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Classic Washington Pork: $1.7 Million for a Hotel That Never Was.

Gary North
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April 4, 2012

Here is a pretty good press release. It was issued by an outfit that opposes waste in government. It got picked up by at least one newspaper. That's the sole test of a press release: Did it lead to a media story?

This press release works because it targets a specific piece of pork that illustrates waste. The press release names names. It embarrasses a specific porker.

* * * * * * * * * * * * * * * *

Washington -- In February 2003, former U.S. Rep. James Walsh used his influence as a senior congressman to secure $1.7 million in federal tax dollars to help with the Carousel Center expansion known as Destiny USA.

Congress approved the spending without public debate. The money was intended to help clean up toxic soil buried under the mall's parking lot, making way for the planned Grand Destiny Hotel, Walsh said when he announced the grant.

Now, nine years later, there is no hotel. No contaminated dirt has been removed. It remains buried under the parking lot.

Destiny USA's developers didn't return Walsh's earmark. Instead, executives found a new way to spend the tax money, this time on environmentally-friendly technology.

Destiny spent $562,000 for a "rainwater harvest system" to flush toilets with rain and melting snow collected from its roof. Another $556,824 paid for 770 energy-efficient light fixtures inside the three-story expansion.

The developer used $289,466 to install five small wind turbines on the roof and $278,413 for bike racks, showers, a changing room and signs for cyclists.

The final item: A "living wall" on the outside of the mall for $59,967. Destiny officials said the plants growing on the living facade would "educate millions of people on the positive effects of reintroducing plant life into urban developments."

After thinking about it, Destiny executives killed the living wall and spent more on wind turbines.

The U.S. Department of Housing and Urban Development signed off on the changes in the grant. HUD, without raising any objections, sent the money to Destiny through the city of Syracuse. Now, HUD's independent inspector general is questioning the city's record-keeping and oversight of the money.

One critic said it's not a surprise that a private company could dramatically rewrite its grant years later and that city officials have a sketchy paper trail of the spending.

The government watchdog group, Taxpayers for Common Sense, views the Destiny spending as symbolic -- typical of the wasteful pork from the days when Congress directed money to special projects in the home districts of influential members through secretive earmarks.

In these kind of cases, the money is rarely returned to the U.S. Treasury, said Steve Ellis, vice president of the group that has opposed earmarks.

"As far as repurposing earmarks, it is not something that was well-tracked," Ellis said. "Once an earmark was signed into law, we really didn't know what was happening with the money. None of that oversight really occurred. And quite honestly, nobody cared. Congress was looking at the earmarks they were going to give out the next year."

Nine years after the earmark and three years after Walsh left office, federal auditors have forced City Hall and Destiny to dig through documents and long-archived emails to explain what happened to the money.

In January 2011, auditors for HUD's inspector general mounted a yearlong investigation into the Destiny grant and 40 others that Syracuse received through Walsh from 1999 through 2006.

The Destiny grant for $1,688,950 was the largest of $2.5 million in grants questioned by the inspector general in a Feb. 21 audit report.

HUD does not dispute that Destiny had the authority to change its use of the money. Instead, HUD and its auditors want to see documentation that Destiny spent the money as promised and that the developer used competitive bidding to buy the green technology.

The auditors also wonder what took so long. Why were most of the promised projects not completed before a Sept. 22, 2010, HUD deadline?

Several of the green projects, including about 90 percent of the lighting, still have not been installed, according to Destiny officials.

HUD has been criticized in the past year for letting taxpayer-funded projects languish without serious deadlines that ensure completion.

In the Syracuse report, the auditors said HUD statutes require the money to be returned to the U.S. Treasury if the deadlines were not met.

Now the pressure is on Destiny and Syracuse officials: If they fail to document the spending was "proper, necessary and reasonable," they should pay the money back to the federal government, HUD Regional Inspector General for Audit Edgar Moore advised in his audit.

A March 8 letter from HUD headquarters in Washington gave City Hall 45 days to find the documents and answer the questions raised by the audit.

The auditors made similar requests on three smaller Walsh earmarks: restoration projects at the Landmark Theatre and Syracuse Stage and the conversion of an old warehouse next to Dinosaur Bar-B-Q into the Lofts on Willow.

Destiny USA and Syracuse officials say the spending was proper and approved by officials at HUD headquarters in Washington.

David Aitken, a Destiny executive, said the developer gave the federal auditors a behind-the-scenes tour of the uncompleted project in September 2011. He said he thought the auditors understood what is now a $650 million project had been delayed for several years by the recession.

