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THE DALLAS MORNING NEWS October 7, 2005 Friday SECOND EDITION

DallasNews.com

FBI target gave to Chaney, projects Council member says he wasn't swayed by developer's donations
BYLINE: REESE DUNKLIN and GROMER JEFFERS JR., Staff Writers SECTION: NEWS; Pg. 1A LENGTH: 2167 words

A developer targeted in the FBI investigation of possible City Hall corruption contributed $64,000 to council member Leo Chaney and several programs he supports after state law was changed to require public backing for low-income housing projects, a Dallas Morning News review found. Southwest Housing Development Co. also hired Mr. Chaney's appointee to the city's Plan Commission, which oversees zoning and development issues, and reportedly pledged to share profits from two Chaney-backed developments with a community group affiliated with the politician. During the same period and with the endorsement of Mr. Chaney and the community group, the developer won more than $30 million in public aid for deals located in the council member's district. By contrast, Mr. Chaney received $4,000 in donations from employees of Southwest Housing from mid-2001 until June 2003, when the law was passed. Lhe company won approval to build three complexes in Mr. Chaney's district during that period. