$2M in loans to school under scrutiny

LAKEWOOD A local agency that receives federal funds to administer the township’s low-income housing program has given $2 million in loans to a boys’ yeshiva run by the agency’s chief executive officer, an Asbury Park Press investigation has found.

The U.S. Department of Housing and Urban Development, which wants to pull some $15 million in annual rental assistance vouchers and $1 million in yearly administrative fees away from the agency, the nonprofit Lakewood Tenants Organization Inc., declined comment on the loans other than to say that the federal funds paid to the tenants organization are meant for a specific purpose.

“The administrative fees are supposed to be used to administer the Housing Choice Voucher Program,” said Charles McNally, a HUD spokesman.

The loans to Tashbar of Lakewood Inc., a Princeton Avenue yeshiva for boys in kindergarten through grade eight, are reported on the school’s federal tax filings, the Press found. Rabbi Meir N. Hertz, the head of the tenants organization, is the school’s dean.

An influential and controversial figure in Lakewood, Hertz, 67, is locked in a legal fight with HUD over its recent decision to shut down the township’s Section 8 program and transfer 1,100 rental assistance vouchers to the Lakewood Housing Authority, a separate township agency that has no connection to Hertz.

The vouchers, which are paid to landlords, subsidize rental housing for more than 8,000 low-income township residents, most of whom are elderly, children or disabled. Tenants and landlords would not be affected by the transfer.

The Lakewood Housing Authority currently administers an additional 833 Section 8 vouchers, in addition to its other housing assistance programs.

Fight over records

At issue is HUD’s demand to inspect the tenants organization’s financial records. The tax-exempt, nonprofit organization has administered the Lakewood Township Rental Assistance Program, or LTRAP, since the program’s inception in 1977.

After more than a year of legal wrangling over the records, Sonia L. Burgos, who directs HUD’s Office of Public Housing, notified Hertz and the township on Aug. 12 that the Section 8 program was in default and would have to transfer all of its vouchers and records to the Lakewood Housing Authority, which would more than double the size of the authority’s voucher program.

The action would effectively shutter the tenants organization, which employs 20 people and has no other source of income other than government grants, its tax filing show.

On Aug. 21, the township joined the tenants organization in filing a complaint in U.S. District Court in Newark seeking an injunction to stop the voucher transfer.

The parties subsequently agreed to a stay that places the transfer on hold until the litigation is resolved.

Underlying the dispute are conflicting assertions about the legal relationship between LTRAP and the tenants organization.

The township says it subcontracts with the tenants organization to administer the Section 8 program, with HUD’s permission.

The tenants organization’s contract amount is set to match the program’s administrative fee. HUD calculates such fees on the number of vouchers an agency administers as well as internal cost analysis data. In recent years, the program’s fee has been approximately $1 million, the HUD spokesman said.

The complaint, however, argues that once the township transfers the fee to the tenants organization, as payment for its services, the funds become “defederalized,” meaning the payment is no longer federal money.

HUD never expressed any opposition to the subcontracting arrangement until now. In fact, it notes, LTRAP has received an average score of 99 percent on HUD’s annual Section 8 program performance reviews.

In HUD’s eyes, however, the tenants organization is “not merely a contractor or service provider,” Burgos, the public housing director, stated in a letter to Hertz dated April 14, 2014.

Rather, HUD’s view is that the township and the tenants organization together constitute a single public housing agency. As such, they are equally subject to federal rules and regulations, including the obligation to turn over their books when requested.

Bias alleged

Hertz received a salary of $243,189 as the tenants organization’s chief executive officer last year, according to the organizations 2014 federal tax return.

For 15 years, he held the dual role of executive director of the Lakewood Housing Authority, which runs its own Section 8 program, but he was forced out of that $125,000-a-year post in 2000 after pleading guilty to federal tax evasion charges. Hertz was sentenced to three years' probation and 60 days of community service after admitting that he tried to hide $119,000 in income from a Newark housing complex he co-owned on his children's tax returns.

McNally, the HUD spokesman, said he did not know if HUD was aware of the loans to Tashbar, the boys yeshiva. He said loans by a housing agency to a private institution that weren't part of a sanctioned housing program could be permissible if federal funds weren't used; otherwise they would violate HUD's rules.

"They may receive funds from other sources," he said of the tenants organization. "They've refused to let HUD audit their books, so we really don't know."

Hertz declined comment on the loans to the yeshiva or the litigation with HUD, other than to provide a web link to a 2006 newsletter article about the defederalization of HUD administrative fees received by subcontractors.

In their legal complaint, the township and the tenants organization trace the dispute with HUD to the tenants organization’s decision to terminate an unnamed tenant from the Section 8 program four years ago.

The tenant, identified as “Mr. N,” was “gaming the system” by receiving rental subsidies for two separate apartments at the same time, the complaint states. The tenant subsequently filed a federal housing discrimination complaint, and HUD sought to have the tenant reinstated in the program, the complaint states.

In the end, the termination wasn’t rescinded, but since that time, the complaint alleges, the tenants organization has come under intensive scrutiny from HUD.

At some point, the department’s line of inquiry took on a religious tone, related to the fact that the tenants organization “is run in large part by members of the Orthodox Jewish community,” the complaint alleges.

During one on-site visit, in May 2013, the complaint states, HUD personnel “posed a wide variety of disparaging, insulting and inappropriate questions and comments concerning the religious affiliation of the organization’s management.”

These included questions about whether Hertz required the staff to refer to him as “Rabbi"; comments expressing “shock that the Program’s offices were open on Christmas and New Year’s Day”; and queries about Hertz’s relationship to the Beth Medrash Govoha yeshiva, here, which at that time had received a controversial $11 million state grant, the complaint states.

“The implication of the last question was that because he was an Orthodox Jew he may have obtained government funds in an improper manner,” the complaint states.

The government’s “excessive and unjustified abuse of power” was either the result of “anti-Semitism particularly to Orthodox Jewish people,” retaliation for the 2011 termination, “or both,” the complaint alleges.

McNally, the HUD spokesman, said the department does not comment on ongoing litigation.

Shannon Mullen: 732-643-4278; smullen4@gannettnj.com