New Bern Housing Authority Board of Commissioners Meeting
15 September 2014
Several CCTA members attended this meeting including Melvin Cooper, Ron Cox, Raynor, and me. It was a real eye opener.
No one said anything during the “Public Comment Period.” I was hoping some residents would because they were giving signs of discontent with the proceedings in general.
I was pleased that a pretty extensive agenda was handed out before the meeting. The first two items seemed pretty routine, the Police Department Report and the Fire Department Report. Next came the Finance Department Report. A very knowledgeable sounding, Alan Reese, gave that report, and he stated that the routine operations of the public housing were going smoothly, but he could not say the same for the renovation project.
Next came a real shocker. An annual audit was handed to the Board members, and when I requested a copy, I was handed one. This was an audit for the fiscal year (same as the calendar year) ending 31 December 2013. It is marked “draft,” and nowhere does the firm name and address or point of contact information appear! I have never seen an audit report like that and, believe me, I have seen plenty of them. The agenda said the auditor was Judy, Tucker & Thomas, a firm in Raleigh. Why does the firm not affirm that this is their work on the report???
As with the audit of the Craven County’s finances, a lot can be learned by reading the “Notes to the Financial Statements.” In this case, there is a note on page 18 of the audit that reads, “Subsequent to year end, the Authority loaned a related party, TVC, a $1,000,000 non-recourse loan.” Here is one definition of a “no-recourse loan” I found:
Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender’s recovery is limited to the collateral. Thus, non-recourse debt is typically limited to 50% or 60% loan-to-value ratios,[1] so that the property itself provides “overcollateralization” of the loan.
The incentives for the parties are at an intermediate position between those of a full recourse secured loan and a totally unsecured loan. While the borrower is in first loss position, the lender also assumes significant risk, so the lender must underwrite the loan with much more care than in a full recourse loan. This typically requires that the lender have significant domain expertise and financial modeling expertise.
I’d love to see the details of that deal. Anyway, when I asked the NBHA Director if TVC had been loaned $1,000,000 and already had the money, he denied it. Saying it was a normal method of getting started on a project, and that the developer only received the money as it completed portions of the project, and that all these advances would be repaid at final closing. The audit sure did not indicate that! Why would the audit say one thing, and the NBHA Director say the opposite about something as significant as a million dollars?
One interesting use of the cash flow available to the authority was $1,821,776 of cash paid to employees. I know nothing of the payroll required to operate public housing, but I think this is what prompted one man on the Board to comment, “If this project falls through, we will all lose our jobs.” Are jobs and payments to people working on the project more important than the result for the residents and other citizens of the community?
There was a motion by Board member, Katherine Adolph, to use Rental Assistance Demonstration (RAD) funding (which would thereby convert the property to long-term Section 8 rental assistance contracts and change the property ownership to a RAD developer/owner) for the 42 flood plain units in Craven Terrace, but that the Board not RAD Trent Court. Apparently, this was an effort to obtain funding for the demolition of 42 units in the flood plain. The motion passed without decent.
That brings me to a point I want to make. In all my experience as a civil engineer, the owner first developed a plan as to what he wanted built, and then sought to obtain financing for the project (if the project required it). This Board has never approved plans for the project, and has had no part in developing them! Nor have the tenants! Wow, could anyone other than the government go about a project in such a half assed way?
The lawyer from Ward and Smith, (sorry I can’t remember his name) said that the developer, Evergreen, was going to proceed with a law suit against the NBHA unless all his demands were unilaterally met. This angered several of the members, one of whom stated that she objected to the developer “pushing them around.” The lawyer then said the developer no longer wanted to deal with the Executive Director, Julian Marsh. The developer insisted that he wants to deal exclusively with an “Executive Committee” and not the Executive Director.
A heated discussion ensued. Several members of the Board wanted to terminate the contract with the developer. The lawyer, who has presumably received lucrative compensation for his services for the project argued very strongly for continuing the relationship with the developer and assenting to his demands. What would you expect him to do? Didn’t he let them sign a very bad contract from the perspective of looking out for residents and other citizens? I don’t imagine he’d like to be put into a position of having to defend a lawsuit against the NBHA after that, do you?
The Executive Director, Julian Marsh, tried to influence the Board to not assent to the developer’s demands, but he couched his words very carefully and was not very direct. You had to read between his words to get the full meaning; therefore, it was not very effective.
After a bit of suggestion and counter-suggestion, the chair directed that the Board go around the table and allow each member to discuss the motion she had asked for (which was to continue with Evergreen and assent to their demands). That part seemed really strange; the chair either doesn’t know Roberts Rules, or chose to ignore them. Anyway, several members said they did not like having to assent to Evergreen’s bully-like demands, but felt they had little other option.
Katherine Adolph asked if they could be sure the developer has met all of its obligations, and the Ward and Smith attorney answered that he could NOT tell her that the developer has not breached the contract! Why was he not watching for that? The developer’s attorney surely was; a breach by NBHA was pounced on. Why is everything so one-way in this situation?
Of the two brand new members just appointed by Mayor Outlaw, one, Joshua Willey, Jr., had “No comment.” The other, Thomas Harden, echoed the line of discussion put forth by the chair. Each voted “yes” on the motion.
The final vote was 6 in favor, and 4 (Katherine Adolph, Barbara Lee, Marshall Williams, and Molichia Hardy) opposed.
As a result of this vote, I believe that the full Board will not even be consulted in many decisions concerning the renovations, and the developer isn’t required to work with the “Executive Director.” Why do you suppose this is?
If working with this developer is so contentious now, how badly will they steam roll as time goes by and they have successfully gagged everyone who isn’t a knee jerk “yes” person? When the plans are drawn and renovation actually begins, do you think there’ll be cost overruns, change orders, and huge arguments?
Will work done by the “Executive Committee,” and the developer be open to the public as the NBHA Board meetings are? Will the plans, construction drawings, and the like be public record and available for public view?
As the project progresses, will the costs, amounts paid, the scope of the work being paid for, and to whom it is paid be public record? Will the public be able to monitor what is going on in the open, or will the process be obscured, blurred, and hidden? And if so, why?
Who are the winners and losers in this? Are the winners the residents? The taxpayers? Or all of the citizens of New Bern? Or is it far more likely that they are the losers? Are the real winners the developer, the law firms, and others working on this project? Could it be possible that they’re benefiting far disproportionately to the value of the “services” they provide?
One final question, was the Mayor’s recent appointment of two new members of the New Bern Housing Authority’s Board of Commissioners intended to insure that this motion passed? The comments of the new members surely made it look that way. If so, why?
CCTA has appointed a committee to look into these NBHA matters. They are not yet prepared to make a full report, but are continuing their research. In the meantime, I am sharing my observations at this meeting and some of the questions they raise.
Respectfully Submitted,
Hal James
CCTA Watchdog Chairman
