Housing Fund's use of CPA money questioned
File photo by Ralph Stewart
A review by the West Tisbury town accountant of appropriations made by four Island towns to the Martha's Vineyard Housing Fund, formerly the Island Affordable Housing Fund, for a second mortgage program has turned up a discrepancy of more than $120,000, officials confirmed this week.
Four Island towns — West Tisbury, Edgartown, Aquinnah, and Tisbury — made contributions using Community Preservation Act (CPA) funds to the second mortgage program, called the Helm Home Loan Fund, at their town meetings in 2008.
The Helm fund was created to provide Housing Fund ground leaseholders with up to $25,000 in second mortgage loans at a one percent interest rate.
West Tisbury town accountant Bruce Stone conducted the review starting January 30. Using available public resources, he verified appropriations from the four towns, with the cooperation from the Housing Fund.
Mr. Stone projected that the Housing Fund's balance in the CPA funded program, at the end of the organization's 2009 fiscal year in April, should have been $134,150.
However, Mr. Stone found that the audited financial statements and federal form 990 filed for the fiscal year that ended April 30, 2009, show a grand total of only $8,164 in cash and savings for the entire Housing Fund organization.
The money allocated to the Helm fund was supposed to remain restricted funds, but was instead moved over to an unrestricted funds account and used for other purposes, such as operating costs for the organization.
"The financial statements indicate awareness that restricted funds...were being used for other than their restricted purposes by listing an asset in the restricted fund column called 'due from unrestricted funds,'" Mr. Stone wrote.
Mr. Stone's report also finds that Housing Fund financial statements understate the actual remaining restricted balance of the CPA funded loan program.
"I have been led to believe that the discrepancy was made by including the balance of earlier loans as if they had come from the CPA program," Mr. Stone wrote. "This would be an error."
Mr. Stone reported that the appropriations made by the towns in 2008 should result in a remaining balance of $32,458 for West Tisbury, $32,393 for Edgartown, $62,807 for Tisbury, and $6,492 for Aquinnah.
West Tisbury selectmen on Wednesday met with Ewell Hopkins, former executive director of the Housing Fund, now a director. He described the fund as not operating. Mr. Hopkins said the Housing Fund no longer has an executive director.
Cynthia Mitchell, chairman of the selectmen, started by saying the Housing Fund has cooperated with Mr. Stone since he started his review last month.
"I want to stress that everyone at the [Housing Fund] has been incredibly forthcoming, and we have no issue, certainly, with the willingness of your organization to figure this out and get to the bottom of it," she said.
Town administrator Jennifer Rand said town leaders have an obligation to figure out what went wrong, which will involve consulting with town counsel and working with the other towns that appropriated CPA funds to the Helm fund.
"I just want you to be clear what we are here for, is that it's our responsibility to track public funds, and these are indeed public funds... I would say at the very least we need counsel's advice as to how to proceed," Ms. Rand said.
Mr. Hopkins said that the Housing Fund didn't dispute any of the findings in Mr. Stone's report. He said the fund has gone into a "dormant state," largely brought upon by foreclosure of the Bradley Square property in Oak Bluffs.
The Housing Fund bought the Bradley Square property, formerly the first African-American church on the Island, for $905,000 in 2007.
The organization planned to develop the property into affordable housing, a sanctuary, office space, and retail space, but fell far short of raising the $1.3 million necessary to build the project.
The fund put the property on the market in September of 2010. In June of 2011, the Martha's Vineyard Savings Bank foreclosed and froze all of the fund's accounts with that institution, both operating and restricted.
Mr. Hopkins said the Housing Fund had $80,000 in restricted and unrestricted funds in the bank when the foreclosure proceedings occurred and the bank seized its assets.
"We are currently working to negotiate an agreeable settlement and release of those funds, but so far we have been unsuccessful doing that," Mr. Hopkins said.
Mr. Hopkins said the reason for the discrepancy between the $25,076 on the Housing Fund's financial statements in 2009 and the $134,150 allocated to the Helm fund, is that the organization spread that money out across the life of the program.
"Our accountant, our auditor, and our board were not aware of the terms that those monies were not to be allocated across the entire life of the program," Mr. Hopkins said.
Mr. Hopkins said the audited financials contained a footnote that explained that in prior years there had been restricted funds used for operating expenses with the stated commitment that those funds were to be paid back to restricted funds.
"With the suddenness of the seizure, that process was not to complete ... there is no question that there were certain monies that should have been made available [to the Helm Fund] that were seized during that process," he said.
Selectman Richard Knabel said the Housing Fund should not have counted anticipated revenues from the second mortgage program as assets.
"The terms of those second mortgages are such that homeowners don't pay on a monthly or quarterly basis; they come due...when the first mortgages are paid off or the property is sold. So there is no income or revenue stream from these mortgages that are predictable," he said, adding, "Also the bank has control of money, or impounded money...meant to be loaned out but was never loaned out?"
"That is correct," Mr. Hopkins said.
Selectman Jeffery (Skipper) Manter asked if there was any evidence money was missing.
"Nothing that I have found says there was any money missing, it was just issued for other purposes with the intent to go back into the fund...that fiscal year the affordable housing fund had over $2.5 million in expenditures on housing purchases and work and development...a lot of projects they were working on had a lot of cash going in and out and they used some of it for those purposes," Mr. Stone said.
Mr. Knabel asked if all the money is now accounted for. The answer from Mr. Hopkins was complicated.
"Prior to the investigation by the town of West Tisbury...we were under the understanding per our accounting that roughly $25,000 was due to the Helm program. Bruce [Stone's] numbers are closer to $139,000, because the monies we received from the towns, we allocated across the entire program," he said. "Unfortunately that understanding was never conveyed to our accountant or our auditor."
Mr. Knabel noted that the problems occurred before Mr. Hopkins took over as the Housing Fund executive director in October of 2009. They occurred under the tenure of former executive director Patrick Manning.
Mr. Manning, a former New York assemblyman for 12 years before moving to the Island, took over as the Housing Fund executive director in January 2007 and resigned in August of 2009.
During his relatively brief 2.5-year tenure. Mr. Manning was criticized for his forceful tactics heading the Bradley Square project, which ultimately forced the Housing Fund out of operation.
Mr. Manning also drew criticism for a provision in his contract that allowed him to receive a bonus of five percent of any donations that were raised by the Housing Fund over $1 million.
Housing Fund board members also criticized Mr. Manning and housing advocates outside the organization for making financial commitments without approval of the board.
Within months of his departure, the Housing Fund discovered there was no money left to fund its rent subsidies for the Regional Housing Authority's rental assistance program, leaving 45 tenants and their landlords in four towns short on their rents.
Mr. Hopkins this week did not blame Mr. Manning or anyone else for Housing Fund's problems. "I don't like to spend a lot of time on whose watch was it," Mr. Hopkins responded. "I am responsible."
On the advice of Ms. Rand, selectmen unanimously agreed to consult with town counsel.
"Bruce [Stone] and I have a variety of questions across the board. I think the best place to start is with counsel, to ask how would you recommend we proceed," Ms. Rand said.