Contractors named own price for Detroit demolition dirt, emails show

Detroit — Contractors charged the federal government whatever they wanted for more than two years for dirt used to fill holes left behind from thousands of torn-down houses in Detroit's controversial demolition program, emails obtained by The Detroit News show.

The unrestricted charges occurred because no rules were in place to limit dirt costs, eventually prompting state officials to worry about overbilling.

Emails reviewed by The News flagged dirt costs ranging from $3,750 to upward of $7,000 per property that were billed to the state for reimbursement. These charges prompted the state to crack down on contractors, limiting dirt costs to $3,000 for larger houses and $2,000-$2,500 for typical properties.

Considering the average cost for dirt in the most recent quarter — $2,368 per property — it is likely the government spent well above the $18 million it would have on the 7,747 demolitions conducted from the program's inception through July 2017 when cost controls were put into place.

"I cannot say with any kind of authority if something was inappropriate or fraudulent. All I can say is I questioned those costs that were just kind of out of line," said Mary Townley, president of the Michigan Homeowner Assistance Nonprofit Housing Corp., the entity created by the Michigan State Housing Development Authority to administer federal Hardest Hit Funds for the demolition program.

The state's concerns — seen flagged in 2017 correspondence between MSHDA and Detroit Land Bank Authority — first came to light more than a year after the program launched in spring 2014. 

The News' request through the Freedom of Information Act included email discussions over dirt charges submitted by contractors that spanned from January 2017 to May 2017. The emails turned up close to a dozen instances in which dirt costs were flagged by state workers hired to review demolition invoices. 

State contractors and program leaders expressed skepticism to land bank officials about the prices billed to the taxpayer-funded blight effort as invoices began to come in by late 2015.

But cost reasonableness for dirt wasn't officially added to the state's blight manual until July 2017, requiring contractors to turn in dirt invoices, load tickets and other documents to substantiate costs. This essentially made a paper trail from contractors to prove what "they really paid" for the dirt, according to the emails.

It's unclear to the state what the average dirt cost per house was in the early stages of the program because officials admit they weren't being tracked. 

The state also could not provide an estimate on the number of invoices it received that sparked concerns. But officials said once invoices began to ramp up, so did the irregularities, prompting an investigation into the costs and billing practices for the overall program. 

'Digging deep' into costs

The emails raise accountability questions for the demolition program, which has been the subject of a federal criminal investigation. The development also comes amid an ongoing audit of whether contaminated soil was used to fill holes for homes torn down through the federally funded program in Michigan cities, including Detroit. 

At the outset, the state "did what we could" but operated without formal rules to cap dirt costs, Townley said. 

The state got the bulk of the early demolition invoices in late 2015. That's when, Townley said, questions surfaced and state officials began "digging deep" into program costs and whether contractors had documentation to back them up.

The state in 2016 launched a review of the city's demolition program in tandem with a two-month suspension imposed by the U.S. Treasury Department to address improper billing and misallocation of funds.

The state concluded its review of Detroit's billing practices in early 2017 with a $5 million settlement with the land bank to resolve a dispute over invoices the state said were improperly submitted for repayment. In return, the state agreed to make that same amount available to Detroit for tearing down more houses.

On the heels of its review, the state implemented "cost reasonableness" guidelines that Townley said "opened up the process for the state to question costs" as well as a policy requiring contractors to supply load tickets for dirt and copies of other documentation from bid packs. Initially, the state didn't track dirt costs separately.

The dirt cost rules were referenced in a January 2017 email titled "dirt invoices" from Roxanne Eaton, the state's program team leader. 

In the correspondence, Eaton identified a range of $2,000 to $2,500 that she deemed acceptable. 

Prior to that, emails suggest some were billed at $3,750 or $5,000, regardless of square footage, with at least one billing reaching nearly $7,000, the News found.

On Jan. 24, 2017, Eaton sent an email to MSHDA staff, copying Townley, saying $2,000 to $2,500 or less for dirt for "our usual dinky" houses "we will be fine."

