Builder's profit is new battleground
Billerica panel says developer exceeded limit on earnings, but two audits differ
A bucolic-sounding development in Billerica has become the latest flash point in the fight over the state's Chapter 40B affordable-housing law.
A town audit committee told selectmen last month that Salisbury Hill Estates' profits are $2.7 million more than allowed by law, and that the town should try to recoup the money.
"We want to get what belongs to the town," said Al Ramos, a member of Billerica's Chapter 40B Financial Audits and Compliance Committee. The committee said the developer, Salisbury Hill Corp., overstated costs on the project.
Stephen R. Dresser, president of Salisbury Hill, did not respond to requests for comment. But his attorney, Edith Netter of Waltham, said her client "stands by the audit performed by [his accountant] and the [Citizens' Housing and Planning Association's] review of it, which was performed by a CPA."
The Billerica committee is one of a growing number of municipal groups that are scrutinizing costs and profits of affordable-housing projects.
In communities where less than 10 percent of the housing stock meets the state's definition of affordable, Chapter 40B allows developers to bypass local zoning codes as long as they set aside at least 20 percent of their units for low- and moderate-income buyers.
In exchange, the developer must limit profits to 20 percent of total development costs. Additional profits are to be given back to the community and used to pay for more affordable housing.
According to the Billerica committee, Dresser made a $3.7 million profit on a $5.4 million job, a 69 percent profit. According to an accounting firm hired by the Citizens' Housing and Planning Association, the profit was $1.4 million, or 18 percent of a $7.8 million job.
It is unclear what steps the town might take next, but in the past few years, several communities have sued 40B developers to recoup excess profits.
The concept for Salisbury Hill began in 2001, when Dresser, a well-known civil engineer in Billerica, laid out plans for 56 townhouses on 5.5 acres of land off a busy road in Billerica.
The proposal generated widespread opposition from residents who said the development was too dense and would cause traffic problems.
But because the town did not meet the 10 percent affordable-housing threshold, Dresser's plans went before the Zoning Board of Review.
In July 2002, the zoning board gave the developer permission to build 44 townhouses, with 11 to be sold at discounted prices to people with low and moderate incomes. These units have since been built.
The Billerica Housing Authority initially was named as the project's monitoring agent, whose duties include making sure the developer adhered to the profit limit. But according to Netter, the housing authority did not want the task, and the zoning board asked the Citizens' Housing and Planning Association, or CHAPA, a nonprofit affordable-housing advocacy group, to serve as the project's monitoring agent.
The housing and planning association rejected the developer's first expense-and-revenues statement on the development because it was not compiled by a certified public accountant, according to a letter the association sent to the town. The group eventually received the developer's accountant-approved audit in October 2005.
CHAPA then hired the accounting firm Alexander, Aronson Finning & Co. to complete the cost-certification process. The firm reported a $1.4 million profit.
An official from the firm told the Globe this week that it is company policy not to comment on client matters.
CHAPA executive director Aaron Gornstein told the Globe in a written statement that the firm conducted its review in accordance with state guidelines, the provisions of the project's regulatory agreement, and the comprehensive permit issued by the zoning board.
When CHAPA later issued its report to the town, "no concerns were raised to us about our work or the audit review at this meeting or subsequent to the meeting," Gornstein wrote.
But while the Salisbury Hill proposal was under consideration, there was growing speculation throughout the state that developers were reaping profits greater than allowed by the law.
In the fall of 2005, state Representative William G. Greene Jr., a Billerica Democrat and longstanding critic of the 40B law, successfully petitioned Town Meeting to establish a 40B compliance group.
Last week, Greene said he did so because he was concerned that the housing association's members included 40B developers, their lawyers, their bankers, and their consultants. The group also consists of housing advocates, nonprofit developers, and academics.
"We wanted another set of eyes, one that is looking out for the town's interests," he said.
In its report to selectmen last month, the seven-member 40B audit committee cited significant differences from the developer's stated costs.
The committee said it has copies of signed agreements between the developer and a contractor showing basic infrastructure work costing $490,760. The report stated the developer later reported that the same work cost $1,442,616.
In addition, the committee said the developer wrote on town building permits that construction costs were nearly $3 million, but later told accountants that this work cost nearly $4.5 million.
Gornstein wrote that CHAPA was not aware of the committee's report and could not comment on it. "We have no idea what methodology and procedures the committee followed in doing its review, nor do we know who conducted the review," Gornstein wrote.
In their report, committee members criticized 40B, and the state agency that oversees it.
"The 40B program is counterintuitive to our social and economic system in that it rewards contractor-controlled inefficiencies with profits based solely on those same expenses," the report stated.
The state Department of Housing and Community Development, in its "zeal to increase affordable housing, disregarded effective controls to prevent the towns from being exploited by developers," the report said.
Phil Hailer, a spokesman for the housing department, declined to comment specifically on the Billerica project, but said his agency "believes that 40B is an important housing-development tool, and the agency is conducting ongoing discussions with communities and officials to ensure that adequate safeguards are in place regarding the monitoring of developer profits for 40B projects."
Meanwhile, Inspector General Gregory W. Sullivan also is reviewing Salisbury Hill's profits. Officials of the inspector general's office told the Globe that a report would be issued in the next few months.
Contact Christine McConville at cmcconville@globe.com. 