Allege Town Coverup

Three East Hampton Town officials, past and present, were charged last week with conspiring to cover up the improper diversion of $1 million in Housing Authority funds.

In papers served late last week by Carriage Hill Associates, a former contractor on the authority's Accabonac Highway affordable housing complex, Town Supervisor Cathy Lester, former Councilman Thomas Knobel, and a former town attorney, Robert Savage, are named as conspirators.

The allegations appear in a notice of claim, which is preliminary to a lawsuit. They are that those officials violated the Federal Racketeer Influenced and Corrupt Organizations Act through "unlawful participation in and support of [a] fraudulent scheme. . . ."

"Diverted" Funds

The notice states that authority funds were "diverted to individuals or entities whose names are not yet known" by Carriage Hill, but who are known by Margaret deRouleaux, the authority chairwoman at the time, by Maureen Murphy, the chairwoman now, and by Robert Brach, the treasurer.

Cynthia Ahlgren Shea, the present town attorney, called the idea of Supervisor Lester, Mr. Knobel, and Mr. Savage conspiring "ridiculous," noting that the Supervisor was a political foe of the two Republicans and did battle with them over a variety of matters during the time the Republicans held a Town Board majority.

Ms. Shea also debunked the claim that $1 million meant for construction of its 50-unit complex on Accabonac Highway had been diverted illegally.

To Cite Authority

"We have evidence that, in August of 1996, the town was on notice there were serious financial misrepresentations in the authority records and there was no follow-up or investigation of that," said John Bermingham, the lawyer for Carriage Hill. Mr. Bermingham said the evidence was in the form of a memo from then-Councilman Knobel to the rest of the Town Board. He added that the Housing Authority also would be named as a defendant in Carriage Hill's forthcoming suit.

"The town knowingly sat by when it had full authority to investigate and remove improperly acting authority members. They did nothing. The taxpayers along with Carriage Hill have been ripped off," he said.

Although the authority is autonomous, its members are appointed by the Town Board and the Accabonac construction has been funded principally by loans that the town guaranteed.

Two Attorneys

On Tuesday, the Town Board agreed to hired two outside lawyers, one to oppose the RICO claim and another to provide advice on the larger matter of the town's role in the authority's complicated legal and financial troubles. That afternoon, Councilman Job Potter, liaison between the board and the authority, again urged the authority to speed up the process of resolving its problems.

His suggestions for doing so met with a lukewarm reception and with the surprising announcement that the authority may forgo the Federal housing subsidy available for all 50 apartments that would be the project's only guaranteed source of revenue.

Fair-Market Rents?

Mr. Brach, the treasurer, said the rents allowed under the Section Eight program were not high enough to cover the project's operating expenses and that offering the apartments at "fair market value" to low-income families would bring in more money.

Mr. Brach and other authority members appeared unswayed by arguments against the idea. Councilman Potter said the $3 million contribution to the project that was to come from the Bank of New York, via the sale of Federal tax credits, was contingent on a Section Eight guarantee. And, Nina Stewart, the town housing director, advised that low-income families, many of whom work only seasonally, would not be able to pay "$1,100 or $1,200 in rent a month in the winter when they're not working."

"You need a guaranteed income stream. . . . You're going to be, excuse me, screwed come December, January, and February," said Ms. Stewart.

Subsidy Expires

The authority's contract with the Community Development Corporation, which administers the Section Eight program in Suffolk County, expires at the end of this month.

For the contract to be renewed, the authority would have to submit a fine-tuned budget before its expiration and to ask for any increases in its subsidy. However, its members were not planning to meet again until March 24.

Meanwhile, Mr. Bermingham said he would continue to investigate "where the money went." More than $4 million has been spent on construction so far. As reported here previously, the authority's 1996 audit remains incomplete after its auditor said it could not sort out its complicated finances.

Nothing Happened

The project originally was estimated to cost $4.5 million; it is now projected to cost more than $7 million.

Under both the former Democratic Town Board administration and after the Republicans took over the majority in 1995, little was accomplished in answer to criticism of how the authority was handling the project. Only in the last few months, and only after its own credit rating was threatened, has the Town Board, now Democratically-controlled again, seemed ready to step in.

Separately, Carriage Hill sued the authority after it was locked off the construction site last year; that case remains in arbitration.

Carriage Hill, based in Hicksville, was hired in 1995 with a contract for $3.7 million. The lockout came after Republican appointees to the authority said that they had uncovered over-billings and faulty construction.

"The authority threw Carriage Hill off the job because it was running out of money and the town knew that. This was a cash cow for the Housing Authority and their pals," charged Mr. Bermingham.