Comptroller Discovers Housing Authority Owes City An Additional $4 Million

Southlawn housing complex, part of the Housing Authority of the City of Milwaukee. Photo by Jeramey Jannene.

Cleaning up the financial mess at the Housing Authority of the City of Milwaukee (HACM) just got even more difficult, as the “gradual decoupling over time” the agency and city have undergone has resulted in millions of dollars in newly unearthed reimbursements owed to the city.

A new report from City Comptroller Bill Christianson, the city’s fiscal watchdog, identified $4.1 million in unpaid expenses the city has incurred on behalf of HACM and a series of open legal and policy questions about what the exact relationship is between the general city government and the largely federally-funded housing authority.

The latest revelations follow a whirlwind of HACM changes and announcements, including the departure of three top officials, the delayed release of a U.S. Department of Housing and Urban Development letter that labeled the agency as “troubled,” the federally-required outsourcing of one of its largest programs, the almost complete replacement of the oversight board, the new CFO’s discovery that $2.8 million in funding was illegally shifted between programs, the pending settlement of a class-action lawsuit from tenants and a report that the agency’s public housing division lost $1.7 million in 2024. The agency came under intense scrutiny starting in early 2023, when Common Ground Southeastern Wisconsin launched a campaign for improvement on behalf of residents.

“An agency charged with providing for some of the neediest amongst us has fallen, and while it attempts to stand back up, it’s been hit with another leg crippling blow,” said Common Council President José G. Pérez during Monday’s Steering & Rules Committee meeting. The outstanding $4 million wasn’t discovered until Pérez requested Christianson explore if the agency had misappropriated other funds after a late January revelation by new HACM CFO Brad Leak that the agency misallocated millions in federal funds between programs from 2019 to 2022.

But Christianson’s investigation was hampered by the complicated relationship between the city and housing authority.

“We really weren’t able to find any authoritative documentation since 2004 that would help us understand the financial relationship between HACM and the city and changes that may have taken place since 2004,” said Christianson, citing a 21-year-old agreement.

The agency’s newly-revealed unpaid balances come from two areas.

Christianson’s office, on Friday, determined there is a “moving target” of $531,000 in unpaid invoices from city departments to HACM. Some of the accounts receivable balance is current said Christianson, while other invoices are more than 90 days overdue. HACM, said the comptroller, has paid some invoices in recent months and previously had a balance of more than $1 million. Chief information officer David Henke said $189,000 of the current balance is IT service charges from his team. Leak, in HACM board meetings, has said the agency is currently paying many of its invoices late as it faces “serious cash shortages.”

The biggest outstanding balance is $3.6 million in “unreimbursed reimbursables” said Christianson of a city billing procedure between departments and agencies. It’s a result of what he said is the “gradual decoupling” of the agency from the city.

Departments apply a balance to the reimbursable fund and those assessed must make the fund whole. “It is ultimately the city’s general fund that is on the hook for making up any shortfall for amounts in the reimbursable fund that are not reimbursed,” said Christianson. “It’s obvious, but I’ll still point it out… it’s unfavorable for the city to indirectly subsidize external agencies by funding these unreimbursed reimbursables out of the general fund.”

HACM, until the early 2000s, was budgetarily housed within the Department of City Development. As the agency was decoupled, up to 150 HACM employees remained in DCD on paper but actually worked for HACM. “To me, it’s not exactly clear why these positions were allowed to remain in the city budget,” said Christianson. The total employees remaining, said the comptroller, dwindled to 23 in the 2024 budget. HACM is required to pay the city to reimburse their cost, but that hasn’t happened in recent years. He said it was “difficult to determine” when the divergence began, but underpayments were identified as far back as 2015, and no payments have occurred since 2021.

DCD, said Christianson, does not bill HACM for the positions, but the balance does ultimately get transferred to the reimbursable fund. “We did actually find a provision in the [2004] agreement that provided HACM access to the city’s financial management system,” said Christianson. He said, as best he could tell, the access was so HACM could determine its balance owed. “This arrangement may have worked when it was first put in place, but clearly, over the years, it broke down.” He suggested that access to the financial system was not a good practice and that a city department should be designated as responsible for billing the agency instead of HACM paying. Christianson also suggested that, as a general best practice, the city should hire a new citywide collections specialist rather than rely on individual departments to do so. Old debts, often from individuals, are referred to a law firm that takes a collections fee.

Pérez pushed Christianson to understand how the fund balance doesn’t get settled at year’s end.

“We are temporarily paying for them with the expectation of reimbursement, but the prospects of reimbursement, that’s an open question,” said Christianson.

The 2004 agreement generated many questions from Christianson and the council, not the least of which is whether it is actually in effect because of who signed it. It was supposedly signed in March 30, 2004 by Mayor John Norquist and City Attorney Grant Langley, however, Norquist left office in January of that year. At a different point, 2002 is crossed out to read 2004. And the agreement is supposed to be retroactive to 2000. “It is a curiosity, to say the least,” said Ald. Robert Bauman.

City Attorney Evan Goyke declined to speculate whether the agreement was legally enforceable and valid, but said the agreement does cite two 2002 council actions in its whereas clauses and has been in longstanding effect. Goyke said his department would review the agreements between HACM and the city.

Alderwoman Sharlen P. Moore, Bauman and Pérez discussed replacing or updating the 2004 agreement. “I know that I’m going to talk to my colleagues about doing something from scratch,” said Pérez.

The City Attorney’s Office is one of the departments that bill HACM. It has a current, $37,000 invoice, said Goyke, for its fourth-quarter services, including legal advice and eviction support.

Pérez praised Christianson, who is independently elected, for operating his office as an “independent and transparent entity with the goal of placing the city in its best financial position.” He also praised Leak, the new CFO for HACM, for “bravely” coming forward with the agency’s troubles.

Christanson’s review did offer certainty in at least one area: HACM appropriately spent the $9 million in federal American Rescue Plan Act funding the council allocated in 2021. The council provided the funding to support the redevelopment of the Westlawn housing complex. He said a more thorough review was underway, “but so far we haven’t identified any red flags.”

He also clarified that the agency’s annual pension contribution of approximately $1 million isn’t late, nor is its annual payment-in-lieu-of-taxes (PILOT), but both come with qualifiers. The 2024 pension contribution is due at the end of the 2025, but is now accumulating interest at 6.8%. HACM previously paid the annual bill in December, to avoid interest, said Christianson, but slipped to February last year. The PILOT payment will be considered on time, said the comptroller, if it is received by March 1. Leak, in prior HACM meetings, said the agency is aware of those debts.

The housing authority, in a statement, said it is reviewing the new information. “HACM is aware of the information presented by the Comptroller at the meeting. Our CFO received limited information on this matter from the Council President’s office on Friday afternoon. HACM’s new leadership team will conduct a thorough review and collaborate with the City to assess its current financial obligations,” said a spokesperson.

It will need to present its findings to the council. A second item, reviewed and approved by the committee, would require HACM to make biannual reports to the council. The full council will review the resolution at its March 4 meeting.

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