"We worked closely with the city and with HUD on the implementation of this particular grant," Aitken said. "In terms of submissions of a budget and the modification to the grant, all of that was duly authorized. All of the backup material and invoices, I believe, were submitted to the city and HUD. I would say we were in regular communication about it."

Aitken said he was not aware of the audit's findings until contacted by The Post-Standard on Tuesday. Congress' pet projects

During the period from 1999 through 2006, Walsh directed $13.7 million in development earmarks to the Syracuse area. HUD had no say in making those grants.

Walsh was especially successful in accessing money when he was chairman of a powerful House appropriations subcommittee that directed spending for HUD and the Department of Veterans Affairs.

Congress put a moratorium on corporate earmarks in 2010 and banned all earmarks in 2011 after criticism of wasteful spending, corruption and abuse. President Barack Obama has called corporate earmarks the "single most corrupting element" of the congressional budget process.

Auditors with the independent inspector general for the HUD found no problems with 37 of the 41 earmarks that Walsh secured as part of HUD's Economic Development Initiative -- a program that existed solely to distribute earmarks.

"These are not HUD grants in any way, shape or form," said Brian Sullivan, a spokesman at the agency. "But we have to manage them to make sure they are spent in the manner Congress directed them to be spent."

Sullivan said the agency is not questioning whether the Destiny spending was authorized. Emails retrieved by Syracuse officials show HUD approving the changes in the grant, sometimes within hours of the request.

Instead, HUD wants to know if the city monitored the spending, made sure the costs and projects were appropriate, and that the developer used competitive bidding.

HUD wants to see receipts and bid documents, Sullivan said.

"It's the difference between what you plan to do and what you actually do," he said. "What we're following up on with the city is on what they actually did."

HUD requires the earmarks it handles to be spent within five years or the money must to be returned to the U.S. Treasury. Destiny was a year away from that deadline when it first proposed a new use of money.

Records show Destiny and City Hall asked HUD to approve the change in spending in a form dated Jan. 20, 2009 -- the day of Obama's inauguration.

A pass-through

Aitken did not directly answer whether the spending was competively bid. But he said Destiny has a policy of seeking competitive pricing and that it worked with HUD and the city to follow the grant regulations.

The city has not found records on any bids. City officials are trying to track down receipts, canceled checks and other proof of spending.

Paul Driscoll, Syracuse's commissioner of neighborhood and business development, said the city was never supposed to monitor Destiny's spending and plans for the grant.

Unlike most state and federal grants that go through City Hall, the city never signed a contract with Destiny, Driscoll said. Where there's a contract, Syracuse typically takes 10 percent of the grant to use as administrative costs for monitoring the work.

Driscoll said the city did not have contracts to provide oversight on most of the 41 earmarks through HUD.

"These grants were not initiated by the city," Driscoll said. "They were earmarks initiated by the congressman. ... The city had little involvement in whether to fund them or the scope of the project once it was decided."

Driscoll described the city's role in the Destiny grant as a "fiscal pass-through." And, he said, the grant was amended at least four times along the way.

When two HUD auditors from Albany showed up a little more than a year ago, they were given desks at City Hall and files of spending records to review.

The auditors spent four days a week in Syracuse for about a year examining all of the city's 41 Economic Development

Initiative grants and other grants, Driscoll said.

'Nothing to hide'

After working on their investigation for about nine months, the two auditors with the HUD Inspector General asked to see what equipment had been installed at Destiny USA, Driscoll said.

A Syracuse official took a photo of these taxpayer-purchased, energy-efficient lights wrapped in plastic.

He arranged a tour with Aitken, the Destiny executive, of the empty building during its construction in September 2011

"We actually took them through the mall with Destiny by our side," Driscoll said of the auditors. "I was very pleased because we could touch and feel all the products that were bought with the money. To me, it was proof that we were in compliance. There was nothing to hide."

Walsh agrees. The former 10-term congressman, now a lobbyist for the Washington firm K & L Gates, said he has no regrets about the Destiny earmark or how the money was used.

"The whole idea was to get the development moving and get the project going," Walsh said. "The federal money basically leveraged hundreds of millions of private-sector money. That's usually why I supported grants like that."

Walsh said it was unusual for the grants to be amended and used for something else without congressional approval. But he said it's clear the Destiny money was worthwhile. The mall expansion is now the largest LEED Gold certified retail building in the United States, according to the U.S. Green Building Council.

"It sounds like most of the money has been well spent," Walsh said. "And it's good to know the federal government is keeping track."

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