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Official's ties to developer scrutinized First of two parts.
Web Posted: 05/21/2006

Todd Bensman, Express-News Staff Writer
In his unpaid role as a commissioner of the Housing Authority of Bexar County, Carlos Madrid Jr. portrays himself as an honest steward of public funds and unstinting advocate for the poor.

Having grown up dirt poor on the West Side, Madrid says his motivation for spending years on the board was to provide the kind of good housing he believes can shape children into productive adults.

But Madrid has submitted his resignation letter, and it provides no hint that he gained much more from his board work. For the past several years, he has received thousands of dollars in contract work from a Dallas-based affordable housing developer that had business before the board. The developer found in Madrid an unwavering advocate.

Interviews and a San Antonio Express-News examination of housing authority records show Madrid's construction design company, MCMG Inc., did contract work for Southwest Housing Development Co. before the housing agency and Southwest entered into partnerships to build two multimillion-dollar apartment complexes.

By signing public agencies on as partners in its building projects, Southwest Housing can qualify for millions in government tax breaks that can boost profits.

Madrid's private company soon was performing work on both of the apartment complexes while he routinely made decisions about them as a board member entrusted to act only on behalf of taxpayers.

He says his loyalty to county taxpayers never was undermined by any obligation he may have felt toward Southwest and that he did nothing wrong.

Madrid's private financial deals shed light on some business practices of Southwest, the largest developer of affordable housing in San Antonio and Texas, at a time when the company plans to aggressively expand its partnerships with other public agencies.

Southwest Housing labors under an ongoing FBI investigation that has focused, in part, on its private relationships with Dallas city leaders and their associates. The company has repeatedly denied wrongdoing.

At stake as the company contracts with agencies to build new area apartment projects is whether public servants overseeing the deals will make decisions in the best interests of taxpayers or in the interests of themselves and Southwest Housing. That's a temptation that the state's conflict of interest laws were designed to suppress.

Rudy Rodriguez, chairman of the Bexar County Housing Authority, has ordered a full audit of the county's partnerships with Southwest Housing.

"We're going to run everyone through the sausage grinder before we figure out whom we do business with in the future," he said. "I just think that everything we do from here on out has to pass the smell test in every which way so that we run an effective and fiscally responsible housing authority. Whatever needs to be done is going to be done."

In a brief interview last week, Southwest Housing's president, Brian Potashnik, said his company plans to continue to meet demand for decent affordable housing in San Antonio in partnership with local agencies, despite the FBI investigation of its conduct in Dallas and new questions raised here.

"We're continuing to do what we do best. Lenders and investors, who obviously do considerable due diligence, are not running from us," he said. "Believe me, we'd love for it to be over; don't get me wrong. We're very confident that hopefully it will be over."

He referred specific questions about Southwest's business ties to Madrid to a Washington, D.C., public relations firm, which e-mailed a brief statement asserting that its relationships were properly disclosed. It continued, in part: "These projects were approved completely on their merits and serve as a tremendous asset to the underserved communities of San Antonio."

Free work, at first

The two government-subsidized apartment projects that are the subject of the new audit represented the county housing agency's first foray into tax credit housing partnerships with a private developer.

The now-completed projects are the $14.3 million Rosemont at Miller's Pond in the 6200 block of Old Pearsall Road and the $25.4 million Rosemont at Palo Alto in the 10000 block of Texas 16 South.

Southwest representatives first formally approached the county housing agency about the Miller's Pond project, then known as Heatherwilde Estates, in January 2002 and pitched the Palo Alto partnership to the board in December 2002, meeting minutes show. Southwest needed the county's presence in the deals to qualify for state-administered tax breaks worth more than $17 million, according to applications on file with the state housing authority.

Madrid acknowledged in an interview that his construction design company, MCMG, began doing contract work for Southwest, assessing and coordinating construction progress and analyzing site work "in 2001 or 2002" on projects in Brownsville, Harlingen and Laredo. He said some of the firm's work on the Palo Alto project in San Antonio started before Southwest and the housing board were partners.

