Audit blames both ARA and city for redevelopment missteps

The City Auditor’s Office presented its findings on the Austin Revitalization Authority to a Council committee on Tuesday afternoon, acknowledging no smoking gun but enough blame to go around when it comes to why new construction has stalled on East 11^th and 12^th streets.

 

Given the continuing frustration over ARA – the non-profit corporation constructed its last building five years ago and has seen recent plans stall due to neighborhood dissatisfaction – things would have been easier if all the blame could have been placed on them. But the audit report instead cited a series of missteps by both ARA and the city that marred the effort.

 

Assistant City Manager Michael McDonald was recently assigned, along with Chief of Staff Anthony Snipes, to help oversee ARA’s redevelopment efforts. McDonald grew up on East 11^th and 12^th streets when the area was still a vital part of the city. As a kid, he watched movies in the Harlem Theater. But he came back as an adult to a crime-ridden ghetto filled with unoccupied buildings and plagued by excessive crime.

 

“When you talk about redevelopment and the models about this part of town, nobody was in line to redevelop this area,” McDonald recalled, talking about problems in East Austin after 9/11, when so many downtown towers were searching for tenants. “No one was waiting to put money into this part of town.”

This is what revitalization supporters wanted to emphasize: how difficult it will be to redevelop East Austin and how important it is that the city step in to jump-start the effort.

 

The Austin Revitalization Authority was formed to redevelop East 11^th and 12^th streets in 1995 and to both listen to the concerns of the disenfranchised African-American community living there and address the issue of the area’s redevelopment. Short of the efforts supported and executed by the Austin Revitalization Authority, however, nothing has worked, which both McDonald and ARA Chair Charles Urdy pointed out on Tuesday.

 

Former Mayor Gus Garcia, who also spoke to the Council Audit and Finance Committee, noted that ARA was created with the understanding that a certain amount of risk would be involved in the redevelopment of East Austin and that the city would be the senior partner in the project.

 

The problem for ARA came down to the city’s failing to release land so that ARA could execute its contracts and maintain its cash flow. Since the ARA has been squeezed for cash flow – and the need for additional profits – the local community has been less accepting of the results, according to the audit.

 

But the blame doesn’t belong solely to ARA. According to the audit, the city put ARA’s finances in jeopardy when it failed to transfer parcels of land to ARA on a number of occasions, land intended to bankroll the group’s continued operations. That led to multiple instances of ARA missing critical deadlines and sometimes providing misleading, or even false, documentation about its financials.

 

Those supporting ARA protested the audit’s findings that ARA was either highly leveraged or lacking in proper assets. According to various supporters who spoke to the committee, ARA was a non-profit group never intended to make a profit – nor credited with holding significant assets — so it shouldn’t be surprising to find in the audit, at least at this juncture, that the authority was highly leveraged.

 

The audit recommended a number of steps to put ARA on the right track, most of which ARA accepted, from assuring a more detailed implementation plan and the appointment of a liaison within the city to guide implementation of ARA efforts to the addition of proper contract monitoring and interventions, if necessary.

 

The audit noted that, without recent safeguards put in place by the city, the ARA contact presented significant financial risk. An increasing amount of ARA profits have resulted from city subsidization, such as the city renting ARA’s existing buildings, but those associated with ARA said it is completely possible the agency could have leased that office building space for market rates.

The audit made nine recommendations for the parties in the redevelopment area:

·       A full re-evaluation by the city manager and the Neighborhood Housing and Community Development Department as to the area’s potential;

·       The creation of a detailed implementation plan by the City Manager and city staff intended to outline important steps that need to be taken;

·       An update of all relevant contracts, with clearly defined roles for all parties;

·       The appointment of a “project champion” in the city’s hierarchy intended to be a liaison with outside parties and make sure the redevelopment plan occurs. A project manager at NHCD also would be charged with the implementation process;

·       Proper contract monitoring procedures put in place that would include detailed accounting reports of any existing contracts;

·       A requirement that the City Manager evaluate development options and associated risk assessments before entering into future contracts;

·       Ask ARA to develop a long-term fiscal plan that could go forward, with or without the city’s continuing support of ongoing projects; and

·       Make sure the city and ARA have a realistic understanding of when, and if, the ARA has the capability of self-sufficiency.

 

Mayor Pro Tem Mike Martinez noted after hearing the audit findings that the Council will make a decision next October on whether to continue the city’s partnership with ARA.