New Accabonac Crises

Without a $1 million-plus gift from the town, the East Hampton Housing Authority's beleaguered Accabonac Highway affordable housing project may never be completed, according to Maureen Murphy, the group's new chairwoman.

Until the town agrees to help the authority meet its mortgage obligations and to cover expected shortfalls in the construction budget, the project's largest investor, the Bank of New York, is reluctant to release even a third of the $3 million it pledged to provide, she said.

Meanwhile, the bank's concerns are expected to be exacerbated by a report that the East Hampton accounting firm of Markowitz, Preische & Stevens has been unable to complete an audit of the Seymour Schutz Limited Partnership, which was set up to build the complex, after examining its records for the past 12 months.

No Audit

Michael Haran, the town budget officer, said this week that the report "puts a big cloud over the entire Housing Authority as well as the project," and alleges a lack of cooperation and a failure to provide information.

Ms. Murphy, who had requested the audit, called the structure of the limited partnership a "donkey's head on an elephant's body" but was quick to say the inability of Markowitz, Preische & Stevens to do the audit did not mean "there's money missing."

"We supplied all the information we could obtain to [the firm]," Robert Brach, the former Housing Authority chairman, said Monday.

Mr. Haran acknowledged that tax-credit financing was extremely complicated, but added, "I don't think the Housing Authority can accept this report. I think it could create a major problem with financial viability," he said.

Good Deal

The bank purchased a more than $5 million Federal tax-credit package from the Housing Authority in early 1996 for $3.15 million and was to pay for it in three lump sums - the first when the agreement was signed, the second when construction was complete, and the third six months after the apartments received a certificate of occupancy.

In the process, the bank became a 99 percent partner in the Housing Authority's Seymour Schutz Limited Partnership.

The Housing Authority's attorney, Scott Allen, who replaced Christopher T. Kelley of Twomey, Latham, Shea & Kelley a year and a half ago, said he expected the numbers to eventually "straighten out" and the Bank of New York to stand by the authority.

"The bank's getting a good deal on the tax credits," he said.

$1 Million In Escrow

According to 1995 documents soliciting investors, "tax credits, and profits and losses from operations of the partnership, are scheduled to be allocated 99 percent to the investor [the bank] and 1 percent to the general partner [the Housing Authority]." The procedure is sanctioned by Section 42 of the Internal Revenue Code.

Although the 50-unit apartment complex has been nearly 80 percent complete since November, the Bank of New York is holding the first $1 million in escrow while seeking answers to a slew of questions. The funds are in a Housing Authority account and are drawing interest, but the bank has asked the group not to use them.

With key funding unavailable and little money to speak of, construction on Accabonac Highway is at a dead stop once again. The only work going on is some engineering.

Wants Guarantee

To date, the Housing Authority has borrowed $4.1 million for its Accabonac project, all with the town's backing. The town had agreed to back the authority for up to $6 million, but the Bank of New York is suggesting now that the Housing Authority should not rack up any further loans but petition the town for a gift of whatever money it needs to bring this project to fruition.

"If we take on more loans we will be unable to support our long-term mortgage," Ms. Murphy said yesterday.

Once construction is complete and all the revenue is in, the short-term financing will be transferred to a long-term mortgage.

The mortgage was originally established at $1.9 million but will end up at more than $3 million. Ms. Murphy believes the bank is concerned that the authority may not be able to meet its mortgage payments from its rental income and that the bank would have to make up the difference.

"They want some guarantee they're not going to be on the hook," she said.

"The Town of East Hampton should be put on notice, if they are not already, that there are funding issues here and they should be required to definitively state that they will cover these shortfalls in a manner acceptable to the bank and its legal counsel," one of the bank's vice presidents, Noel Purcell, wrote in an October letter to the Housing Authority attorney.

Mr. Purcell is no longer with the bank and no other bank official could be reached by press time who was familiar with the partnership.

Concerns about the financing and other aspects of the project apparently arose early on at the bank. After construction blunders, innumerable extra costs, and legal disputes with the first contractor, the Housing Authority is now on its third set of engineers and its second contractor and is working on a revised site plan that rectifies mistakes made over the past year and a half.

Inadequate Budget

Housing Authority members now say the budget for the Accabonac project was never large enough to cover all legitimate expenses that should have been anticipated and that it listed many essential items as extras, to be covered by a small, $600,000 contingency fund.

"Where did the trouble start? Where didn't it start?" Ms. Murphy said this week.

She said the financing was so complex that even the auditors were at a loss to unravel on paper exactly who owns the project. She said it could be the not-for-profit Housing Authority, or the profit-making Seymour Schutz Limited Partnership, in which the Housing Authority is the managing partner but has only a 1 percent interest.

This week, the group's members were wondering how much longer the project would languish near the brink of completion.

"Could I convince myself that from here on in we're going to play this like we're business people and not children playing with blocks? From now on in we're not going to screw up any further?" asked one member, David Lee of Sag Harbor, at a meeting Monday.

Supervisor Cathy Lester pledged this week to help get rid of the "discomfort zone" the bank might have about the project. She also wants to reopen the canvassing of local applicants for apartments.

The Housing Authority has received applications from 473 people for the unit, of whom 161 have been declared ineligible so far.