In a recent report, Massachusetts Inspector General (IG) Gregory Sullivan found that the developers of the first five 40B housing projects audited by his office concealed as much as $4 million in profits by, among other things, grossly inflating project costs and understating revenues. These excess profits should have been given to the towns under the 40B law, but instead went into the developers’ pockets.
The IG’s findings are compelling and the implications for Harvard are substantial. Harvard is now faced with at least four more 40B projects. Unfortunately, we cannot depend upon the integrity of any 40B developer, nor can we count on the effectiveness of the state housing agencies charged with overseeing these companies, according to the IG’s report. Even more unfortunately, we cannot count on our own Harvard Housing Partnership to guard against unscrupulous developers.
The results of the IG audits indicate that hundreds of thousands of dollars of potential town revenue are at stake. We can, and must, take action to protect our financial interests in these projects.
Here are the summary recommendations as outlined in a recent 10-page letter that a group of concerned citizens sent to the Board of Selectmen (BoS) and the Zoning Board of Appeals (ZBA):
- Implement the recommendations of the Massachusetts Inspector General’s office for protecting a town from unscrupulous 40B developers.
- Retain legal counsel and a specialized public accounting firm to work with the ZBA to implement the IG’s recommendations to prepare the comprehensive permit for upcoming 40B developments.
Implementing these recommendations may cost the town some scarce funds. Think of it as an insurance policy. It will make certain that we get the revenue coming to us from the 40B projects that will be built in town. Based on the IG audits, that revenue could be hundreds of thousands of dollars.
The development currently closest to implementation in Harvard is the Massachusetts Housing Opportunities Corp. (MHOC) project on Ayer Road. While we have no firm evidence to suggest that MHOC is anything but an honest, ethical 40B developer, we have uncovered a number of red flags about this firm.
The first red flag is one of potentially misleading the town about its nonprofit status. MHOC was formed as a nonprofit organization to “help” communities develop affordable housing. But it never did obtain the federal or state tax exemptions, and, therefore, can operate without public scrutiny of its profitability, officers’ salaries, etc. We found this out when we approached MHOC and requested their nonprofit, federal and state public reports.
MHOC refused, saying they were organized under Massachusetts law and didn’t have to provide such reports. Eventually, we went to the Massachusetts Attorney General’s (AG) office and asked about MHOC. When the AG’s office examined MHOC’s articles of organization used to form their nonprofit company, the AG determined that MHOC should have filed their tax returns as a charitable organization and submitted the required nonprofit reports for each of the last four years. Now, MHOC is being required by the AG to comply and submit their backlog of reports as soon as possible.
These reports should be thoroughly scrutinized by a specialized public accounting firm before Harvard grants MHOC a comprehensive permit on either of its projects. The report recommends the firm used by the inspector general to conduct his audits.
The second red flag is that MHOC has not been consistent or trustworthy in some of their public statements. For example, on its website and in a Boston Globe article, MHOC made a number of public statements about the ways it would operate as a nonprofit partner with a town to provide affordable housing. In the case of the Ayer Road project, MHOC has not lived up to its public pronouncements. In the Globe article, MHOC said that, because it is a nonprofit, “a greater percentage than the minimum 25 percent can be affordable (units) in a particular project.” MHOC did not, and has not, offered this option for either of its two Harvard projects, in spite of repeated requests by town residents.
When Selectman Lucy Wallace was questioned in a recent selectmen’s meeting, she was not clear why she had not pressed MHOC on this matter, given their public pronouncements. Instead, she seemed to accept the fact that the projects would only be 25 percent affordable. This is another disappointment in the way the developer relationship was handled by Wallace.
The third red flag came out of a review of MHOC’s articles of organization, available from the state’s public corporate database, which indicates that MHOC is organized to use the type of related party transactions that the IG found to be the major mechanism for concealing true development profits. Such related-party transactions are not necessarily illegal or unethical, but they would be if they went unreported and were used to hide the true profitability of the development.
It is sad that citizens had to conduct this investigation of a 40B developer that has worked so closely with the Harvard Housing Partnership, headed by Wallace, for the last two years in bringing two 40B developments to Harvard. The question has to be asked, “Why didn’t the housing partnership conduct this kind of due diligence before entering into the relationship with MHOC?”
The major conclusion from all of the above is that Harvard would be well-advised to implement the precautions suggested by the inspector general in dealing with any 40B developer, including the MHOC. To do so effectively will require some specialized, professional assistance. The price would be well worth the investment.
