Audit deems Pittsburgh Housing Authority nonprofit arm legal

But findings identify problems in drug, security measures

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A nonprofit arm of the Pittsburgh Housing Authority that is poised to invest tens of millions in the Hill District, and which drew questions from District Attorney Stephen A. Zappala Jr. of Allegheny County, is legal, according to an audit city Controller Michael Lamb is expected to release today.

The audit, though, identified problems with an authority anti-drug effort and with a now-defunct contract under which constable-trained guards patrolled low-income communities, Mr. Lamb said.

"I think they went about providing us with the minimum information they could," Mr. Lamb said. "We'll turn it over to the DA, see if they want to pursue it and see if they want to pursue the information we didn't get using subpoena power." He emphasized that he found no evidence of criminality.

Authority executive director Caster Binion, who took his post on an interim basis in September and on a permanent basis last month, said any refusal to provide information must have occurred before his watch. "I thought we had a good, open conversation," Mr. Binion said.

The audit was spurred in part by Mr. Zappala's concerns with two nonprofit efforts created by the authority. The biggest is called Allies & Ross Management and Development Corp.

Allies & Ross is increasingly central to the housing authority's redevelopment efforts. On Thursday, the authority board voted on a plan to borrow $28 million to help fund construction of the 186-unit first phase of a rebuilt Addison Terrace, and Mr. Binion revealed that another $24 million would come from Allies & Ross.

The authority created Allies & Ross in 2007. The controller concluded that a 1999 law allowed the authority to create the nonprofit development arm.

From 2008 through 2011, the authority put $55.6 million into Allies & Ross. Most of that -- $36.4 million -- was transferred over in 2011, the last year for which the nonprofit entity's mandatory disclosures to the IRS are available.

The assets of Allies & Ross at the end of that year included $35.2 million in the bank and $20.2 million in loans it had made. It gets interest payments on short-term loans but not on long-term loans.

The loans, according to Mr. Binion, all back two redevelopments -- the completed revamping of Garfield Commons, and the just-started rehabilitation of Addison Terrace -- both of which are being done in collaboration with Keith B. Key Enterprises of Columbus, Ohio. The Garfield project turned dilapidated low-rises for impoverished families into attractive, mixed-income townhouses, and the Addison Terrace effort aims to do the same in the Hill District.

Mr. Binion said Allies & Ross becomes part owner of the redeveloped properties it backs. The authority's response to the controller's audit indicates that Allies & Ross takes a 0.01 percent stake in the developments, and the private partner owns 99.99 percent.

Even that small stake, though, allows Allies & Ross to charge development fees and get ongoing payments from the redeveloped properties, Mr. Binion said.

"We get a pretty good chunk" of the cash flow from the future Addison Terrace, he said, and that can be used to redevelop other properties or to see the authority through periodic federal budget cuts.

Allies & Ross does not pay its directors. They include Mr. Binion, authority chief financial officer Edward Mauk, Ricky Burgess and Frederick Frank.

Mr. Burgess is the authority's board chair and a member of Pittsburgh City Council. Mr. Frank is an authority board member and attorney whose clients include the Pittsburgh Post-Gazette.

Mr. Zappala's spokesman, Mike Manko, said last year that the authority's operations present it "with a number of issues." He said Thursday that he was "not at liberty to comment on any involvement that our office may have in reviewing" Allies & Ross.

Mr. Lamb's auditors had more problems with Clean Slate E3 Corp., a smaller nonprofit entity through which the housing authority holds annual fundraising golf outings and an anti-drug event for young people.

The audit said the authority refused to provide the names of contributors and participants in the golf outing, and said that "implies a possible conflict of interest."

Mr. Binion said he believed the authority's attorneys advised against disclosing the golf outing participants.

The audit also looked at a $1.23 million contract the authority entered with Victory Security, under which that Carnegie-based firm provided constable-trained guards. The contract was canceled in August after critics said it was legally questionable, unfairly bid and improperly managed, and authority leaders said the contractor had failed to provide the needed security.

The audit said the authority wasn't willing to provide all of the documentation requested regarding the nixed arrangement with Victory Security, because the Department of Housing and Urban Development is investigating it. Mr. Binion said he hadn't received "a final report" from HUD on that investigation. HUD's office of inspector general would not confirm the existence of any investigation.

The audit concluded that the authority would be better off renewing a defunct agreement under which the Pittsburgh Bureau of Police provided guaranteed coverage of its communities. The authority responded that it wasn't able to agree to terms with the bureau.

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Rich Lord: rlord@post-gazette.com, 412-263-1542 or Twitter @richelord.


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