DPD Affordable Requirements Ordinance Administration Audit

The Office of Inspector General (OIG) conducted an audit of the Department of Planning and Development’s (DPD) administration of Municipal Code of Chicago (MCC) § 2-45-110, the Affordable Requirements Ordinance (ARO). The ARO requires certain private market residential developers to designate a percentage of units on site as affordable and/or pay an in-lieu fee to the City. The Ordinance requires the City, in turn, to use these fees to advance affordable housing development in Chicago. Until 2015, the City referred to the in-lieu ARO fees, collectively with Density Bonus fees, as the Affordable Housing Opportunity Fund (AHOF).

The principal objectives of the audit were to determine if the City achieved equitable geographic distribution of ARO-created and ARO-financed affordable housing units in accordance with its goals for the program and also used all ARO fees for the creation of affordable housing as required by the Ordinance. OIG further sought to determine if the City optimized its use of the Chicago Community Land Trust (CCLT) with regard to ARO-created, for-sale affordable units.

OIG found that, contrary to affordable housing best practices, the two programs that distributed ARO and Density Bonus monies—DPD’s Multifamily Finance program and the Chicago Low-Income Housing Trust Fund’s (LIHTF) Multi-Year Affordability through Upfront Investment (MAUI) program—lacked an evidence-based strategy to define high and low opportunity areas for affordable housing development and incentivize such development accordingly. This deficiency may have impeded affordable housing development in high opportunity areas and limited housing choice. OIG also found that DPD did not appropriately account for $4.5 million in ARO and Density Bonus fees. Finally, OIG found that, in its ten-year history, CCLT has never fully operated as a community land trust as contemplated by its establishing ordinance, and administrative changes under consideration will further diminish its ability to function as such a trust.

Based on these findings, OIG concluded that the City neither appropriately allocated all ARO and Density Bonus fees nor aligned itself with best practices as to the administration and investment of these fees. This negatively impacted both the quantity and quality of ARO program outcomes and, ultimately, the options available to prospective tenants and homebuyers seeking affordable housing in Chicago. OIG recommends that DPD develop defined goals related to the geographic distribution of affordable housing. As part of this process, the Department should formally identify the city’s high opportunity areas for affordable housing development and consider amending the selection criteria in its Multifamily Finance and MAUI applications to award points for development in these areas. We further recommend that DPD ensure the restoration of the $4.5 million in ARO and Density Bonus fees to the Affordable Housing Fund for use in the creation of affordable housing, in accordance with the MCC. Lastly, OIG recommends that the City either allocate the resources necessary to allow CCLT truly to function as a community land trust or consider integrating CCLT’s existing functions into DPD operations.

In response to our audit findings and recommendations, DPD agreed to take a number of corrective actions, including amending the selection criteria for the Multifamily Finance and MAUI programs to strengthen the City’s ability to invest in affordable housing in a way that takes opportunity areas into consideration. DPD also acknowledged the accounting inconsistencies related to ARO and Density Bonus fees and agreed to work with OBM to restore $4.5 million to the Affordable Housing Fund. However, after receiving a draft of our report and upon further review by OBM of accounting provided by DPD, OBM stated that DPD’s records were not supported by the City’s primary accounting system. OBM also stated that payments in excess of $4.5 million were made from the Corporate Fund to support affordable housing projects, concluding that these payments compensated for the discrepancies identified. Finally, with regard to CCLT, DPD agreed that a lack of capital has precluded the organization from utilizing ground leases to advance affordable housing in accordance with other land trust models. In lieu of working with City Council and OBM to secure the financial resources necessary for CCLT to utilize ground leases, DPD stated that CCLT will continue in its current operations as a nonprofit, removing “land trust” from its name, in order to leverage the expertise of the CCLT Board.