If it's $2,500 to $3,000 and the house is larger, "I am OK with it," she wrote.

"We will only question the ones that falls out of these categories," added Eaton, who notes that costs of $3,750 billed by the prominent demolition firm Homrich "is still high in my mind unless the house is very large."

Anthony Abela, a project manager for Homrich, declined to be interviewed.

Eaton, in a Jan. 19, 2017, email to some land bank and city building authority staff titled "heads up," warned that "very high costs for dirt" would need to be explained. 

"I am putting you guys on notice that we are sending the files back with a note asking the contractor to supply a copy of the load ticket and a copy of the invoice showing they really paid for dirt," she wrote.

"We are receiving conflicting stories about where and how dirt is being acquired, so this is (the) way treasury wants us to address it."

On April 24, 2017, an MSHDA worker sent an email to Rebecca Camargo, the land bank's former demolition program director and other land bank staff, asking why the dirt cost for a 2,390-square-foot property at 5759 Lawton was $6,875. 

Camargo responded that the property, which records show was demolished by Salenbien Excavating and Trucking, fell under a past directive from the state "to put any dirt amount into that field." 

"That directive stated that it didn’t have to be an estimate, just a dollar amount," she wrote, noting the new directive to control costs from the state would be applied for future bids. 

In a separate exchange the same month, another MSHDA contractor asked how two properties on Carter — one with 2,208 square feet and another with just 920 square feet — "can both have a charge for dirt = to $5,000 for each?"

"As previously discussed, contractors were operating under a directive to simply place a cost in the dirt column," Camargo wrote in response on April 24, 2017, of the property also under contract with the firm Salenbien. "It is not necessarily reflective of the actual cost."

Camargo, now a private attorney who represents several demolition firms including Salenbien, told The News she doesn't believe any of the contractors were overcharging.

"Quality dirt costs money and is expensive," she said. "The competitive bid process rules out any issue of public waste and/or inflated costs." 

Camargo said it was clear to her in January 2017, while serving as the demolition director, that there had been an old directive from the state to contractors regarding dirt costs and bids.

"The old directive was to place a cost in the dirt column irrespective of the actual dirt cost," she said. "The new directive came in January 2017, stating that the dirt cost had to be reasonable, essentially based on the size of the structure being demolished."

Camargo said MSHDA reimbursed the land bank for "each and every property they questioned regarding dirt" during her tenure as demolition director. The costs, she said, "were legitimate."

Camargo, a former Wayne County prosecutor, resigned her post with the land bank in August 2017.

In a statement provided to The News, the state said at no time was there a directive to "place any number" in the cost field for dirt.

"But it did ask Detroit to start estimating costs for each category of greening: dirt, grade, seed, sidewalk repair or replacement," MSHDA spokeswoman Katie Bach wrote in an email on behalf of Eaton and Townley. "That estimated cost breakdown reporting started in 2015 and is still required today for all state partners receiving Hardest Hit Funds for demolition, not just Detroit."

Alyssa Strickland, a spokeswoman for the land bank, said Eaton's email is the only directive the land bank has on cost reasonableness and the authority continues to follow it.

The land bank, she said, doesn't see backfill as a factor that drives up costs, and it "wouldn't be making any award decisions based on the dirt price."

The authority, she stressed, looks at the total price of a bid package with the goal of getting the lowest price overall to "maximize every federal dollar."

"We need each bid pack to come in as low as possible to get down as many properties with the finite amount of money that's available to us," she said. "Monitoring the price of dirt isn't really getting us to that end goal. We're looking at what's the overall price for the package."

If the overall price for a property seems too high, she said, it's flagged and the land bank examines it more closely.

Record integrity questioned

Details of the lack of early pricing policies for dirt come after The News reported this spring on a University of Michigan researcher's analysis of record-keeping for the backfill program that turned up errors, gap and oversight concerns.

The findings shed light on the control contractors wielded in the process, said Michael Koscielniak, a doctoral candidate in urban and regional planning who spent more than four years reviewing public records that cast doubt on the integrity of soil records for the $265 million blight elimination program.

