CMHA brass took perks, bonuses out of poor fund
***CMHA brass took perks, and bonuses out of poor fund***
Sunday, June 28, 1998
By JOEL RUTCHICK
PLAIN DEALER REPORTER
Claire E. Freeman-McCown and subordinates at the Cuyahoga Metropolitan Housing Authority spent hundreds of thousands of dollars targeted for the needy on lavish entertainment, hefty bonuses, and perks, records show.
To finance such expenditures, including trips to the beauty salon, tickets to theaters and sports events, flowers for virtually every occasion, and thousands of dollars of executive travel, CMHA dipped into a fund once dedicated to providing housing for World War II veterans.
The fund, called Title 5, has disappeared from the books of virtually every other housing authority in the country.
Title 5 had no substantial source of revenue and CMHA made little use of it before Freeman-McCown came on board as executive director in 1990. Because the fund was started with money from the sale of CMHA-owned property, there ordinarily was no cause for federal oversight.
But after Title 5 ran out of money in 1993, most of the cash Freeman-McCown and Chief Operating Officer Ronnie C. Davis used to revive it carried strings that required the federal government to make sure it was spent on the very poor, according to records.
Instead of going to the very needy, much of the cash went to the very comfortable, and there is no indication that either the U.S. Department of Housing and Urban Development or the CMHA board of commissioners paid much attention to how the money was spent.
More than $1.1 million went for salaries and benefits for Freeman-McCown and Davis, along with bonuses for them and other CMHA employees.
Freeman-McCown’s bonuses totaled $100,000 from Title 5 funds between 1994 and 1996 and she received an array of other benefits.
According to CMHA records, during that time Davis was paid $114,000 after taxes in accumulated sick, vacation and compensatory time as well as $106,500 in bonuses.
Bonuses of that size are unheard of in public housing, according to industry experts.
“The biggest bonuses I’ve ever heard of in public housing are $10,000 to $15,000 a year,” said MaryAnn Russ, a former top HUD official who is now a housing consultant in Chicago.
Big bonuses helped make Freeman-McCown the highest-paid housing director in the country last year. Records show that her CMHA compensation exceeded $403,000.
Freeman-McCown said what matters is what CMHA got for its money.
“Creativity, innovation, motivation, commitment, and results – quantifiable results – are priceless,” she said.
Priceless, maybe, but CMHA board members didn’t think so when they learned that CMHA paid more than $100,000 toward loans on a townhouse Freeman-McCown owned in Alexandria, Va.
CMHA board members said that the benefit wasn’t authorized and suspended her without pay last month, pending an investigation into financial transactions. Freeman-McCown in turn filed a lawsuit against CMHA, claiming the board breached her contract.
Now the FBI and the HUD inspector general’s office are checking the money trail and a federal grand jury is scheduled to hear testimony starting Tuesday.
Ohio Auditor James M. Petro has begun a special audit that includes a review of the mortgage payments and other Title 5 expenditures to determine whether laws were obeyed and if not, whether any money should be reimbursed.
Resourcefulness pays
Coming up with the idea that put nearly $4 million into Title 5 earned Davis lavish praise from Freeman-McCown, who said it was an “extraordinary accomplishment.”
“These funds will be an essential part of our future efforts to develop alternative housing initiatives and supportive programs,” she said in a November 1994 memo to her deputy.
Freeman-McCown accompanied her tribute with an order for $36,000 in after-tax bonuses to Davis to be paid in 1995. The same year he received another $40,000 in after-tax incentives, including a $10,000 “longevity” bonus.
Around the same time that Davis helped bring in the big Title 5 cash, he and Freeman-McCown reached an agreement on how to spend some of it. In April 1994, Freeman-McCown signed an employment agreement that allowed Davis to convert to cash unused vacation and sick leave going back two years. Freeman-McCown said that she and Davis were the only two CMHA employees allowed to do so.
