TIME: Almanac 1993/TIME Almanac 1993.iso/time/091889/09188900.055

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                É╔                                                            NATION, Page 20

Sam Pierce's "Turkey Farm"


Under his leadership, HUD became a trough for the well
connected. For the first time, the former Secretary gives his
side of the story

By Nancy Traver


    For eight years he was known as "Silent Sam," the invisible
man of Ronald Reagan's Cabinet who presided over the Department
of Housing and Urban Development while programs were slashed and
the homeless piled up on city streets. To its critics, HUD
became a do-nothing agency, a target of Reagan's attacks on
wasteful government. Sam Pierce, it was said, was content to sit
in his office watching television and hoping for an appointment
to the Supreme Court.

    The public is belatedly discovering that a great deal was
going on at HUD while no one was looking. Prominent Republicans
were paid hundreds of thousands of dollars to win building
contracts for wealthy developers. Crooked real estate agents
pocketed millions owed to HUD from foreclosure sales.
Well-connected mortgage companies issued shaky loans largely
guaranteed by the Government; as the debtors defaulted, HUD's
co-insurance losses mounted toward $1 billion.

    At the same time, HUD was becoming a dumping ground for
Reagan contributors who knew or cared little about housing.
"Where the hell do you get these people?" former HUD Inspector
General Charles Dempsey once said to Pierce's former executive
assistant, Lance Wilson. "You're known as the turkey farm."

    The HUD mess has joined the $300 billion savings-and-loan
bailout and the ongoing Pentagon procurement investigation as
a legacy of the freebooting Reagan years. As the scandal
spread, Pierce, 67, remained reclusive. At a congressional
hearing in May, he brushed off suggestions that he had acted
improperly. This Friday, however, Pierce returns to Capitol Hill
to answer more detailed questions about his role in HUD's many
giveaways. And in his first full-length interview since news of
the scandal broke, Pierce agreed to tell his side of the story
to TIME.

    INFLUENCE PEDDLING. Pierce insists that he never intervened
to award lucrative contracts to his friends and G.O.P. allies,
including former Interior Secretary James Watt, jazz musician
Lionel Hampton, high-powered Washington lobbyist Paul Manafort
and others. He acknowledges that he dispatched memos encouraging
his staff to give "careful consideration" to certain projects,
and that he sent letters to friends confidently promising to
"work it out." But he denies that he created an atmosphere of
favoritism, and he still doesn't see that the mismanagement at
HUD was his doing.

    The one responsible, he says, was his executive assistant,
Deborah Gore Dean, 34, an able woman with plenty of ambition
and connections. Said Pierce: "I trusted Deborah, and I should
have checked on her more. She was ordering people around, and
when they refused to go along with her, she batted them over the
head to get their agreement."

    PRIVATEERS. Pierce is proud of his success in shrinking
HUD's payroll, boasting that "We were able to do more with
less." But at the same time he concedes that the agency lost too
many of its auditors, allowing escrow agents to steal millions
in HUD foreclosure funds and prompting the Justice Department
to launch 618 fraud and theft investigations around the country.

    Pierce also acknowledges that he should have exercised more
control over co-insurance, introduced in 1983 to bring private
lenders into the business of housing mortgages. Companies
shared only 20% of the risk, but some inflated their appraisals;
when the loans went bad, the Government had to absorb the loss.
Mortgage lenders allowed into co-insurance should have been able
to back up loans they issued, Pierce says, or else HUD should
have forced the lenders to assume a greater share of the loss.
"It needs to be watched very closely," Pierce said. "We've
learned that."

    POLITICAL APPOINTEES. Most of the people referred to HUD
"did excellent work," Pierce says. Yet he struggled to fill the
top posts with people he considered competent. As his Under
Secretary he proposed John Knapp, who had served as HUD general
counsel for more than four years, but the White House wanted a
Reagan loyalist. Pierce lost the battle, and the post went
unfilled for 2 1/2 years during his tenure. The spot of
Assistant Secretary for Housing, charged with running the
controversial Section 8 Moderate Rehabilitation program, changed
hands eight times in eight years.

    This proved to be disastrous for Pierce, who like Reagan
was a hands-off manager. He failed to oversee his subordinates
and never got deeply involved in the daily operation. The most
flagrant abuses came in the $225 million mod-rehab program, in
which rent subsidies and tax credits are given to developers who
buy and renovate low-income housing. The program became ripe for
blatant patronage in 1984, when Congress waived the requirement
that each state get a fair share of housing money. Unlike other
programs, mod-rehab awards were no longer governed by a complex
formula of points and merits. Pierce appointed a three-member
committee to oversee it: Dean, along with the Assistant
Secretary of Housing and the Under Secretary -- two posts that
often went vacant.

