The Dallas City Council voted Wednesday to allow nonprofit affordable housing developers to keep some of the profits from their successful projects to build more homes for the needy.

The change to the city’s housing policy represents a significant show of confidence in community housing development organizations, known as CHDOs, despite their troubled history in Dallas of spending millions of dollars and building too few homes.

The change allows the nonprofits to keep a percentage of profits from publicly funded projects “as determined on a project-by-project basis” instead of giving it back to the city.

CHDOs are private nonprofits that take federal money given to the city to build homes for low-income residents in their communities, often south of downtown. They once numbered two dozen and are now down to four: Catholic Charities Dallas, City Wide Community Development Corp., Builders of Hope Community Development Corp., and East Dallas Community Organization.

Some have been dissolved, some have elected not to reapply for certification, and others have failed to meet federal certification requirements, city records show.

The U.S. Department of Housing and Urban Development, which provides money for the housing projects, found in an audit released last summer that the city mismanaged the program and misspent more than $6.6 million.

The city must balance the need to produce more affordable housing with concerns about the nonprofits’ compliance with rules and regulations, said David Noguera, the city’s director of Housing and Neighborhood Revitalization.

Every housing development contract that is approved, he said, will outline how the money should be spent. The city’s compliance office will get monthly reports on how that money is used, Noguera added.

The city has also hired a consultant to advise the nonprofit developers, and staff is meeting with them more frequently to keep them on track.

Council member Chad West, chairman of the city’s Housing and Homelessness Solutions Committee, said CHDOs have had a “sordid history” in Dallas but that officials cannot keep punishing them for the mistakes of others.

“A lot of bad actors have been filtered out,” he said.

But not all council members thought it was a good idea to let the CHDOs keep profits from HUD-financed developments.

Council member Cara Mendelsohn said available federal tax dollars should come back to the city to be re-allocated. She said there are no rules preventing CHDOs from spending such profits on housing developments in other cities — or on executive salaries.

The change also gives developers an unwise incentive to bolster their profits by cutting costs, she said. “It’s just another way for them to get in trouble.”

Others on the council said problems have been fixed and that it’s time to give the remaining nonprofit developers, who have proven themselves, the chance to succeed and build more homes that the city desperately needs.

“I want to give them a chance,” said council member Omar Narvaez, who represents West Dallas.

City Manager T.C. Broadnax said the city has been trying to strengthen its oversight of CHDOs and that the nonprofits need board members who live in the communities they serve and understand the needs.

Issues of racial equality and fairness also entered the discussion.

Council member Carolyn King Arnold, who represents south Oak Cliff, said the city has a history of “repressing” development in certain areas and that it’s time to stop “slandering” those who are trying to build in southern Dallas.

She called for an “equal playing field” so that residents in under-served communities can get the housing they need.

Narvaez agreed, saying the city needs to support organizations led by people of color, which he said are over-scrutinized. Such organizations, he said, have to jump through “more hoops” to get public money.

Council member Jennifer Staubach Gates, who represents northwest Dallas and Preston Hollow, said she’s been concerned about the limited number of homes being developed with HUD money. She thanked staff for increasing scrutiny and oversight of CHDOs.

“We’ve had issues in the past, but I feel like we’ve been able to put some stopgaps in place,” Gates said.

Those issues have included a scathing HUD audit released last June that faulted the city for failing to properly manage the CHDOs. The report said Dallas didn’t understand or did not follow HUD regulations — or even its own rules — related to the program. As a result, the city should pay back the $6.6million in federal money it misspent, the report said.

The city’s auditor in 2016 flagged similar problems, saying housing officials failed to keep an adequate paper trail documenting how about $30million in taxpayer dollars were used on roughly 54 housing projects.

Noguera told The Dallas Morning News on Wednesday that the city is still working with HUD to resolve its 2019 findings and has not repaid any of the money. The audit findings are tied to “the work the city did,” he said, not the developers.

Twitter: @KevinRKrause