Charleston businessman Douglas E. Pauley is collecting a $500,000 "developer's fee" to build low-income apartments in Mason County, while Pauley's dealings with state Treasurer John Perdue remain under federal investigation.
Pauley is drawing the $500,000 fee from a $3.67 million stimulus grant the West Virginia Housing Development Fund awarded him last year. He is using the money to build an apartment complex in Mason County on land he purchased from Perdue, who serves on the Housing Fund's board of directors.
Pauley is one of 11 developers across the state collecting the fee under the stimulus program.
"It's their profit for doing the job," said Erica Boggess, the housing fund's deputy director. "It's their fee income. They're not doing this for free."
The U.S. Attorney's Office and FBI are investigating Perdue's sale of 11 acres of land to Pauley in Mason County.
Pauley paid $215,000 for Perdue's property. The money came from the federal stimulus grant, according to Pauley's project budget.
Pauley's agreement with the Housing Development Fund to build the project - called Milton Place and named after Perdue's late father-in-law, Milton Burdette - includes a conflict-of-interest section that stipulates no housing fund directors can have a financial interest in Pauley's project.
Nonetheless, the state Housing Development Fund continues to pay Pauley the $500,000 fee in installments as the Mason County project progresses.
"Yes, we're continuing to pay the developer," Boggess said. "I don't think there's ever been a problem with how the money is being spent to build the project."
State housing officials have previously said that a 2006 letter from the Ethics Commission gave Perdue the green light to sell land to Pauley.
They also noted that federal stimulus grant regulations did not require the Housing Development Fund to include a conflict of interest section in the agency's agreement with Pauley and other developers. The agency copied those requirements from developer agreements in other states for the one-time stimulus-funded Tax Credit Exchange Program.
Two Housing Development Fund administrators ultimately selected and approved Pauley's Milton Place project for $3.67 million in stimulus funding in December 2010.
Perdue never voted on Pauley's project. However, Perdue's representative to the Housing Development Fund's board of directors voted to approve the selection criteria that agency staff members used to pick projects that received stimulus grants.
Since 2009, Texas housing advocate John Hennenger has repeatedly warned that the stimulus tax credit program could become a financial windfall for developers who collect exorbitant fees.
"Everyone puts it in their budget," said Hennenger, co-director of the nonprofit Texas Low-Income Housing Information Service.
Hennenger said the stimulus program essentially allowed state housing agencies to bail out developers who were unable to sell tax credits to investors in the private market.
He said the government shouldn't be in the business of guaranteeing high profits for developers. Hennenger recommends that developers' fees be capped at 5 percent to 10 percent.
Pauley's developer's fee was 14 percent of the Milton Place project's total cost.
In December 2010, the West Virginia Housing Development Fund distributed more than $18 million in stimulus grants to 11 low-income projects across the state.
Last Wednesday, the Gazette requested a listing of fees being paid to other developers who received stimulus funds.
A Housing Development Fund administrator said the agency was unable to provide the information quickly because the newspaper's request required significant research.
Other developers received part of their fees from other funding sources - and the housing fund wouldn't disclose those outside fees, the agency administrator said.
Pauley received the state's second-highest stimulus grant. A Jefferson County project called Willow Springs Farm Apartments was awarded $4.3 million in stimulus funds, the largest amount.
Pauley's $500,000 developer's fee was his project's second-highest expense.
The apartment structures he's building on land formerly owned by Perdue cost $2.3 million, according to Pauley's project budget.
Pauley's other significant expenses funded by the stimulus include a $182,450 "builder's profit," a $45,000 "architect design fee," and $38,180 for "on-site land improvements."
Pauley, a Perdue campaign donor and longtime friend, has repeatedly declined to comment on the federal investigation. The FBI raided Pauley's Charleston office in late October, hauling away hundreds of boxes of documents. Federal investigators returned the records after Pauley agreed to cooperate with the investigation.
Perdue has said he followed "all legal procedures" while selling his land to Pauley.
Reach Eric Eyre at email@example.com or 304-348-4869.
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