Affordable housing project overrun raises stakes for Maine Housing, McCormick

AUGUSTA — Dale McCormick, director of the Maine State Housing Authority, called an emergency meeting late last week with stakeholders of Elm Terrace, a 35-unit affordable housing project in Portland.

maine.gov

McCormick was appointed to a second four-year term by Gov. John Baldacci early in 2010.

Associated Press file photo

State Treasurer Bruce Poliquin serves on the Maine State Housing Authority's board of directors.

McCormick had bad news for those assembled at the University of Southern Maine's Glickman Library. Elm Terrace, she said, was too expensive. 

In late September, developer Community Housing of Maine had submitted a final price tag of $10.9 million, up from the $8.5 million it had previously cited.

The 29 percent increase, McCormick told stakeholders, was unacceptable. She reiterated a mandate her office had given the developer last month: Cut $1 million, or risk losing nearly $800,000 in tax credits.

The directive may have seemed like a responsible request from the woman administering the millions in state and federal dollars MaineHousing funnels to developers for affordable housing projects. But it comes with real risks for Community Housing, which is heavily invested in the project.

In addition, new powers in Augusta are questioning whether McCormick is motivated by fiscal prudence or self-preservation.

The director's critics wonder how many other Elm Terraces McCormick has green-lighted prior to the Republican takeover and an increased focus on cost containment.

"Why, on a regular basis, when these developers come back and ask for cost adjustments, do we say yes?" said State Treasurer Bruce Poliquin, a MaineHousing board member who has been questioning the costs of Maine's affordable housing projects.

Such questions may not be devoid of motive. After all, McCormick is on the wrong side of the aisle. The former Democratic legislator was reappointed by Gov. John Baldacci early in 2010. 

Gov. Paul LePage has not hesitated to show his predecessor's appointees the door. But his power to expel McCormick, who is the fiduciary of a bank-like agency with $1.6 billion in outstanding bonds, is statutorily limited.

To be removed, she must commit fraud or steal. Or demonstrate fiscal malfeasance.

Poliquin, a Republican who has proven fiercely loyal to LePage, insists that raising alarms about Elm Terrace is not politically motivated.

"My only agenda is being a good steward of taxpayer money," he said.

Nonetheless, there's little doubt that McCormick is facing increased scrutiny. The Elm Terrace issue arrived shortly after an investigation was initiated by Republicans on the Legislature's Government Oversight Committee.

GOP panelists have been offered vague reasons for the review, which will begin sometime next year. Democrats called the probe a political witch hunt.

McCormick has said, essentially, "Bring it on." Her office is routinely audited.

She also rejected claims that cost containment has taken a back seat to what some critics privately say is a penchant for advancing a social agenda at MaineHousing.

Not all such critics are politicians. Members of the development community have grumbled that doing business with MaineHousing is sometimes not worth the trouble. The thin profit margins are made thinner by requirements to install solar hot-water heaters or to provide health benefits to workers that in some cases exceed mandates from other state agencies.

None of the developers contacted by the Sun Journal were willing to air complaints on the record. Some cited fear of retribution.

Unit costs

At $10.9 million, Elm Terrace's 35 one- and two-bedroom apartments would cost about $314,000 per unit.

Poliquin, and newly appointed MaineHousing board members, think that price is outrageous.

"Why in the world would we ask the taxpayers to pay $314,000 for 1,100-square-foot apartments?" he said, noting that the average price for a 2,000-square-foot, single-family home in Maine is about $159,000.

McCormick acknowledged that Elm Terrace has the most expensive unit cost of any MaineHousing project.

"A 29 percent increase in costs is huge. It's unacceptable," she said.

McCormick said Elm Terrace is an outlier. Poliquin isn't convinced. He said he has discovered other projects with similarly high unit costs, including Gilman Place in Waterville, which came in at $292,000 per unit.

The $10 million project was supported by LePage when he was mayor of the city. Earlier this year, the governor attended the project's opening.

Peter Anastos, a recently appointed board member for MaineHousing, agrees with Poliquin. Anastos, a hotel developer, said his experience in affordable housing makes him feel as if he's in the "luxury apartment business."

McCormick agrees that costs should come down. However, she said, comparing unit prices for subsidized housing and the private market is misleading.

Projects like Gilman Place and Elm Terrace fall under the historic tax credit program. It contains state and federal requirements that make the projects more expensive than building single-family homes.

For example, under state and federal mandates, downtown, infill (filling in available space) and renovation projects score higher than new construction.

McCormick said infill projects make sense for affordable housing occupants that may have limited access to vehicles. Also, expensive weatherization or energy-efficiency requirements could save taxpayers in the long run, particularly if the occupants qualify for the Low-Income Home Energy Assistance Program.

MaineHousing has received mixed reviews on implementing renewable-energy standards. Last year, the Maine Center for Public Interest Reporting found several problems with poorly or improperly installed solar panels and hot water heaters on MaineHousing projects.