By January 2003, the board had signed on and was pushing forward with both Miller's Pond and Palo Alto as a partner eligible for small portions of the developer fees, some revenue and eventual ownership.

Texas law forbids county housing officials from voting on or even talking about projects in which they have a financial interest and that fall within their area of oversight. It requires public officials who do, under penalty of a third-degree felony, to disclose such relationships in writing, abstain from voting and recuse themselves from any discussion or deliberation on those matters.

When the board was debating whether to approve the Miller's Pond partnership, then known as Heatherwilde, in February 2002, Madrid pushed for immediate approval despite lingering questions among several fellow commissioners, including Nancy Busch. During a lengthy discussion between the commissioners and Southwest Housing representatives, Madrid said any questions could be resolved later.

"I think that right now what we need to do is go ahead and move forward, all decisions and questions, they are valid, very very valid," he stated. "But that's part of the working for this project. Right now, I think that the only concern is to vote on it."

Busch responded: "There is no way I can make a wise vote unless I have all my questions answered. I have not determined how I am going to vote because I still have a lot of questions. I still need more information."

To which Madrid replied: "I got all my due diligence."

Then Busch asked Southwest's representatives a question that took other commissioners by surprise.

"Do any of us have any affiliation with you or your business?"

Southwest's representative at the time, Bill Fisher, replied: "No, not that I am aware of."

"Why do you ask that question?" Madrid replied.

"I took an oath to the board, and I don't mind saying if there is anything that we need to disclose or remove," Busch stated.

"Yes, but I am involved in that question," Madrid said.

Madrid did not elaborate on what he meant by that, and the matter was not resolved.

He would go on to vote for the Miller's Pond partnership with Southwest and deliberate on it in his official capacity for several years.

In December 2002, Southwest Housing again approached the housing board with a proposal, this time to become a partner on the Palo Alto project, which had contracted Madrid's company.

Madrid attended a closed board meeting at which commissioners deliberated on legal questions related to the deal, then abstained from the vote with no explanation.

Madrid said his company continued to do work for Southwest's three South Texas projects, in Laredo, Brownsville and Harlingen. The ethics rules allowed that work, he maintains, because they were well outside his board's jurisdiction.

"I thought that doing work 350 miles south of San Antonio was sufficient separation," Madrid said.

But he said he also never stopped working on the Palo Alto project after the board became a partner in it. And, Madrid said, he began doing extensive construction-related work on Miller's Pond.

He said he did all this work for free, as a board member interested only in serving the public by ensuring that the projects were built well.

Madrid said the free work went on for months, "well over 100 hours," and involved pre-construction tasks related to drainage, coordinating services, site prep work and obtaining city permits. He said he even paid for incidentals out of his own pocket, including a $483 tab that Southwest Housing later reimbursed. And he said he mainly answered to David Marquez, a consultant hired by Southwest to represent its interests in San Antonio.

One explanation Madrid gave for working on the two projects and not billing Southwest is that he wanted to avoid any accusations of ethics violations while doing a good deed for the public as a board member.

"I wanted to make Bexar Housing Authority grow and grow and grow," he said. "I wanted these projects to move. I was doing it on behalf of the board. I didn't have to do it. I didn't have the time, but I wanted the jobs built."

But then Madrid conceded that he harbored another motivation for the unbilled work.

"I knew they were going to be building more projects in San Antonio," Madrid said of Southwest Housing.

"I wanted to get inside the door and for them to depend on me and give me some more work."

Though Madrid says he worked for free after his board entered the partnerships, Southwest's internal books show otherwise. For instance, Southwest's books for the two projects show the company logged a $4,675 payment to MCMG on Aug. 31, 2004.

A December 2004 Southwest Housing vendor list includes MCMG and names Carlos Madrid as the contact. It shows he earned $11,019.76 for work on the Palo Alto project for that year.

Madrid offered a variety of possible explanations for the payments.

At first, he indicated that he thought the bills might have been submitted late for work done on Palo Alto before the board became a partner with Southwest. Reminded that he said he'd already collected for all bills submitted for that Palo Alto work long before the 2004 payments, Madrid conceded the point and acknowledged that he really had no answer.

