Galveston moves toward compliance with HUD ultimatum

GALVESTON - A divisive political struggle that toppled a mayor and threatened this island city with the loss of hundreds of millions of dollars could be nearing a conclusion, as officials reluctantly lay the groundwork for satisfying federal and state demands to rebuild public housing damaged by Hurricane Ike.

The chairman of the Galveston Housing Authority resigned Thursday during a City Council workshop because of his opposition to a rebuilding plan demanded by federal and state officials, but he said the agency would have a plan ready by Tuesday to rebuild the 569 flooded housing units. He has since rescinded his resignation.

The U.S. Housing and Urban Development Department and the Texas General Land Office set a Sept. 1 deadline for the city to submit a rebuilding plan or face the loss of $592 million in disaster aid and federal grants and be forced to repay $56 million already allocated. The land office on Wednesday told the city it was halting funding for projects that were not under way until a plan was received.

Whether the City Council will approve the plan at a special meeting Tuesday remains in doubt. Mayor Lewis Rosen and five of the six council members were elected after campaigning on a promise to oppose rebuilding public housing, some of them arguing that it would breed crime and foster dependency.

The council postponed until Tuesday a discussion on setting aside money to oppose HUD in court.

"The debate was over when the six of us got elected," Councilman Norman Pappous said angrily. He said the city had a chance of winning a legal fight with HUD and disputed accusations that those opposed to public housing were racist.

Councilwoman Elizabeth Beeton, however, said she hoped the city could avoid an expensive legal challenge.

Rosen sent a letter to HUD on Tuesday saying that meeting schedules prevented the city from making the Sept. 1 deadline. Special meetings were called.

Housing authority Chairman Buddy Herz originally said he would quit because he could not support the plan being forced on the city.

"I will not compromise my principles to hurt anyone nor will I bend my knee to two government entities," Herz said, adding he still believed issuing vouchers that could be used on or off the island is the best solution.

"I cannot support any plan that returns low-income individuals to a ghetto," he said.

Herz lashed out at HUD and land office officials, accusing them of sending conflicting messages and of being bullies.

Herz had said he would stay on three or four more days so he could fire the agency's executive director, Stanley Lowe, whom he accused of dealing with HUD behind his back.

"There is no negotiation in this," said Herz.

One of Rosen's first actions upon taking office in June was to appoint Herz and two other members to form a majority on the five-member housing authority board. The board immediately placed a moratorium on public housing construction.

In July, HUD Secretary Shaun Donovan summoned Rosen, Herz and city officials to Washington. He gave them 30 days to submit a plan to rebuild public housing.

After Ike hit in 2008, the housing authority entered into an agreement with Lone Star Legal Aid promising to rebuild all 569 public housing units to avoid a lawsuit. In 2009, the state entered into a HUD-approved conciliation agreement with advocacy groups promising to rebuild the 569 units on Galveston Island. The current council and housing authority board majorities do not feel bound by those agreements.

Threatening letters from HUD also warned that defiance by the city could threaten disaster funds statewide that remain to be distributed and that the matter could be referred to the U.S. Justice Department.

harvey.rice@chron.com