The city has said record-keeping for dirt evolved from a paper-based tracking system to digital records, but all of the dirt used to fill holes left behind from housing demolitions was accounted for. 

Detroit's demolition program launched with urgency to draw down the first federal dollars earmarked to rid the city of blight. In a state of emergency, Koscielniak said, no regulation is safe.

"When you establish that as the default, it becomes very easy to let stuff get by or to rationalize or accommodate contractors or haulers what have you, taking advantage of the program," he said. "Basically, the contractors were able to set the rules."

The demolition program first came under scrutiny in fall 2015 amid worries over spiraling costs and bidding practices. 

The Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, has been conducting a criminal investigation into the program for several years.

This summer, two former employees of a major demolition contractor pleaded guilty to accepting bribes and rigging bids. Both were sentenced to a year in prison.

The federal watchdog agency in January issued subpoenas to certain contractors, seeking two years' worth of backfill records, including cost, where it was obtained and where it ended up. 

SIGTARP is also in the midst of an audit of federally funded demolition activities for the risk of contaminated soil in Michigan and Detroit.

Koscielniak said he was contacted by SIGTARP in April to discuss several dozen residential demolitions in 2015 that used backfill from a source site in an industrial area of northwest Detroit.

"The feds are concerned it may have been material generated from the I-96 project," he said, referring to a recent road reconstruction project in western Wayne County. 

Demolition program officials have insisted, however, that the use of dirt from the I-96 project was prohibited.

Risks related to the dirt used to fill demolition holes was a core focus of a 2017 audit of Hardest Hit Fund-paid demolitions in Flint. This summer, SIGTARP opened a new audit at the request of Democratic U.S. Reps. Brenda Lawrence of Southfield and Rashida Tlaib of Detroit to determine whether and how its earlier recommendations have been implemented, said Rob Sholars, a spokesman for SIGTARP, in an email.

"Ensuring the integrity of the dirt backfill process is a key area of SIGTARP's continued oversight of the Blight Elimination Program, and we will continue to work to prevent fraud, waste, and abuse throughout the program," Sholars wrote. 

Sholars added he can't speak to specific cases but "would strongly agree that decisions related to the broader dirt backfill process should not be left to individual contractors."

"Our audit findings and recommendations make clear that more effective state agency quality assurance and oversight is required," he said.

Eaton, in a Jan. 19, 2017, email that flagged a bill for $3,750 bill for dirt submitted by Homrich, wrote many contractors "received dirt for free or just the trucking charges, and we now have to prove that these are legitimate costs." 

"If they are legitimate costs, it should be no issue at all to obtain the documentation," she added.

Koscielniak, in his backfill analysis, identified 70 properties demolished by Homrich from June 4, 2015, through July 11, 2015, in which the firm billed $3,750 for dirt on each, totaling $258,750. All of the material was supplied from a site on Castleton Street. 

Townley said in that instance and others, "it appears" Homrich "made a self-determined average and charged the same amount for each lot" prior to the program guideline changes. 

"While this is not correct, it is the way DLB accepted the costs back in the beginning of the program," she said. "It wasn’t until later, toward the end of 2016 and 2017, that we took a stronger approach, requiring invoices, load tickets and further justification on costs."

Detroit has knocked down more than 19,000 houses since spring 2014. Of those, more than 12,000 were razed with federal funds. 

The last of the Hardest Hit-funded demolitions work has been allocated in Detroit and Mayor Mike Duggan is pitching a bond measure for March that would enable the city to raze the remaining 19,000 blighted houses. This fiscal year also marks a transition from a demolition effort controlled by the land bank to a city-administered effort.

Duggan recently reiterated in an interview with The News that since stronger protocols were implemented in 2016, the federal government has released another $175 million to Detroit for demolition. 

"Obviously, things were learned," he said. "But the fact that for more than three years now the money has flowed tells you that the feds and MSHDA have confidence in what we're doing. I'm looking forward, not backwards."

cferretti@detroitnews.com