CMHA brass took perks, bonuses out of poor fund

***CMHA brass took perks, bonuses out of poor fund*** 

Sunday, June 28, 1998

By JOEL RUTCHICK
PLAIN DEALER REPORTER 

Claire E. Freeman-McCown and subordinates at the Cuyahoga Metropolitan 
Housing Authority spent hundreds of thousands of dollars targeted for 
the needy on lavish entertainment, hefty bonuses and perks, records 
show.

To finance such expenditures, including trips to the beauty salon, 
tickets to theaters and sports events, flowers for virtually every 
occasion and thousands of dollars of executive travel, CMHA dipped into 
a fund once dedicated to providing housing for World War II veterans.

The fund, called Title 5, has disappeared from the books of virtually 
every other housing authority in the country.

Title 5 had no substantial source of revenue and CMHA made little use of 
it before Freeman-McCown came on board as executive director in 1990. 
Because the fund was started with money from the sale of CMHA-owned 
property, there ordinarily was no cause for federal oversight.

But after Title 5 ran out of money in 1993, most of the cash 
Freeman-McCown and Chief Operating Officer Ronnie C. Davis used to 
revive it carried strings that required the federal government to make 
sure it was spent on the very poor, according to records.

Instead of going to the very needy, much of the cash went to the very 
comfortable, and there is no indication that either the U.S. Department 
of Housing and Urban Development or the CMHA board of commissioners paid 
much attention to how the money was spent.

More than $1.1 million went for salaries and benefits for Freeman-McCown 
and Davis, along with bonuses for them and other CMHA employees.

Freeman-McCown's bonuses totaled $100,000 from Title 5 funds between 
1994 and 1996 and she received an array of other benefits.

According to CMHA records, during that time Davis was paid $114,000 
after taxes in accumulated sick, vacation and compensatory time as well 
as $106,500 in bonuses.

Bonuses of that size are unheard of in public housing, according to 
industry experts.

"The biggest bonuses I've ever heard of in public housing are $10,000 to 
$15,000 a year," said MaryAnn Russ, a former top HUD official who is now 
a housing consultant in Chicago.

Big bonuses helped make Freeman-McCown the highest paid housing director 
in the country last year. Records show that her CMHA compensation 
exceeded $403,000.

Freeman-McCown said what matters is what CMHA got for its money.

"Creativity, innovation, motivation, commitment and results - 
quantifiable results - are priceless," she said.

Priceless, maybe, but CMHA board members didn't think so when they 
learned that CMHA paid more than $100,000 toward loans on a townhouse 
Freeman-McCown owned in Alexandria, Va.

CMHA board members said that benefit wasn't authorized and suspended her 
without pay last month, pending an investigation into financial 
transactions. Freeman-McCown in turn filed a lawsuit against CMHA, 
claiming the board breached her contract.

Now the FBI and the HUD inspector general's office are checking the 
money trail and a federal grand jury is scheduled to hear testimony 
starting Tuesday.

Ohio Auditor James M. Petro has begun a special audit that includes a 
review of the mortgage payments and other Title 5 expenditures to 
determine whether laws were obeyed and if not, whether any money should 
be reimbursed. 

Resourcefulness pays

Coming up with the idea that put nearly $4 million into Title 5 earned 
Davis lavish praise from Freeman-McCown, who said it was an 
"extraordinary accomplishment."

"These funds will be an essential part of our future efforts to develop 
alternative housing initiatives and supportive programs," she said in a 
November 1994 memo to her deputy.

Freeman-McCown accompanied her tribute with an order for $36,000 in 
after-tax bonuses to Davis to be paid in 1995. The same year he received 
another $40,000 in after-tax incentives, including a $10,000 "longevity" 
bonus.

Around the same time that Davis helped bring in the big Title 5 cash, he 
and Freeman-McCown reached an agreement on how to spend some of it. In 
April 1994, Freeman-McCown signed an employment agreement that allowed 
Davis to convert to cash unused vacation and sick leave going back two 
years. Freeman-McCown said that she and Davis were the only two CMHA 
employees allowed to do so.

