Detroit land bank officials failed to enforce documentation rules with demolition contractors and conduct treasury-mandated quality control audits for the city’s federally funded blight removal program, according to a six-year investigation by a city watchdog agency.
In a new report, Detroit’s Office of Inspector said Tammy Daniels, the authority’s now-director and former demolition manager as well as Michelle Chittick, who oversees quality control, fell short on collecting documents to substantiate the cost of dirt used to fill basement holes after homes were demolished.
The findings released Monday are part of a watchdog investigation that stemmed from allegations raised in 2018 that federal demolition program contractor Den-Man Construction, Inc. was charging the city for dirt it obtained for free from hauling companies. The report notes Den-Man was awarded more than $12 million in work as an approved contractor for the city’s federal Hardest Hit Fund demolition program between 2017 and 2019, the OIG report notes. The land bank terminated Den-Man’s contracts on May 1, 2019.
As the OIG released its investigative findings Monday it issued a debarment order banning Den-Man owner David Holman and the company’s former demolition director, David MacDonald, from doing work with the city for their role in the use of unapproved backfill in the city’s federal program. Holman, once facing 12 felony charges, pleaded no contest this year to a misdemeanor count of false pretenses. The company’s demolition director David MacDonald pleaded guilty to criminal charges in the scheme to fraudulently bill the city for unapproved and contaminated dirt.
In a separate Monday move, the city of Detroit filed a $3.5 million lawsuit in Wayne County Circuit Court against Den-Man to recover costs incurred as a result of contaminated dirt the company used as backfill.
Holman and MacDonald were ordered to pay a combined $4.7 million in restitution when they were sentenced earlier this year. The $3.5 million being sought in the city’s lawsuit aims to recoup the costs Detroit incurred to test and replace the dirt.
The OIG report argues that Daniels, who, in 2015, joined the land bank as its general counsel, abused her authority by failing to conduct treasury-mandated “quality control audits” in 2016, after the program was halted over “questionable backfill change orders.” Chittick, who was deputy demolition director at the time, is accused of neglecting to collect documents to substantiate the backfill dirt costs.
The OIG concluded Daniels failed to enforce provisions of agreements with contractors that require the land bank to collect documentation to substantiate dirt costs. The collective failures, according to the report, which recommended disciplinary actions for Daniels and Chittick, resulted in wasted time, money, and resources for the city.
But Erica Ward Gerson, who chairs the land bank’s five-person board, fired back at the OIG, calling its findings “terribly flawed.”
In a written response to the report signed by Gerson, Daniels and Chittick, Gerson stressed no action will be taken against the authority’s staff “for failing to comply with a requirement that was never imposed” and urged the OIG to revise its findings “so as not to falsely damage the reputations of these fine people.”
In an emailed statement to BridgeDetroit, the OIG reiterated its disagreement with Gerson’s characterization. “We note that the land bank did not provide any evidence to refute our conclusions,” it reads. “The evidence in the report speaks for itself.”
The city spent $265 million in federal funds to tear down more than 15,000 blighted homes between spring 2014 and August 2020. The program, administered jointly by the city’s land bank and building authority, with the Michigan State Housing and Development Agency, first came under scrutiny in the fall of 2015 amid allegations of bid-rigging and soaring costs. It was later plagued by controversy over weak controls that allowed contractors to self-determine costs for the dirt.
The OIG report notes Chittick told program contractors via email they would be required to substantiate all backfill costs when submitting an invoice for payment.
Emails included in the OIG report indicate MSHDA’s Blight Elimination Team Lead Roxy Eaton put the DLBA and DBA “on notice” in January 2017 that the state agency would send files back if contractors couldn’t provide documentation “showing they really paid for the dirt.”
But Gerson said MSHDA, which oversaw funding disbursements for the city’s program, never added the requirement to its blight manual or requested dirt receipts, nor did the agency withhold land bank reimbursement requests over a lack of documentation.
MSHDA had two to four employees working out of the land bank’s office during the federal demolition program “to ensure that all of their requirements were being met,” according to Gerson, who said she relied on those employees to spot discrepancies.
“It is beyond belief that you can now accuse Ms. Daniels and Ms. Chittick of being negligent for something they were never asked (by MSHDA) to do, and then, without any independent investigation, try to blame them years after the program was successfully concluded,” Gerson said in her written response to the OIG.
The land bank maintained in February 2023 that it provided all required and requested documentation to the state but agreed to pay the United States $1.5 million to resolve allegations it paid contractors for unsubstantiated dirt costs between December 2016 and June 2022. At the time, the land bank said it opted for the settlement “to avoid the delay and expense of litigation.”
Katie Bach, a spokesperson for MSHDA, said in a statement that MSHDA fully cooperated with SIGTARP, federal treasury officials and the Department of Justice’s investigation of the DLBA’s backfill matter, “and the outcome of that investigation, as noted in (the OIG) report, is that the DLBA agreed to a settlement with the federal government.”
The city’s Monday lawsuit alleges Den-Man breached the terms of its contracts when it used an unapproved dirt source, refused to remedy the issue or maintain documents.
The lawsuit addresses issues with the quality of dirt used, rather than the cost of backfill dirt.
While the land bank’s response to the watchdog report says the quality of dirt was the Detroit Building Authority’s responsibility, the inspector general said receipts could have addressed both concerns.
The land bank, in a statement to BridgeDetroit, said it “takes great pride in our record of success in improving Detroit’s neighborhoods, including our role in the HHF demolition program.”
Den-Man’s attorney Christian Hauser said Thursday that his client and his company were “effectively made the scapegoats for the city’s errors and omissions in overseeing the program.”
Under the debarment order, Den-Man and Holman can’t do business with the city as a contractor or subcontractors for 20 years, and MacDonald is banned for 15 years.
City officials and the land bank are in the process of negotiating the memorandum of understanding that determines how the land bank manages the inventory of over 62,000 city-owned properties, the majority of which is vacant land.