In September 1995, the two broadened the agreement to allow Davis to convert to cash one of every two hours of compensatory time retroactive to 1990. For half of the 1,600 compensatory hours, Davis collected another $36,000, after taxes.
Freeman-McCown said she didn’t recall whether Davis submitted documentation of the time earned. He said his secretary kept track of his time and that information should have been in the CMHA files.
Davis’ total CMHA compensation for 1995 topped $368,000, according to his W-2 form. In 1996, he earned $206,279 from CMHA.
Defending his compensation package, the 47-year-old Davis, who now heads the San Francisco Housing Authority, said that the issue is value.
In 1994, CMHA not only ended nearly 15 years of designation by HUD as a troubled housing authority, it won a special HUD commendation as the most improved very large housing authority in the country.
“So the question is what the executive brings to the table,” Davis said. “I’m a public servant and in order to get my services, I should be paid for them.”
Freeman-McCown also defended the amount Davis was paid. “How do you retain a stellar employee who is being recruited all across the country?” she said.
CMHA board members said they were unaware that Davis had an employment agreement.
When the board inquired last year whether Davis or then-General Counsel Betty Stage had an employment agreement, the chief executive replied, “The only person who has a contract around here is Claire Freeman,” said Karen Wilson, shortly before she resigned as chairwoman of the CMHA board.
The board was misled by that statement, said senior board member Robert Townsend II.
The Davis agreement wasn’t disclosed to the board because CMHA employees served at her pleasure, Freeman-McCown said. She said her contract gave her the authority to reward as she saw fit; consequently, her agreement with Davis was not an employment contract with the housing authority.
Townsend said it was “inappropriate for the director of the agency to cut a side deal with any employee,” especially for the kind of money Davis received.
Board members knew little about Title 5 expenditures, Townsend said, but Freeman-McCown and Davis say the board got regular reports detailing expenditures.
The problem with the reports is that they sometimes contained sparse information, Townsend said. For example, an entry of $1,034 for Merrill Lynch appeared each month under the heading of executive benefits on an expenditure report. What the report didn’t say was that the payment was for a loan on Freeman-McCown’s townhouse, he said.
Should the board have asked more questions? Yes, Townsend said. “I take that responsibility for myself.”
Wilson acknowledged earlier this year that the board had taken too much for granted and that for years members had stars in their eyes about Freeman-McCown’s ability to run the agency.
Fun, flowers, and food
When Freeman-McCown moved from a position as an assistant secretary at HUD to CMHA’s top post in 1990, she said she saw Title 5 as a tool in turning the troubled agency around.
“We understood that we had to motivate and change, transform the workforce from one that was low on dignity, low on efficiency, and very low on quality,” she said.
So she and other CMHA managers looked to a system of incentives and rewards for employee performance and the board agreed to use Title 5 funds to pay for them.
The vehicle for delivering some of those incentives was CMHA’s annual awards ceremony.
Freeman-McCown described the event as “like the Oscars” in that less significant awards are presented earlier in the day, and awards to the employee of the year and corporate partners are given out at a dinner.
The price tag for catering and banquet services for the 1995 event at Stouffer Tower City was about $35,000, records show. Other costs for the event, attended by about 1,000 people, exceeded $5,000.
CMHA thanked about 20 members of its awards committee with another dinner at the Hyde Park Grille about two weeks after the ceremony. Entrees running up to $46 for a steak and lobster combination, $85 in wine and desserts like Bananas Foster pushed the tab to nearly $750.
Employees and other guests didn’t leave awards ceremonies empty-handed. For the 1994 awards event, held at Severance Hall, nearly 700 pieces of hardware – plaques, trophies, pins, and other items – cost $18,000, records show.
In all, Title 5 paid nearly $300,000 for meetings, banquets, awards, refreshments, parties, and sporting events from 1994 through 1996, according to CMHA accounting records.
