The Housing Hustle

By NANCY TRAVER

The cornerstone of Ronald Reagan's campaign for the White House was an attack on Government waste, fraud and abuse. Singled out for special scorn were "giveaway" programs for the poor. Now, as Congress delves into a spreading scandal at the Department of Housing and Urban Development, the hypocrisy of Reagan's rhetoric has been brought into sharp relief. During his Administration, a massive giveaway did take place, but to the greedy, not the needy. HUD, whose prime mission is to provide shelter for low-income citizens, instead became a gold mine for Republican insiders, ambitious developers and powerful Washington consultants.

At the heart of the scandal is Samuel Pierce, Reagan's HUD Secretary. Though Pierce was the only black to serve in Reagan's Cabinet -- and its only member to remain in office throughout both Reagan terms -- the former President once greeted him as "Mr. Mayor" at a conference of mayors. Under Pierce's feckless leadership, HUD's budget was pared 70% (it stands at $14.9 billion for 1989). Little was done to halt a decline in the nation's inventory of low- income housing, from which 4.5 million units have disappeared since 1973. Critics charge that programs were dismantled, talented staffers were fired and unqualified managers were promoted. Pierce went along with all of it, earning the nickname "Silent Sam."

As he prepared to leave the Government in January, Pierce pointed proudly to his three Government decorations and declared, "President Reagan asked me to reduce the size and cost of Government and at the same time try to take care of the most needy. I think I did that very well." The cynicism of that boast has become glaringly evident. Since the release of a HUD inspector general's report in April, the agency has become the target of inquiry by two congressional committees into charges of influence peddling. The Justice Department has launched a nationwide probe into the possible theft of as much as $100 million in HUD funds. Says Democratic Congressman Tom Lantos of California, chairman of a House panel that has held hearings on the agency's problems: "The scandal at HUD seems to have no end. It is the most mismanaged department in memory."

Three broad areas of misconduct are under investigation:

RENT SUBSIDIES. A program to provide subsidized housing was turned into a treasure trove from which millions of dollars in rent subsidies, tax credits and consulting fees were doled out to prominent Republicans and a handful of rich developers. Pierce stood idly by as his executive assistant, Deborah Gore Dean, 35, turned over contracts to firms that enlisted Washington insiders as consultants. They included Dean's close friend former Attorney General John Mitchell and former Interior Secretary James Watt.

THEFT OF FUNDS. The Justice Department last week launched a nationwide inquiry into a pattern of abuse by escrow agents who pocketed money they received from the sale of foreclosed homes over a four-year period. Among the targets is a Maryland woman, nicknamed "Robin Hud," who brags that she stole $5.5 million in HUD money and gave it to the poor.

SUBSIDIZED HOUSING. A 1984 audit turned up evidence that Island Park, N.Y., officials rigged a program that was supposed to award HUD houses to the poor so as to favor the politically connected and exclude blacks. Among those allegedly receiving preferential treatment: a cousin of Republican Senator Alfonse D'Amato of New York and the son of a HUD regional administrator.

Pierce's mismanagement of rent subsidies, known as the Section 8 Moderate Rehabilitation program, has drawn the most intense scrutiny. If the decade-old $225 million-a-year effort had worked as designed, local housing authorities would have applied to HUD for federal grants to buy and renovate rental housing for the poor, and HUD would have awarded the money to the neediest areas. The developers who were to carry out the remodeling work were supposed to be selected by competitive bids.

Instead, developers who wanted to cash in on the lucrative 15-year contracts enlisted high-priced consultants, including former HUD officials and influential Republicans with no prior experience in housing. The consultants contacted local housing authorities, promised help in cutting through bureaucratic red tape, and encouraged them to apply for the funds. After a few phone calls to their old friends at HUD or a 30-minute meeting with Pierce, the consultants got contracts awarded to the developers, who paid hefty consulting fees.

Among those who lined up at the trough were eleven former HUD officials and well-known Republicans, including Watt, former Senator Edward Brooke of Massachusetts and former Governor Louie Nunn of Kentucky. Watt told Congress he received $300,000 in consulting fees for making eight phone calls and meeting with Pierce for half an hour concerning a project in Essex, Md., that HUD had previously rejected. Brooke is said to have received $183,000 from two developers connected with projects in Massachusetts. Nunn was awarded $375,000 for similar work on projects administered by the Jacksonville office of HUD. Officers of the powerful Washington G.O.P. consulting firm Black, Manafort, Stone & Kelly (which worked for the campaigns of both Reagan and his successor George Bush, as well as new HUD head Jack Kemp) got $326,000 after winning $3.1 million in HUD rent subsidies for a 326-unit project in Seabrook, N.J.

Some of those involved in the scandal claim lofty motives. HUD Assistant Secretary for Housing Thomas Demery, a central figure in the Moderate Rehabilitation award process, has been criticized because several HUD developers contributed nearly $300,000 to Demery's favorite charity, Food for Africa. The now notorious Robin Hud, a Maryland escrow agent whose real name is Marilyn Harrell, claims she used $5.5 million in HUD fees to establish a charity called Friends of the Father and to set up four businesses that employed poor people. In testimony last week before a House subcommittee, Harrell said her diversion of millions of dollars was a "sin," and added that she planned to repay the money.

Dean, who presided over the award of Section 8 grants, had little background in housing but plenty of ambition and family connections. A cousin of Tennessee Senator Albert Gore, Dean variously referred to Mitchell as her father or stepfather after he began living with her widowed mother Mary Gore Dean. At HUD, Deborah Dean served as a sort of gatekeeper, controlling access to Pierce and enjoying wide powers to block projects. She told the Wall Street Journal that the rent-subsidies program was "set up and designed to be a political program ((and)) we ran it in a political manner." At a congressional hearing last week, she invoked her constitutional right against self-incrimination.

How could such a scandal remain uncovered for so long? The answer lies partly in the fact that no one was looking. During the Reagan years, Congress was more interested in blocking budget cutbacks than in examining how Pierce ran his department. Since housing was an unglamorous beat, few journalists paused to investigate what was going on under Silent Sam.

The new HUD Secretary, Jack Kemp, promises to clean up the mess that Pierce and his cohort left behind. Kemp has canceled all 1989 Moderate Rehabilitation programs, called for an audit of 300 housing projects that have already received rent subsidies and demanded that 53 HUD field officers explain what happened to the funds that appear to be missing. "There's much work to do here, and I enjoy it," says Kemp. "President Bush has charged me with the responsibility to reform the agency from stem to stern, and that's what I intend to do." He has his task cut out for him.