    The vacuum was apparently filled by Dean. Some former HUD
officials who were supposed to have served on the committee
said formal meetings were not held. Others said Dean decided who
would get the grants and ordered that they be funded. Dean has
yet to tell her full story; she refused to testify before
Congress, invoking her Fifth Amendment right against
self-incrimination. Her lawyer said last week, "Miss Dean's
mod-rehab funding activities were directed and authorized by
Samuel Pierce."

    Whoever was in charge, contractors asking HUD for money
quickly learned that it was better to know the judge than to
know the law, as was once said of the Tweed Ring. Developers who
hired politically potent insiders won attention. Watt was paid
$300,000 in 1986 for his help in getting grants for a 312-unit
project in Essex, Md. Manafort's consulting firm earned $326,000
in 1986 after garnering subsidies for a 326-unit development in
Upper Deerfield Township, N.J.

    Former HUD officials were particularly successful at raking
in Section 8 money. Philip Winn, once Assistant Secretary for
Housing, Philip Abrams, former Under Secretary, and Lance
Wilson, who preceded Dean in the job of executive assistant,
formed a partnership that sponged up $162 million in contracts
and tax credits in just eleven months.

    In all, 20 consultants made more than $5.7 million over a
five-year period by lobbying for Section 8 money. Some states
received a disproportionate amount of the funds: Florida got
nearly 30% of the Section 8 budget, tiny Puerto Rico won 15%.

    Pierce told TIME that he only briefly scanned the Section
8 recommendations that were brought to him by Dean. But Shirley
McVay Wiseman, a former Assistant Secretary of Housing, told
Congress that Pierce ordered her to approve an $11 million
151-unit low-income housing project for the elderly in Durham,
N.C., that sat on a former hazardous-waste storage site. HUD
staff recommended against approval, but Pierce, aware that a
former law associate was pushing the project, told Wiseman, "I
want it funded." Pierce still defends his actions.
"Occasionally, you have to step in and overrule your staff," he
told TIME. "That Durham project was a great success."

    Thomas Demery, the last Assistant Secretary of Housing to
serve under Pierce, says he tried to clean up mod rehab by
instituting a point system that would rank projects on their
merits. Pierce said he thought the problems with the program
were resolved; then HUD Inspector General Paul Adams came to him
in 1988 and suggested that certain developers and former HUD
employees had established a "special relationship" with the
agency. Adams' red flag came too late; contracts for the next
year had already been awarded. Reacting like any good
bureaucrat, Pierce called for a special task force to oversee
Section 8.

    Although Pierce pronounces himself shocked by revelations
about Dean, he gave her plenty of opportunity to do his job for
him. In 1986 Pierce traveled to Des Moines and was embarrassed
and angered by questions about a $225,000 HUD grant that the
city was to receive -- without his knowledge. Dean had used the
Secretary's autopen to approve the contract. But Dean's
back-channel sources warned her of Pierce's fury. When he
returned to Washington, says the aide, Dean "turned on the
charm, told some jokes and managed to calm him down."

    Despite his general disengagement, Pierce took direct
action to save DRG Funding Corp., one of the largest
co-insurers, after the company hired former HUD Secretary Carla
Hills to plead its case. In 1984 mid-level HUD officials placed
DRG on probation because they suspected it of ignoring loan
guidelines and inflating property values. Hills, now U.S. Trade
Representative, approached Pierce in April 1985. (She insists
her lobbying actions were appropriate.) Although HUD staffers
strongly urged that DRG be dropped, Pierce merely asked the
company to change its procedures. DRG went on to tally $538
million in bad loans -- a debt that HUD (that is, the U.S.
taxpayer) must largely repay.

    Pierce excuses his inattention to Section 8 by saying that
his time was consumed by policy issues like fair housing, or
more expensive programs like the $96 billion Federal Housing
Administration, and the $144 billion Government National
Mortgage Association. One of his priorities was the Fair Housing
Amendments Act, approved by Congress in 1988. The law provides
additional protection to families with children and gives the
Federal Government broad powers to investigate landlords
suspected of discrimination.

    To win Reagan's support for the bill, Pierce had to
overcome opposition from conservative stalwarts such as former
Attorney General Ed Meese. After George Bush and other moderates
came to his aid, Pierce was quick to show his gratitude. One
former senior White House official said that when Bush announced
his candidacy, Pierce turned up at the next Cabinet meeting with
a shopping bag of neckties he had had made to order. Each one
said PUSH FOR BUSH.

