on Diligence

Questions continue to arise regarding the issue on the city putting a hold on accepting the $396,500 in CDBG grants pending a due diligence legal review of the HUD contract. As the  City Council Finance Committee chair, I wish to clear up the following:

First, the grant money is NOT currently part of the Earlham city budget, and property taxes will NOT go up if after a legal review of the HUD terms the grant money is refused. Our water main project will merely return to its original budgeted phased timeline and there will be no city property taxes used to do the housing rehabilitation of five private residences. The $15,000 city match that was required for the housing grant will be returned to the city budget, either to be utilized for something else, or to help offset any potential budget increases next year.

Second, although the Iowa Economic Development Authority does distribute the CDBG funds, and can give opinions, they have no control over current HUD rulings or current or future interpretations of HUD rulings. When we accept these funds we are in essence signing a contract with an entity that is allowed to change the terms at any time. When I asked Nicole Warren of the IEDA if we can add language to the HUD contract to protect the city from any future rule changes being applied retroactively, she advised that “We cannot include such language regarding HUD rules. While we do not believe there would be a situation where HUD would apply a rule retroactively, we have to include this language- just in case we are given direction by HUD and have no choice but to do so”.When I asked Carey Whitehead of the office of the HUD General Council in DC if pending rule changes would ever be applied retroactively after a grant was awarded, she advised that in past experience it had only been done with those grant projects that had not closed yet (in other words, projects in process and not yet signed off as finished and complete to HUD would be required to abide by any new rules). She did stress however, that no one knows for sure if the pending rules will follow past experience until they are finalized. Considering no business would ever sign such a lopsided contract, I question why HUD expects the city to do so.

Third, we are only bound to abide by the HUD rules if we accept the money. What HUD is asking the city to do – the partial ceding of private property rights as well as what the city defines as the appropriate use of force to protect our residents during a civil rights protest– are not allowed either legally or constitutionally to the feds. They get around this limitation by offering federal funding on condition that we sign a one-sided contract: in other words, if we want lots of (other people’s) money, we must agree to their terms.

Fourth, if the city turns down the HUD money, the funds are returned to the Iowa Economic Development Board for redistribution. We cannot send it to another city.  As I have said before, all government grants area form of redistribution of wealth, where the government picks winners and losers, and binds the recipients to onerous, ever changing rules. While I am sure that the mayor of Winterset would love to be able to spend more taxpayer money, no matter from whom it comes, he still has to apply for it and bind his city to the same HUD terms. I wonder if perhaps his residents would much rather that he and his city council focus more on figuring out how to lower their local property taxes, instead of finding new ways to tap the public purse (Winterset city taxes are 25% higher than Earlham’s).

Fifth, accepting the grant money requires that we abide by the Davis-Bacon Act, which requires all contractors hired for the entire project (not just the portion funded by grant) to pay prevailing union wages, which could increase the cost of the overall project to taxpayers. Plus, there is a procurement policy that seemed to encourage preferential treatment for small and minority owned firms, rather than those who would best meet the city requirements for the project as well as for price.

Keep in mind, that of the $396,500 in grant money, $205,500 of it is for a project that under normal circumstances would never be approved, i.e. using local public tax money to rehabilitate five (5) private residences. Plus, while the rest of the grant is for our water main project, it is not enough to fund the entire project. It still requires a match of $193,850 from Earlham taxpayers. Money issues aside, given the one-sided HUD contract terms and potential impacts to property rights, we would be remiss if we did not try to understand its full impact. Ceding part of the elected city council’s authority (and by extension, yours) to the whim of the unelected bureaucrats at HUD in DC is a serious matter; it should be carefully considered regardless of the amount of money at stake. It is unfortunate that the HUD rules were not disclosed to the council by SICOG at the time of application so they could be more fully vetted. However, at this point, SICOG now has a conflict of interest issue (they stand to receive up to $40,500 from the grant for professional and technical services to the city), so a separate legal review is warranted to ensure that we have a full understanding of any potential risk to the city should the council choose to still move forward.

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