As part of the tenth of our ongoing audits of the Lower Manhattan Development Corporation's (LMDC) administration of Community Development Block Grant Disaster Recovery Assistance funds, we reviewed the nature of costs incurred under the activity entitled "World Trade Center Memorial and Cultural" program related to the deconstruction of the Deutsche Bank building in New York City. The review raised concern about funding of the deconstruction activity; specifically, that escalating costs since July 2007 have resulted in LMDC reallocating $67.5 million of HUD funds from other previously approved activities and LMDC officials maintained that, as of September 30, 2007, it had disbursed $27.1 million more than its share of applicable costs. In addition, other costs which LMDC had paid may qualify for cost sharing. As a result, other programs previously approved by HUD have been impacted, and more HUD funds than may have been necessary were used to pay for deconstruction activity.

We recommend that HUD's assistant secretary for community planning and development instruct LMDC to (1) provide an updated accounting of deconstruction costs, both aggregate and non-aggregate, and an estimate of anticipated additional expenditures in each of these categories so that HUD may assess the extent to which additional funds may need to be reprogrammed for deconstruction activity, (2) periodically provide HUD a report on the status of efforts to resolve the escrow account underfunding, and (3) provide documentation to support why funds disbursed for the initial building characterization study and air monitoring should not be classified as aggregate deconstruction costs. In addition, we recommend that the assistant secretary for community planning and development closely monitor the remaining disbursement of HUD funds under this activity.