In September 1995, the two broadened the agreement to allow Davis to 
convert to cash one of every two hours of compensatory time retroactive 
to 1990. For half of 1,600 compensatory hours, Davis collected another 
$36,000, after taxes.

Freeman-McCown said she didn't recall whether Davis submitted 
documentation of the time earned. He said his secretary kept track of 
his time and that information should have been in the CMHA files.

Davis' total CMHA compensation for 1995 topped $368,000, according to 
his W-2 form. In 1996, he earned $206,279 from CMHA.

Defending his compensation package, the 47-year-old Davis, who now heads 
the San Francisco Housing Authority, said that the issue is value.

In 1994, CMHA not only ended nearly 15 years of designation by HUD as a 
troubled housing authority, it won a special HUD commendation as the 
most improved very large housing authority in the country.

"So the question is what the executive brings to the table," Davis said. 
"I'm a public servant and in order to get my services, I should be paid 
for them."

Freeman-McCown also defended the amount Davis was paid. "How do you 
retain a stellar employee who is being recruited all across the 
country?" she said.

CMHA board members said they were unaware that Davis had an employment 
agreement.

When the board inquired last year whether Davis or then-General Counsel 
Betty Stage had an employment agreement, the chief executive replied, 
"the only person who has a contract around here is Claire Freeman," said 
Karen Wilson, shortly before she resigned as chairwoman of the CMHA 
board.

The board was misled by that statement, said senior board member Robert 
Townsend II.

The Davis agreement wasn't disclosed to the board because CMHA employees 
served at her pleasure, Freeman-McCown said. She said her contract gave 
her the authority to reward as she saw fit; consequently, her agreement 
with Davis was not an employment contract with the housing authority.

Townsend said it was "inappropriate for the director of the agency to 
cut a side deal with any employee," especially for the kind of money 
Davis received.

Board members knew little about Title 5 expenditures, Townsend said, but 
Freeman-McCown and Davis say the board got regular reports detailing 
expenditures.

The problem with the reports is that they sometimes contained sparse 
information, Townsend said. For example, an entry of $1,034 for Merrill 
Lynch appeared each month under the heading of executive benefits on an 
expenditure report. What the report didn't say was that the payment was 
for a loan on Freeman-McCown's townhouse, he said.

Should the board have asked more questions? Yes, Townsend said. "I take 
that responsibility for myself."

Wilson acknowledged earlier this year that the board had taken too much 
for granted and that for years members had stars in their eyes about 
Freeman-McCown's ability to run the agency. 

Fun, flowers and food

When Freeman-McCown moved from a position as an assistant secretary at 
HUD to CMHA's top post in 1990, she said she saw Title 5 as a tool in 
turning the troubled agency around.

"We understood that we had to motivate and change, transform the work 
force from one that was low on dignity, low on efficiency and very low 
on quality," she said.

So she and other CMHA managers looked to a system of incentives and 
rewards for employee performance and the board agreed to use Title 5 
funds to pay for them.

The vehicle for delivering some of those incentives was CMHA's annual 
awards ceremony.

Freeman-McCown described the event as "like the Oscars" in that less 
significant awards are presented earlier in the day, and awards to the 
employee of the year and corporate partners are given out at a dinner.

The price tag for catering and banquet services for the 1995 event at 
Stouffer Tower City was about $35,000, records show. Other costs for the 
event, attended by about 1,000 people, exceeded $5,000.

CMHA thanked about 20 members of its awards committee with another 
dinner at the Hyde Park Grille about two weeks after the ceremony. 
Entrees running up to $46 for a steak and lobster combination, $85 in 
wine and desserts like Bananas Foster pushed the tab to nearly $750.

Employees and other guests didn't leave awards ceremonies empty-handed. 
For the 1994 awards event, held at Severance Hall, nearly 700 pieces of 
hardware - plaques, trophies, pins and other items - cost $18,000, 
records show.

In all, Title 5 paid nearly $300,000 for meetings, banquets, awards, 
refreshments, parties and sporting events from 1994 through 1996, 
according to CMHA accounting records.

