Monday, March 7, 2016

6th Issue: EHAP Loan – A Violation Too Technical to Worry about

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.




[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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