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HUD examines Chelsea agency

Investigators question housing employees; State looks at cutting pension for director

The Chelsea Housing Authority director, Michael E. McLaughlin, took a drive early yesterday afternoon after leaving his office. The Chelsea Housing Authority director, Michael E. McLaughlin, took a drive early yesterday afternoon after leaving his office. (JOHN TLUMACKI/GLOBE STAFF)
By Andrea Estes and Sean P. Murphy
Globe Staff / November 4, 2011
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Three federal agents questioned employees of the Chelsea Housing Authority yesterday, one day after their boss abruptly resigned amid an uproar over his $360,000 pay package, which he had concealed from state officials.

The investigators from the US Department of Housing and Urban Development, which provides much of the Chelsea agency’s funding, stopped employees at the door of the Locke Street administrative offices, asking their names and positions and whether anyone had asked them to shred documents.

The federal investigators’ visit was part of a flurry of government actions in response to reports that Michael E. McLaughlin had become perhaps the highest-paid public housing official in the country.

Also yesterday, the state inspector general urged retirement officials to slash McLaughlin’s pension by more than half, saying the state never approved the $360,000 in pay that the benefit would be based on.

In a letter yesterday to state and Chelsea retirement officials, Inspector General Gregory W. Sullivan argued that McLaughlin’s pension should be based on the salary he reported on state filings, $160,000. Sullivan said state housing officials never got an opportunity to approve the higher pay, as required by regulations.

“That may be the fatal flaw,’’ said Sullivan. “He hid it and didn’t receive the requisite legal approval for this windfall. We are hopeful that his pension will be knocked down to a reasonable level.’’

If pension officials follow Sullivan’s recommendation, McLaughlin’s annual pension would be about $127,000 a year, instead of $279,000, which would have made McLaughlin by far the highest paid pensioner in Massachusetts history.

Officials at the state Department of Housing and Community Development said McLaughlin’s compensation was far above their salary guidelines, estimating that a newly hired executive director for the Chelsea Housing Authority should earn $82,100 to $85,158 a year.

On Wednesday, Governor Deval Patrick demanded and received McLaughlin’s resignation, saying the housing chief’s high salary and expected lavish pension made him “boiling’’ mad. The governor also temporarily froze Chelsea’s state funding until it provides copies of its budget, McLaughlin’s contract, and quarterly and annual reports. The documents are due Dec. 2.

“Here we are flat-funding public housing, trying to hold on through the worst economy in living memory, and not only is the executive director feathering his nest, but he’s misrepresenting to us what he’s doing,’’ Patrick said in an interview.

To ensure that other housing authorities statewide are being truthful about their executives’ pay, Patrick asked all of them yesterday to resubmit their financial information “under the pains and penalties of perjury,’’ including each executive director’s pay.

McLaughlin, 66, had planned to retire by the end of the year, but city officials said earlier this week that he had not yet submitted an application for retirement benefits. City and state retirement officials must sign off on his pension.

McLaughlin has admitted misrepresenting his salary to state officials, ascribing it to “the rebel in me,’’ but he subsequently said he regretted misleading the state. However, he still insists he “more than earned’’ his salary, which had grown more than fivefold since he was hired in 2000, and deserves his full pension.

Yesterday, McLaughlin officially submitted his resignation, effective immediately, in a short letter to his board. He also accepted the resignation of board member Robert Donovan, one of the five board members who approve the director’s salary.

McLaughlin had already left when agents from the office of HUD’s inspector general showed up at the housing authority offices late in the afternoon.

Patrick and US Senator Charles Grassley, ranking Republican on the Senate Finance Committee, had both asked HUD’s inspector general to determine whether any federal funds have been misused in Chelsea.

Sources with firsthand knowledge of the agents’ visit said they seemed particularly interested in protecting documents that could be helpful in an investigation. In addition to asking whether documents had been shredded, the agents wanted to know whether boxes had been removed from the offices.

McLaughlin acknowledged in an interview that Wednesday evening he had taken about a half dozen boxes full of “personal effects’’ home, with the help of an assistant.

“They were full of family photographs and mementos,’’ he said. He produced a motivational plaque he had brought home, but declined to allow a reporter to look in the boxes.

Yesterday, longtime board chairman Henry Cordero defended McLaughlin’s performance and salary, saying he was “worth every penny.’’ Cordero said he would not heed the governor’s call for him to resign.

Two other board members, Steve Roche and Maria Rivera, did not return calls.

In Sullivan’s letter, the inspector general said McLaughlin’s salary is wildly inappropriate. McLaughlin makes more than twice as much money as his counterpart in Boston, even though Boston’s subsidized housing market is more than 20 times larger.

But Sullivan said state officials were never given an opportunity to object to McLaughlin’s pay since McLaughlin deliberately concealed it in budget reports. Sullivan said his preliminary review of Chelsea’s financial statements from 2005 to 2009 indicates that McLaughlin also underreported his pay to state officials during those years, in addition to 2011.

Retirement officials calculate retirees’ pensions based on an average of their three highest-earning years, as well as years of service. After McLaughlin’s nearly 50-year career in public service, he would be eligible for 80 percent of his average salary.

The inspector general urged Chelsea Retirement Board administrator David Pickering and Joseph Connarton, executive director of the state Public Employees Retirement Administration Commission, to base their calculations on a salary of $160,000, the sum McLaughlin disclosed to the state.

“His pension should not be based on these extraordinarily high and unauthorized salary amounts that were hidden from the regulators,’’ Sullivan said.

Andrea Estes can be reached at estes@globe.com. Sean P. Murphy can be reached at smurphy@globe.com.

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