Rochester Housing Authority Execs’ Double Salaries Raise Red Flag

This story set off a chain of events that included Rochester Housing Authority commissioners launching an investigation into their executives and tightening oversight policies. The executives were fired two months after the publication of this piece. — David Andreatta

The Rochester Housing Authority has done business with and loaned hundreds of thousands of dollars to a nonprofit development firm run by top authority executives, who received pay from the firm in addition to their authority salaries, documents and interviews show.

The dual salaries, revealed to current and former authority commissioners by the Democrat and Chronicle, have raised questions among commissioners about a potential conflict of interest and possible violations of housing laws and authority policy, which restrict authority employees from having a financial stake in authority contracts.

Federal tax records show three authority executives — Executive Director Anthony DiBiase, Development Director Scott Shaw and Operations Director Sharlene LeRoy — collectively received $123,175 in pay from the nonprofit, North Star Housing and Development Corp., in 2007 and 2008, the years for which records were available.

In 2008, DiBiase was paid $33,750 by North Star in addition to his $148,563 authority salary, according to tax records and public payroll data. That year, the authority paid Shaw $97,365 and LeRoy $97,841, while they earned $25,253 and $11,539 from North Star, respectively. The records also show that North Star paid Shaw's wife $11,500 for accounting services in 2007.

The average yearly tenant income in Rochester public housing is $14,300, according to the federal Department of Housing and Urban Development. The authority serves about 2,500 public housing units and administers about 7,000 Section 8 vouchers.

The issues with the North Star arrangement appear to hinge on whether it is “unaffiliated” with the authority and what constitutes a “financial stake” in the nonprofit.

The Democrat and Chronicle pored over four years of Rochester Housing Authority meeting minutes and documents, federal tax records and public payroll data and conducted more than a dozen interviews to track the evolution of North Star.

What emerged was a sometimes murky picture of what authority commissioners understood about the function of North Star and its operations when it was created four years ago to develop new affordable housing stock and generate revenue for the authority.

The authority executives defended their North Star salaries as appropriate and as being in the best interest of the Housing Authority.

“In my mind, how could they not think we weren’t going to get compensated?” DiBiase asked during an interview. “No one in the development world would do all that work . . . without getting some level of compensation for it. I think what we’re getting for it is like close to nothing” by industry standards.

But commissioners expressed discomfort with the arrangement and planned to address it at their monthly board meeting on Wednesday.

“As a commissioner, the first thing that comes to my mind is ethics,” said authority commissioner Florine Cummings. “I don’t know why they receive this pay.”

CREATION OF NORTH STAR

The purpose of North Star was to generate additional revenue for the Housing Authority by developing low-income housing and having the authority manage the properties for a fee. The primary funding source for low-income housing construction is state housing tax credits, which public housing authorities are not eligible to receive. So housing authorities across the country have set up affiliated nonprofits to obtain the credits.

Management of the authorities and their affiliates often overlap, but authority employees are typically not paid by the affiliate.

Rochester Housing Authority meeting minutes show that commissioners approved the creation of North Star as “a development affiliate” of the authority in April 2006 and loaned it $325,000 in “seed money” at no interest to get started.

But North Star was never officially an affiliate of the authority, even though its original board consisted of DiBiase, Shaw and the then-chairman of the authority board, Elston Hernandez.

Records show that what authority commissioners actually approved when they cast their vote was the no-interest loan to North Star.

Former commissioners who voted for the resolution now say they would have never done so had they understood that North Star was not affiliated with the authority and that authority employees would be getting paid by North Star.

“There was no need for them to be paid for serving another entity,” said Joseph Hanna, a former commissioner who left the board in 2006. “Setting up a separate nonprofit doesn’t bother me. What bothers me is that these people had a fiduciary interest in the nonprofit.”

Joseph Kelley, a former commissioner who supported the measure, said he believed that the authority executives on North Star would only receive their authority salary because North Star was an arm of the authority.

