Audit Report on the Department of Housing Preservation and Development Cornerstone Program

AUDIT REPORT IN BRIEF

This audit determined whether the Department of Housing Preservation and Development (HPD) ensured that the goals of the Cornerstone Program were met. The scope of the audit was Fiscal Year 2008 (July 1, 2007 through June 30, 2008).

HPD’s mission is to improve the availability, affordability, and quality of housing in New York City. To fulfill this mission, HPD uses a variety of preservation, development, and enforcement strategies and works with private, public, and community partners to strengthen neighborhoods and to enable more New Yorkers to become homeowners or renters of well-maintained, affordable housing.

In 2000, HPD established the Cornerstone Program, a multi-family, new construction initiative, designed to expand private housing and create affordable rental and homeownership units. The primary goals of the program are to sell City-owned land, often for a nominal fee, to stimulate private residential development and investment, and to create affordable rental and homeownership units in specific neighborhoods.

As of March 2009, a total of 51 sites (encompassing 4,536 units) had been approved for the Cornerstone Program; construction had been completed at 20 (39%) of the 51 sites. The 20 sites had 2,191 units.

Audit Findings and Conclusions

Although our audit determined that HPD generally ensured that the primary goals of the Cornerstone Program were met, there were a number of deficiencies in its implementation of the program. Through the Cornerstone Program, HPD seeks to expand private residential development by making City-owned land available for private developers to create rental and homeownership opportunities. To a small degree, HPD also expanded affordable housing by requiring that developers sell or rent some units at less than market rate to lower-income applicants. Through the first three Cornerstone Requests for Proposals (RFPs) as of March 2009, 22 percent of the 2,191 completed units were designated for low-income families and another 78 percent were designated for households earning at least 115 percent of area median income (AMI), with approximately one-third of the completed units sold or rented at market rate.

However, HPD did not maintain accurate information on the number of developments participating in the Cornerstone Program or any information on the number of affordable units being developed as a result of the first three Cornerstone RFPs. As a result, HPD was unable to adequately track its progress in meeting the program’s primary goals. In addition, HPD did not maintain adequate evidence of its detailed evaluations of developer responses to the fourth Cornerstone RFP. We were, therefore, unable to ascertain whether the proposals upon which HPD based its decisions to award development opportunities were fairly evaluated in a transparent and consistent manner. Furthermore, the housing lottery process, which HPD uses to select applicants for interviews for available Cornerstone Program units, has control weaknesses that increase the potential for some applicants to receive preferential treatment. Finally, HPD did not adequately ensure that tenants or homeowners were qualified for the affordable units.

Audit Recommendations

To address these issues, the audit recommends, among other things, that HPD:

• Ensure that it accurately tracks its Cornerstone Program developments.

• Ensure that all relevant documentation for the RFP process is maintained, including the scores given by individual reviewers and the scores given by the panel of reviewers in each category.

• Allow applications for the housing lottery to be filed online or by phone, as well as by mail.

• Assume the responsibility for the selection of applicants for the affordable units by developing a new set of procedures for listing and randomly selecting applicants, and incorporating appropriate segregation of duties and supervisory oversight into this process.

• Require that developers provide copies of applicants’ employment-income documentation along with evidence that they validated this documentation.

• Include, in future agreements with developers, income limits for subsequent owners or renters of affordable units and ensure that these limits are enforced.

Agency Response

In its response, HPD agreed or partially agreed with six of the audit’s recommendations and stated that it would consider the remaining two.