive rehabilitation. Since March 2020, 19 residents have been permanently relocated to other units within the portfolio. They are initiating a transfer of subsidy via the HUD Section 210 program where residents will be able to stay in their relocated units or choose to relocate outside of MBCDC's portfolio. They have received responses for a co-development partner one of which proposed an equity investment into the property to redevelop.
The rehabilitation of the Shelbourne and the Jefferson has resulted in a significant number of vacant units. It is important to consider the impact these vacancies will have on the organization’s financial situation.
A Notice of Violation was issued to 1551 Pennsylvania Ave. on September 15, 2020. The findings include evidence of water intrusion observed in the living room and bedroom ceilings in units 202, 203, 205, and 207. MBCDC reported that they have selected a contractor to repair the roof and construction is expected to begin on January 25, 2021.
Miami-Dade County
In the attached letter dated, December 16, 2020, Michael Liu, Director of Miami-Dade Public Housing and Community Development (PHCD), communicated a continued concern with the capacity of MBCDC. The County’s Department of Audit and Management Services is currently conducting and audit of MBCDC.