The green energy requirement might go by the wayside. The governor is the final arbiter of MaineHousing's development screening requirements.

LePage earlier this year ordered changes to Maine's plan. Just as the old plan reflected Baldacci's policy initiatives, the new one will reflect LePage's.

That works for Bill Shanahan, president of the Northern New England Housing Investment Fund, a nonprofit agency that invests in affordable housing projects.

Shanahan said policy changes could help bring in costs. However, he said, affordable housing projects will still be expensive; federal mandates for rehab and infill projects will remain.

It's a national issue, Shanahan said.

Elm Terrace

Community Housing of Maine, the developer of Elm Terrace, claims the $2.4 million spike in costs was in part driven by unforeseen environmental remediation costs.

Shanahan, who is not investing in the project, said that's fairly typical for a rehabilitation job.

Nonetheless, MaineHousing is standing by its mandate to drive down the project's costs. Anastos said asbestos and other issues should have been discovered during due diligence.

He said Community Housing appeared to be operating under the assumption that MaineHousing would simply absorb the overrun.

An Oct. 6 letter sent by Community Housing of Maine President Joanne Campbell to MaineHousing fed Anastos' concerns. Campbell wrote that "changing the rules retrospectively" is unfair.

Community Housing has a lot to lose. The nonprofit has invested 18 months and more than $600,000 in the project.

McCormick believes Community Housing can reduce the cost of the project, but she acknowledged that doing so would require new hearings with the city of Portland, which is subsidizing a portion of the deal, and renegotiations with the University of Southern Maine, which owns the property.

According to Anastos, who attended last week's emergency meeting, both moves appear unlikely.

According to Campbell's letter, they're impossible.

"Delaying or denying approval at this stage of development would cripple the project and put (Community Housing of Maine) at significant risk," she wrote.

Asked whether lowering the costs is an attainable goal, McCormick said, "I would say yes. They would say no. "

She added, "I am sympathetic to their position and I think they understand mine."

McCormick sidestepped questions about whether that view was influenced by new political considerations, or rumors that she's in the LePage administration's cross hairs.

LePage's four newly appointed MaineHousing board members have increased the pressure. Anastos said he'd prefer the Elm Terrace deal not move forward at the current price unless there's a "legal and moral obligation" to the developer.

Poliquin, meanwhile, continues to beat the drum about the cost of affordable housing. On Wednesday he expressed concerns about Elm Terrace on a WVOM radio show.

"As a board member of the Maine State Housing Authority, I expect our executive director (McCormick) to give us the full story on how these projects are built," he told the Sun Journal. "I expect our executive director to take responsibility for the decisions that have been made to get us into this situation."

Shanahan worries that political dynamic could spell trouble for Elm Terrace and Community Housing.

"It’s the wrong place at the wrong time for Elm Terrace," he said.

smistler@sunjournal.com

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Comments

 's picture

$242,000 per unit contractor's bid; $311,000 asked for

Is it conveivable that any of the various Maine news outlet's crack reporters might see if the MHA can break out what will be paid for by the additional costs? That is, why PRECISELY do the MHA costs exceed the average price for a 2,000 square-foot single-family home in Maine ($159,000)? What are the reasons that both the original bid/contract amount of $242,000 per 1,100 square-foot apartment unit, and the $311,000 per 1,100 square-foot apartment unit being asked for now exceed what a family would pay for a 2000 square foot single family detached?

 's picture

The legislature decided

The legislature decided recently to audit, or review Maine Housing, and immediately Ms McCormick holds an emergency meeting on this project. Maybe the legislature's decision was a good one. Could this be yet another Maine Turnpike Authority? I would hope not. I think a more thorough investigation may be warranted. $286/sqft seems pretty high, even for a refit.

GARY SAVARD's picture

Plain and simple, if it's

Plain and simple, if it's going to cost a lot more money to renovate/refit something than it will cost to raze it and build new, then the obvious choice is to build new...unless you are playing with taxpayer dollars and not your own, of course. I would guess there's a lot more room to play "hide the cash" on a rehab project that keeps evolving as you go along than on a straightforward new construction project.

Steve Lovejoy's picture

Lopsided view?

Reading this article made me laugh. Once again we learn about all of the bind debt that the state is responsible. This is one of Mr. Poliquin's favorite drums to beat on. But once again is is only one side of the issue. Where is the offset to the debt? On a company's balance sheet you would show the debt (bonds in this case) as a liability and you would show the assets to balance it out. Once again, no comment on that here, so we are looking at incomplete information. What is the offset? The portfolio of mortgages help by MSMA and funded through those bonds. Maine State Housing has been one of the best run state housing authorities in the country for many years and has had a huge impact on this state. How many people has MSHA helped over the years? How many people own a home because of them? How many people have adequate housing? When we look at the complete picture instead of Poliquin's glass half empty view point we get a very different, and more accurate, view!

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