Ex-HUD Official’s Links to Charity Launched Probe

WASHINGTON —  On the night of April 22, 1988, about 50 people attended a $1,000-a-plate dinner at the Hyatt Regency Hotel in Denver to raise money for an obscure charity called Food for Africa.

One of the speakers was Thomas T. Demery, whose position as federal housing commissioner at the Department of Housing and Urban Development gave him sway over millions of dollars in HUD grants and subsidies.

Developers and their consultants knew full well that Food for Africa was Demery’s favorite charity.

A former director of Food for Africa, he had introduced the charity’s South African founder to friends and associates and invited him to a Washington political dinner in 1987 where he met Maureen Reagan, the President’s daughter.

So it was no surprise that the audience that night at the Hyatt was dominated by people seeking HUD funds or that the dinner itself was organized and paid for by a former agency official involved in at least 20 HUD-related housing projects.

An investigation by HUD’s inspector general later found that $290,544 in contributions to the charity over 2 1/2 years--50% of all the money it raised--came from individuals and firms involved in programs administered by Demery.

The HUD inquiry, however, established no direct connection between contributions to the charity and the awarding of HUD grants. And Demery, in a 90-minute interview Friday, denied that a link existed and hotly disputed the way the inspector general calculated HUD-related contributions to the charity.

“The discharge of my duties wasn’t linked to anyone who contributed,” said Demery, who left HUD with the change of administrations in January. “The facts are that I didn’t know who contributed to Food for Africa and it didn’t help them.”

Sparked Inquiry

Nonetheless, the 700-page HUD report on Demery, the charity and a HUD program for rehabilitating low-income housing sparked a congressional investigation that has uncovered evidence of widespread mismanagement and political favoritism within the agency during the Ronald Reagan Administration.

The scandal has mushroomed far beyond Demery and a single housing program to raise questions about former HUD Secretary Samuel R. Pierce Jr., his executive assistant, Deborah Gore Dean, and a host of HUD programs.

Dean and her allies have blamed Demery. Demery, now a real estate investment adviser with Boston Partners in Washington, has hired a high-powered public relations firm, Hill & Knowlton, to help absolve him of responsibility.

“It was like ‘Let’s Make a Deal’ over at HUD,” said Stuart E. Weisberg, staff director of the House Government Operations subcommittee on employment and housing, which is leading the inquiry. “The question is who was the big deal maker? Behind door No. 1 you’ve got Debbie Dean. Door No. 2 is Sam Pierce. And door No. 3 is Tom Demery.”

‘Lying Going On’

Pierce has said little. In his only appearance so far, he told the employment and housing subcommittee on May 25 that he was not a “hands on” manager during his eight years at the agency’s helm. After his appearance, he told reporters cryptically, “I think there is lying going on.”

He has been so secretive that he has refused to provide congressional investigators with a telephone number where he can be reached.

But he is willing to call them, and they have asked him to testify again, perhaps as soon as this month, about charges by a former HUD official that he ordered her to approve a HUD project in Durham, N.C., pushed by a longtime Pierce friend and a Republican political strategist.

Considerable attention has focused on Dean, the 34-year-old daughter of a prominent Republican family. She served as Pierce’s chief aide until the Senate refused to confirm her for an assistant secretary’s post and she left the department to become a housing consultant.

Dean declined to testify before the subcommittee, citing her Fifth Amendment rights. She also declined to be interviewed for this article.

Played Major Role

But other testimony and press accounts have portrayed her as the leader of what some former HUD executives call a “brat pack” of high-ranking officials in their 20s and early 30s. She played a major role in running the $5-billion housing operation, according to ex-HUD officials, during the two years when the federal housing commissioner’s job was vacant before Demery filled it in October, 1986.

Demery was a former commercial real estate broker in Birmingham, Mich., an affluent suburb of Detroit. He had been working as a HUD consultant since 1982, when he set his sights on winning the post of federal housing commissioner, a political appointment.

Demery said that he had not been active politically before, but raised money in 1984 for Reagan’s reelection campaign and began pressing political contacts to put his name in for nomination to the HUD post.

In early 1986, he offered to host a fund-raiser for George Bush in Michigan but was turned down. Later that year, he raised funds for the aborted presidential campaigns of religious broadcaster Pat Robertson and Jack Kemp, who now heads HUD.

When Demery arrived at HUD in late 1986, he quickly ran into conflicts with Dean and some of her colleagues. “Tom was at war with Debbie almost from the start,” said a former HUD official who considers himself a friend of both.

In the interview, Demery, 39, said that he considered himself a housing expert and believed that Dean and many others at HUD were inexperienced. Some, he said, were philosophically opposed to providing good housing for the poor and near-poor.

“I did not run with the brat pack,” said Demery, who is described by friends as very religious. “I had no desire at all to be even an ex-officio member.”

Rebuffed by Pierce, Dean

He acknowledged that he tried three times to fire or transfer his deputy, R. Hunter Cushing, who was a Dean ally and former member of Pierce’s executive staff. Each time, he said, he was rebuffed by Dean and Pierce.