“I knew they were sitting on the board of North Star, but I didn’t think it was a separate entity where they would be getting two paychecks,” Kelley said.

DiBiase said there was talk of making North Star an authority affiliate, but that it never happened because lawyers advised doing so could put authority assets at risk if a North Star project went sour.

DiBiase said Hernandez, then chairman of the authority board, knew that DiBiase, Shaw and LeRoy would be paid by North Star. Hernandez did not return phone messages left for him over a two-week period.

The Democrat and Chronicle reached eight of the 10 authority board commissioners who were either serving when North Star was created or are currently on the board. Seven of them said they had no idea North Star was paying authority employees. One declined to comment.

“I don’t recall that being the case,” said Carol Schwartz, the current chairwoman who also served in 2006. She said the board would take up the issue this week but declined further comment.

Records show that for most of the first two years of its existence, the North Star board was controlled by authority executives, with DiBiase as president.

Today, North Star is overseen by a five-member board that includes DiBiase and Shaw.

Tax records show DiBiase and Shaw work 18 hours a week for North Star in addition to their 35-hour authority workweek. LeRoy, who recently resigned as the authority's director of operations, was listed as working eight hours a week for North Star.

The nonprofit rents a small office on Lake Avenue from the Housing Authority for $108 a month.

IS THIS A CONFLICT?

Richard Vega, the city’s outgoing public integrity officer who last month resigned from the Housing Authority board, said the relationship between the authority and North Star must be examined.

Vega was not a commissioner when North Star was formed but said he was troubled by the payments to Shaw's wife and the number of hours the authority executives claim to be putting in at North Star.

“There doesn’t appear to be any laws that have been broken, but certainly there is a perception of a conflict of interest,” Vega said. “Without a doubt the board needs to look at this again and see what they can do to fix these perceptions and anything that may be inappropriate.”

Housing Authority policy restricts an employee from participating in the “selection, award or administration” of authority contracts with firms if the employee has a financial interest in the firm.

Authority commissioners have approved joint venture agreements with North Star, but none has been implemented and North Star has not provided a contracted service for the authority.

In an e-mail response to questions, Shaw said the work he and other authority employees perform for North Star is distinct from their authority work. “(North Star) disagrees that this presents a conflict of interest, and in fact the businesses are viewed as separate but complementary,” Shaw said.

DiBiase said a conflict might arise if employees had second jobs with a company that competes to house the poor.

“We’re adding housing stock to the community and bringing another source of revenue back to the Housing Authority,” he said. “To me, that’s not a conflict of interest.”

Reached by phone, LeRoy said there was no conflict because the authority and North Star are unrelated. She declined to comment further.

Federal Department of Housing and Urban Development regulations prohibit housing authorities from contracting with firms in which authority employees have a direct or indirect financial interest when federal funding is involved.

But the rules do not restrict housing authority employees from holding a second job in an unaffiliated nonprofit, said HUD spokesman Adam Glantz.

The $325,000 loan to North Star was funded by authority bond revenues, not federal money.

Last month, the authority approved lending North Star an additional $400,000 and providing it with a $400,000 line of credit. The board also approved a $600,000 loan to a subsidiary of North Star for development of 28 low-income apartments on West Main Street.

None of those deals has been implemented.

“Having public housing employees work and being paid in both entities is not in violation of federal public housing law,” Glantz said. “HUD interest would be triggered if there is evidence of waste, fraud or abuse in the expenditure of federal funds.

“One example of this,” he continued, “would be if a public housing employee had a financial stake in the housing being built.”

To date, North Star has completed one project — the construction of 10 houses in the JOSANA neighborhood near the soccer stadium used by the Rochester Rhinos. A North Star subsidiary owns the houses, and the Housing Authority manages them through a subsidiary.

North Star is also aiming to build 89 senior apartments in Ogden and has a proposal to develop a 56-apartment complex in Batavia, Genesee County.

“I don’t own North Star,” DiBiase said. “The only dollars I receive from it is the pay that I receive. I don’t think that’s a financial stake.”