"That I don't know. That I don't know," he said, trailing off. "That I can't answer. I don't think I billed them any more."

But now Madrid says he has recently tried to get paid on all the work for Southwest he did during those years after the board joined with Southwest.

Last week, he said he called the county's law firm for an opinion about whether he could finally bill Southwest Housing. He said the lawyer at Gale, Sanchez & Wilson warned that "it wouldn't look good. It just wouldn't look good."

Indignant about the legal advice, Madrid said he hadn't given up the idea of collecting on the unpaid work. He said: "I've got to get paid. This is my profession. I've got to bring milk and cookies to the table."

A dispute has arisen over whether Madrid ever properly disclosed his financial stake in Southwest Housing to the board. He said he did disclose the relationship to the county's law firm orally and in a handwritten note.

"Do you think I would be so stupid not to do those things?" he asked. "I put it in writing. Absolutely!"

But Woody Wilson of the law firm denied that Madrid ever mentioned the contract work in any communication. "Never happened," Wilson said. "It's not true."

A records check shows that no conflict of interest disclosure statement is on file for Madrid.

Helping Southwest


Southwest has clearly enjoyed consistent support from Madrid in his public service role.

Meeting minutes show Madrid took an active role in discussions, closed executive sessions and decisions regarding the two projects ever since they were approved. He voted on various legal transactions. He also used his position to benefit Southwest in other less visible ways, according to fellow commissioners.

Board Commissioner Robert Grau said he recalls that Madrid opposed a move by new incoming commissioners early last year to renegotiate additional concessions from Southwest. The effort to improve the benefit to county taxpayers was successful, but Grau said Madrid fought it behind the scenes. "He was always the most outspoken," Grau said.

Madrid attended at least a half-dozen closed executive sessions where discussions about various legal issues about Miller's Pond and Palo Alto took place. In January 2004, Madrid emerged from one closed board session about Miller's Pond and voted in favor to "execute documents to close the transaction." It's unclear what they were.

Carol Abitz, a neighborhood activist who led a group that tried to kill the Miller's Pond project in 2003 at City Hall, said she recalled that Madrid attended council and zoning meetings as a board commissioner and spoke out in favor of the project and of Southwest.

Told that Madrid had been earning money on Southwest contracts recently, she said she was stunned.

"I think it's disgusting," Abitz said.

It remains unclear who initiated Madrid's business relationship with Southwest, him or the company.

Madrid said he couldn't recall whether he or Southwest's representative at the time, Bill Fisher, initiated the idea.

"I think it was a mutual kind of decision," Madrid said.

Fisher, who left Southwest Housing in early 2003, declined to comment about why Southwest wanted to have Madrid as a contractor.

Fisher's successor as Southwest Housing's point man in San Antonio from 2003 through about early 2005, David Marquez, initially agreed to speak but said he'd call back after seeking an attorney's advice. He did not call back and did not return subsequent phone calls over three days.

Leaving, but defiant

Madrid submitted his resignation from the board earlier this month ? to become effective when a replacement is found ? after the Express-News requested records of the board's two partnerships with Southwest Housing and commissioners ordered an audit.

Madrid blames Busch and Grau for forcing his departure.

At one point, about a year ago, Bexar County First Assistant District Attorney Cliff Herberg said board commissioners he would not identify came to him with suspicions about Madrid's Southwest Housing business relationship.

Herberg said that at about the time his office began to investigate in late June of last year, news of FBI raids on Southwest Housing's Dallas offices and at Dallas City Hall broke, and he referred the matter to the bureau.

The FBI declined to comment.

Chairman Rodriguez, Grau and Busch said they did not know of Madrid's contract work for Southwest Housing until informed by the Express-News. During an emergency meeting called Tuesday, the board accepted Madrid's resignation.

But Madrid does not accept their condemnation.

"I was very responsible for getting those projects built. We have made people happy, and we have helped those areas with housing," he said. "I've done a lot of work for that board, and, unfortunately, I'm going out with a bad taste in my mouth."





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