Internal HUD documents show that Demery raised questions about Cushing’s performance and loyalty as early as Nov. 14, 1986. In a memo to Pierce, he said: “When I call him on the hot line to come to my office, he will usually call Deborah first to find out what it is I could want.”

A source close to Cushing said only that “Mr. Cushing was loyal to the secretary and felt that Mr. Demery was acting contrary to the secretary’s wishes and pursuing his own agenda.” Cushing is expected to testify soon before Congress and, as a Dean ally, to lay blame on Demery.

The failure to remove Cushing undercut Demery’s standing with the remainder of his staff, according to former department insiders. In the mind of Demery and others, it also sowed the seeds that led to the inspector general’s voluminous report on Demery, Food for Africa and HUD’s moderate rehabilitation program for low-income housing, known as “mod rehab.”

“They didn’t drop a dime on me,” said Demery, using the colloquialism for squealing on someone. “They dropped a bag of dimes.”

The origins of the inspector general’s investigation of the mod rehab program have not been made public, but in May, 1988, the office initiated an extensive inquiry that focused on searching for a connection between contributions to Food for Africa and the awarding of HUD grants.

Mod rehab originally was one of three major programs within HUD that offered incentives for developers to rehabilitate or build housing for low-income and moderate-income families, the handicapped and the elderly. The generous incentives included mortgage guarantees, grants, loans, tax credits and rent subsidies that easily could top $50 million per project.

Competing for Fewer Dollars

The Reagan Administration eliminated the programs for new construction and substantial rehabilitation and slashed funds for mod rehab. That increased the competition among developers for the remaining supply of money.

The HUD report and interviews with ex-officials found that developers turned to two sorts of consultants in their pursuit of mod rehab funds: Republicans with political connections and ex-HUD officials with close ties to the department.

The going rate for consultants was $1,000 a unit. A consultant who helped land a grant for a 300-unit project could get a $300,000 consulting fee.

Among those who received money for arranging grants under mod rehab were former Interior Secretary James G. Watt, who shared in a $300,000 fee for making a few telephone calls to set up meetings for a developer with Pierce. Joseph Strauss, a former HUD official, got $1.3 million.

Receives Tax Credits

Philip D. Winn, current ambassador to Switzerland and a former Colorado Republican Party chairman, was part of a loose group of ex-HUD officials whose projects received $29 million in tax credits alone from the federal government.

Strauss acknowledged in congressional testimony that he hired Watt for one project because of his influence. Strauss also contributed $15,000 to Food for Africa.

Winn gave $6,000 to the charity, and one of his business associates, Joseph M. Queenan, contributed $35,000 and organized the fund-raiser at the Denver Hyatt in April, 1988.

The Denver fund-raiser was timed to coincide with a trip by Demery to the area on HUD business and it was one of eight events across the country he attended while a HUD official, according to the HUD report. Each event was organized by individuals or firms doing business with HUD.

At the Denver dinner, Demery gave a short talk about Food for Africa and about a trip he made to Mozambique at his own expense in 1986 to view the charity’s efforts to distribute food to starving people. He also introduced Peter Pretorious, the South African who founded the organization.

“Demery said it was his favorite charity,” recalled Barbara MacRavey Richards, an official in HUD’s Denver regional office, who had been told to attend the event by a superior because it would look bad if the tables were not full.

The turnout was still disappointing, and Queenan, the organizer and former head of housing in the Denver office, wound up contributing $35,000 to make the evening a success, according to records and his lawyer.

E. Lawrence Barcella, a Washington attorney representing Queenan, said that his client had met Pretorious a year earlier and organized the dinner because he had “come to believe in the charity.”

HUD Connection Denied

Barcella said that Queenan basically had promised Pretorious that the event would raise a specific amount of money. But the lawyer said that the dinner was not connected with Queenan’s extensive HUD business.

“Queenan certainly didn’t believe there was any causal relationship between the contribution and getting favorable consideration from Tom Demery,” said Barcella, who added that Queenan is expected to testify before Congress in the coming weeks.

The HUD inspector general’s office found no direct connection between contributions to the charity and HUD grants.

While the report was being completed, the office recommended to Pierce in late 1988 that Demery be removed from making decisions on mod rehab grants because of questions about the charity and a perception of widespread favoritism in the program.

Demery, in a reply to Pierce, defended the integrity of the mod rehab program and said that no one had received favorable treatment at HUD as a result of contributions to Food for Africa.

Shift to Other Matters

Although the HUD report kicked off the congressional inquiry in May, the employment and housing subcommittee has put the issue aside to deal with hotter matters raised in recent weeks.

Rep. Tom Lantos (D-San Mateo), chairman of the subcommittee, said that he does not believe laws were violated in connection with the charity. But he said the contributors were trying to ingratiate themselves with Demery.

“If you had a pattern like this, it is clear that you want to curry favor with the individual whose favorite charity that is,” Lantos said. “Eyebrows can be raised, but not much else.”

Researcher Leslie Eringaard in Detroit contributed to this story.