Chattanooga Housing Authority officials, hoping to raise money to help pay back more than $1.3 million in “unauthorized borrowings” and cover a $4.5 million budget shortfall, decided Wednesday to sell the Grove Street Center commercial property, the James A. Henry Family Resource Center and three vacant lots.

“We’re just trying to look at all opportunities for CHA to generate additional funds,” said Cheryl Marsh, the authority’s public information coordinator. “Losing the programs (in the James A. Henry Family Resource Center) would be a big blow, but at this point all options are on the table.”

File Staff Photo by Patrick Smith -- This is the 700 block of Market Street where a developer has proposed a project to be known as Mayfair on Market. It would include residential units.

CHA officials discussed the possible sale of the properties — expected to net less than $100,000 — at a specially called board meeting Wednesday afternoon.

Officials said they believe there is about $40,000 to $45,000 in equity in the Grove Center property, and they hope to get about $7,200 total from the sale of the three pieces of property. They said they have no figures yet on the resource center’s value. None of the properties are residential.

Ms. McCright’s report was released days after CHA announced a $4.5 million shortfall and laid off 30 employees.

The former financial officer, Kari Blakney, has resigned and could not be reached Wednesday for comment.

On Wednesday, CHA officials accepted the resignation of former Executive Director Bob Dull and named Ms. McCright, CHA’s chief operating officer, as interim executive director.

“The majority of the unauthorized borrowings occurred in the first three months of 2008. The (financial officer) paid vendors and did not disclose the financial situation to the executive director and the board of commissioners,” Ms. McCright wrote in a separate memo summarizing a teleconference between CHA managers and officials of the U.S. Department of Housing and Urban Development.

“The first priority is to pay back the restricted funds used for operating expenses,” said Bill Lord, CHA’s chief information officer.

Housing and Urban Development officials must approve CHA’s reorganization plan and the sale of the James A. Henry Family Resource Center because it includes the College Hill Courts housing development management office, officials said.

HUD spokesman Mark Brezina said federal officials also plan to review CHA records.

“HUD plans to have a team on the ground in Chattanooga in less than two weeks to review the facts and examine the situation,” he said. “We are well aware of the issue, and based on our team’s findings we will be able to better determine the appropriate steps that should be taken next.”

Mr. Brezina did not rule out department help with CHA’s financial situation.

In addition to placing commercial and vacant properties on the sale block, the local housing authority has laid off 54 people since February, ordered a 20 percent reduction in contract services and ceased making employer contributions to worker pensions.

The $1,366,000 in “inappropriate borrowings” from non-federal funds to meet operating expenses included:

* $1.2 million from a Fannie Mae Express Term Loan intended for a Mayfair on Market Development project

* $166,000 from Holtzclaw, LLC

* $96,000 from Greenwood Terrace, which was repaid on May 2, 2008.

Trey Stanley, developer of the Mayfair on Market mixed-use structure under construction in the 700 block of Market Street, said he doesn’t believe CHA’s problems will affect his project because there is flexibility in his building schedule.

But he does expect at a future point to draw down on the money that CHA had agreed to provide, he said.

“We’re meeting on a regular basis,” Mr. Stanley said.

In addition to the borrowing from non-federal funds, Ms. McCright’s report states “the former (financial officer) utilized inappropriate sources of available cash” from the Housing Choice voucher subsidy fund to make up for operational deficits in the program.

Ms. McCright said no fraudulent activity has been uncovered, but the subsidized housing program, formerly called Section 8, “experienced lost investment income” that CHA must reimburse along with the misdirected money, a total of about $750,000, according to her teleconference memo.

Staff writer Mike Pare contributed to this story.