    Yet Pierce always operated on the periphery of the
Administration. He rarely spoke at Cabinet meetings unless the
subject was housing. "You had the sense that he was there for
a specific job and that he was insecure speaking on other
subjects," said a top Reagan aide.

    If Pierce was reticent, it was not because he was out of
place among the well-heeled Reaganites. The eldest son in a
wealthy family, Pierce was given the education and polish to
prepare him for a career in law and politics. His father was a
successful small businessman who moved his family to the
comfortable New York City suburb of Glen Cove. Pierce said his
father emphasized that making money was not enough; he urged his
sons into public service. One of Pierce's brothers is a Harvard
professor in psychiatry and education, the other is a
businessman.

    Pierce attended college and law school at Cornell, where he
was the first black to play football against Navy at Annapolis,
at a time when blacks from northern schools sat on the
sidelines. Even though most blacks gravitated toward the
Democrats, Pierce felt more comfortable with Republicans -- and
during the Eisenhower years the party quickly drew him up the
ladder. After a four-year stint in the Manhattan District
Attorney's office, he moved to Washington, where he served as
a special assistant to Arthur Larson, Under Secretary of Labor
for Dwight Eisenhower. "He'd achieved all the distinctions a
person could, and let me tell you, that was before people made
an effort to get Brownie points by being nice to blacks,"
recalls Larson.

    Back in New York, Pierce was appointed to an interim
judgeship by Governor Nelson Rockefeller. But he lost the
election that followed, showing an ineptitude for politics that
would plague him 20 years later at HUD. Says Chuck Stone, then
the editor of a black newspaper that covered the race: "Pierce
was bright as hell, but arrogant and stiff-necked. He just
couldn't relate to people."

    Yet Pierce went on to tally a string of firsts: the first
black to join a major New York law firm (Battle, Fowler), the
first to be appointed to the board of a major American
manufacturing corporation (U.S. Industries). In 1964 Pierce and
William Rogers (later Secretary of State under Richard Nixon)
helped make legal history with the argument they contributed to
New York Times v. Sullivan, a landmark case that led the Supreme
Court to put narrow limits on libel. Pierce's reputation was so
strong that a top FBI official once proposed to promote him as
a national black leader who might replace Martin Luther King Jr.

    Pierce broke another race barrier in 1970, when he became
the first black to hold a sub-Cabinet post in the Treasury
Department. As general counsel, he oversaw the complex federal
bailout of Lockheed Aircraft. The job would seem to have been
an ideal training ground for Pierce, but managing a department
of 1,000 lawyers at Treasury was nothing like handling the
16,000 workers and vast diversity of programs at HUD.

    Pierce made no secret of his reluctance to leave his
$280,000 annual partnership at his New York law firm to return
to public service. But when Reagan called him out to Los
Angeles, Pierce signed on. As the only Cabinet officer to last
the full eight years under Reagan, Pierce is bewildered and hurt
by the scandal that has washed over him and soiled his
reputation. Reagan himself has been less vigorous in speaking
out on Pierce's behalf than he has been for other subordinates.
"I hope the examination of the HUD matter is careful and fair,"
the former President told TIME recently. "Sam Pierce deserves
no less."

    A better defense for Pierce would be to argue that since
HUD was created in 1965 under Lyndon Johnson, abuse of the
agency has been bipartisan. During the Carter years, Section 8
spending reached $24 billion, and much of that went to
developers with Democratic ties. A Carter contributor from
Chicago won 35 HUD projects; in Massachusetts 70% of Carter's
re-election campaign donations came from local Section 8
developers, who in turn got 90% of the state's Section 8 grants
for the following year.

    Pork-barrel politics is built into HUD. The department's
ostensible constituency, people who need low-income housing, is
powerless and nearly invisible. The real constituency is
wealthy, well-connected developers -- and the politicians who
can use HUD grants to deliver goodies to their supporters.
Reagan and Pierce tried to attack the problem by cutting HUD's
money. Result: the competition for the remaining funds grew
fiercer. While that unseemly scramble took place, the truly
needy were nearly shut out.

    The pillage took place on Pierce's watch, and even
Republican analysts agree that the magnitude of the looting was
unprecedented. Investigators must still determine whether Pierce
was betrayed by his staff, as he contends, or whether he gave
his consent to turning HUD into a hog trough. Either way, Silent
Sam should be held responsible for standing aside and saying
nothing.