CMHA is a big supporter of both culture and sports in Cleveland. About 
$10,000 was spent for Cavaliers season tickets in three years, records 
show. The tickets were used by employees.

"Title 5 became their private cookie jar and the vehicle to frivolously 
misspend money intended to provide housing opportunities for public 
housing residents," said George Engel, former manager of the Cleveland 
HUD office.

Most Title 5 expenditures were billed directly to CMHA, but at least 
$180,000 was charged between 1994 and 1996 to a CMHA credit card that 
Freeman-McCown and Davis were authorized to sign. While theirs were the 
only authorized signatures, other employees sometimes used the cards, 
records show.

Most of the money went for travel and meals, both in town and out of 
town. More than $30,000 was spent at local restaurants, often 
Cleveland's swankiest establishments, such as Johnny's Downtown, 
Morton's of Chicago, The Watermark and Pier W.

Often the only documentation provided by CMHA for the purpose of the 
meal was a handwritten list of diners' names.

The CMHA credit card also paid about $12,000 for flowers and fruit 
baskets to offer congratulations or condolences, or to note other 
special events, such as promotions, in the lives of tenants, public 
officials, CMHA commissioners and employees.

The MasterCard also picked up the tab for $450 in gift certificates to a 
beauty salon and $450 in tickets to the Cleveland Playhouse. The visits 
to the beauty shop were an employee incentive.

Davis said that CMHA might have given the theater tickets to employees 
but couldn't recall for sure. "Obviously, since we paid it we believed 
it was appropriate."

Incentives are a proven way of increasing morale and productivity, Davis 
said, adding that they are used throughout corporate America and the 
federal government.

The credit card also paid for air fare and other out-of-town expenses. 
But the agency could produce only the bills from the credit card for 
tens of thousands of dollars in expenses. Individual invoices for 
expenditures or records documenting their purpose were not part of the 
records in many cases.

CMHA policy requires employees to submit travel expense reports and 
provide support for individual charges.

Asked about the lack of documentation for credit card purchases, Davis 
responded that he made sure charges he reviewed were accompanied by the 
proper paperwork, which should have been in the files.

"I was very careful with that, and we saw that we had the receipt and 
listed the reason we bought it," he said.

Freeman-McCown said she believes that all the charges on the credit card 
were for a public purpose.

Hotel bills, restaurant receipts and airline ticket purchases are among 
the records Petro's auditors typically inspect to ascertain whether 
expenditures are for a valid public purpose, said Kate Buchy, Petro's 
spokeswoman. 

Small pool for bonuses

In addition to free tickets, flowers and dinners on the town, 
Freeman-McCown and Davis used a more direct employee incentive - money. 
But some employees benefited more than others.

Records show that more than half of the $360,000 in bonuses provided by 
Title 5 funds in 1994 and 1995 went to 50 of the agency's approximately 
1,400 employees. CMHA started paying bonuses from other funds in 1996.

Some of the big cash bonuses went to employees involved in high-profile 
failures.

Brenda Harper McIntosh was rewarded with more than $42,000 in bonuses 
over four years, including $20,000 in December 1996. McIntosh headed 
Section 8 in the early 1990s and was its executive monitor from February 
1997 until she was forced out of Section 8 in April.

In a February article, The Plain Dealer detailed mismanagement in 
Section 8's program ranging from a failure to provide subsidies for 
thousands of poor families to abysmal recordkeeping to customer service 
roadblocks that one HUD manager said "amount to an obstacle course for 
needy program participants."

HUD replaced CMHA management with a consulting firm last spring and 
specifically barred McIntosh from the Section 8 operation. HUD officials 
say they will take permanent control unless there is substantial 
improvement by October.

Freeman-McCown defended the bonus payments to McIntosh, saying the woman 
wears many hats for CMHA. She suggested that HUD has an ulterior motive 
for criticizing the way McIntosh has run Section 8.

"I think there is a national unholy mandate . . . to take over Section 8 
by private contractors who happen to be friends of HUD officials," 
Freeman-McCown said.

McIntosh has been CMHA's "greatest weapon" in its fight to keep HUD from 
taking over the Section 8 program,

©1998 THE PLAIN DEALER. Used with permission.