CMHA is a big supporter of both culture and sports in Cleveland. About $10,000 was spent on Cavaliers season tickets in three years, records show. The tickets were used by employees.
“Title 5 became their private cookie jar and the vehicle to frivolously misspend money intended to provide housing opportunities for public housing residents,” said George Engel, former manager of the Cleveland HUD office.
Most Title 5 expenditures were billed directly to CMHA, but at least $180,000 was charged between 1994 and 1996 to a CMHA credit card that Freeman-McCown and Davis were authorized to sign. While theirs were the only authorized signatures, other employees sometimes used the cards, records show.
Most of the money went for travel and meals, both in town and out of town. More than $30,000 was spent at local restaurants, often Cleveland’s swankiest establishments, such as Johnny’s Downtown, Morton’s of Chicago, The Watermark, and Pier W.
Often the only documentation provided by CMHA for the purpose of the meal was a handwritten list of diners’ names.
The CMHA credit card also paid about $12,000 for flowers and fruit baskets to offer congratulations or condolences, or to note other special events, such as promotions, in the lives of tenants, public officials, CMHA commissioners, and employees.
The MasterCard also picked up the tab for $450 in gift certificates to a beauty salon and $450 in tickets to the Cleveland Playhouse. The visits to the beauty shop were an employee incentive.
Davis said that CMHA might have given the theater tickets to employees but couldn’t recall for sure. “Obviously, since we paid it we believed it was appropriate.”
Incentives are a proven way of increasing morale and productivity, Davis said, adding that they are used throughout corporate America and the federal government.
The credit card also paid for airfare and other out-of-town expenses. However the agency could produce only the bills from the credit card for tens of thousands of dollars in expenses. Individual invoices for expenditures or records documenting their purpose were not part of the records in many cases.
CMHA policy requires employees to submit travel expense reports and provide support for individual charges.
Asked about the lack of documentation for credit card purchases, Davis responded that he made sure the charges he reviewed were accompanied by the proper paperwork, which should have been in the files.
“I was very careful with that, and we saw that we had the receipt and listed the reason we bought it,” he said.
Freeman-McCown said she believes that all the charges on the credit card were for a public purpose.
Hotel bills, restaurant receipts, and airline ticket purchases are among the records Petro’s auditors typically inspect to ascertain whether expenditures are for a valid public purpose, said Kate Buchy, Petro’s spokeswoman.
Small pool for bonuses
In addition to free tickets, flowers, and dinners on the town, Freeman-McCown and Davis used a more direct employee incentive – money. But some employees benefited more than others.
Records show that more than half of the $360,000 in bonuses provided by Title 5 funds in 1994 and 1995 went to 50 of the agency’s approximately 1,400 employees. CMHA started paying bonuses from other funds in 1996.
Some of the big cash bonuses went to employees involved in high-profile failures.
Brenda Harper McIntosh was rewarded with more than $42,000 in bonuses over four years, including $20,000 in December 1996. McIntosh headed Section 8 in the early 1990s and was its executive monitor from February 1997 until she was forced out of Section 8 in April.
In a February article, The Plain Dealer detailed mismanagement in Section 8’s program ranging from a failure to provide subsidies for thousands of poor families to abysmal recordkeeping to customer service roadblocks that one HUD manager said “amount to an obstacle course for needy program participants.”
HUD replaced CMHA management with a consulting firm last spring and specifically barred McIntosh from the Section 8 operation. HUD officials say they will take permanent control unless there is substantial improvement by October.
Freeman-McCown defended the bonus payments to McIntosh, saying the woman wears many hats for CMHA. She suggested that HUD has an ulterior motive for criticizing the way McIntosh has run Section 8.
“I think there is a national unholy mandate . . . to take over Section 8 by private contractors who happen to be friends of HUD officials,” Freeman-McCown said.
McIntosh has been CMHA’s “greatest weapon” in its fight to keep HUD from taking over the Section 8 program.
©1998 THE PLAIN DEALER. Used with permission.
