6th Issue:
EHAP Loan – A Violation Too Technical to Worry about
White-collar crimes tend to lack visceral impact. They are often complicated and difficult to
understand[1]. HomeFirst’s violation of its EHAP loan
agreement was all of that even though $1 million was at stake.
In 2007, EHAP – the State of California’s Emergency Housing
Assistance Program – loaned HomeFirst $1 million for the construction of
Sobrato House in San Jose with the requirement that the money be used to house
homeless or recently homeless people. Not
long before the building’s completion in 2009, we lost funding that had been
expected to support youth services at the property. As a result, Sobrato House soon was losing
more than $100,000 a year, and we looked for a way out. We negotiated the transfer of the property to
another nonprofit, but the deal fell through because the government loans that paid
for the roughly $12 million construction cost included restrictions that made the
operation as unprofitable for others as it did for us.
In 2013 HomeFirst’s Chief Program Officer applied for a State
grant called THP+FC (Transitional Housing Program Plus - Foster Care) that
would house 18 to 22 year olds not yet ready to fully exit the foster care
system. In June, I asked CEO Jenny and the
Program Officer whether the THP+FC clients, whom HUD did not consider homeless,
would meet the homeless definition used by EHAP. I noted that the permanent tenants on the
property were not recently homeless as required by EHAP, and, once Sobrato
House was licensed for THP+FC, only 8, not the required 10, shelter beds would
be available. Jenny kicked the problem
to the Program Officer, who would make little progress toward resolution.
Jenny was open to moving slowly: we were concerned that our application
for the Sobrato House license might be derailed if the property was at risk,
even if remotely, of being foreclosed because of the loan default. Anyway, this loan violation was meaningless,
she argued. If we avoided violating the
agreement by dropping the THP+FC program, we would violate it by shutting down
the unaffordable Sobrato House shelter. Eventually
EHAP agreed that the THP+FC clients were homeless as far as they were
concerned. By that time, I had identified
another problem. The shelter beds were
reserved for THP+FC clients as long as they participated in the program, but
the EHAP loan agreement required that the beds always be free for emergency
homeless clients.
In December 2013, I sent an email to the EHAP employee
responsible for the loan and laid out the facts, but I never got a reply. In March 2014 I filed a complaint with EHAP but
received no response to that either. The
next month I complained to the State Attorney General who replied that there
was no record of my whistleblower complaint.
Shortly before I was fired, I sent a formal waiver request to EHAP on
behalf of HomeFirst. In June, I filed a
freedom of information request for actions taken on the issue, but I never
received a reply to that request. In
July when I called the whistleblower hotline, I was told that my complaint had
been received but they could not give me any additional information. Confidentiality requirements. I let the issue die: HomeFirst’s 2014 and
2015 audit reports made no mention of the violation or its waiver although I had
alerted its auditors to the issue. It appeared
that the ten-year limit on EHAP’s use restriction would make my complaint moot before
anyone addressed it.
EHAP’s lack of responsiveness dissolved the violation and my
compliant into an invisibility they may have deserved. The final violation that I identified was
buried so deep in regulations incorporated by reference into the loan agreement
that our auditors would never find it on their own. Its dense technicality edged the violation toward
the trivial, far from the standards of severity demanded by some ethicists[2]. What was more, I identified the violation
after the initial question about the definition of homeless was resolved. As HomeFirst would later claim in its legal
brief, I kept looking for more and more violations, and I found them.
Government by contract[3]
generates webs of interlacing requirements, one of which is almost certain to
be violated. Budget cutbacks have limited
the ability of government monitors, at EHAP and elsewhere, to find violations
on their own[4]. The result is a whistleblower’s field of
flowers that offers so many to select, with or without effect.
But still, the requirement exists, however technical. If it were your $1 million or mine that was
protected by the rule, surely we would have objected, saying, I put that
requirement in the agreement because I expected it to be met. The problem, though, is that the one harmed
is not you or I. The cost of the violation is dispersed over
millions of taxpayers, diluting the complaint to inconsequentiality.
A lesson for the whistleblower: a complaint about the violation
of a governmental regulation is unlikely to be taken seriously. Governmental regulations might as well be for
show unless identifiable and valued lives are at stake.
[1] National White
Collar Crime Center. National Public Survey on White Collar Crime
– 2010.
Fairmont, WV: NW3C. 2010
[2] Bok, Sissela. Secrets: On
the Ethics of Concealment and Revelation. New York:
Vintage Books. 1989
[3] Van Slyke, David M. “Agents or Stewards: Using
Theory to Understand the Government-Nonprofit Social Service Contracting
Relationship .” Journal of Public
Administration Research and Theory. 17 (2006): 157-187
[4] Adams, Guy B. and Danny L. Balfour. Unmasking
Administrative Evil. 4th edition. Armonk, NY and London: M.
E. Sharpe. 2015
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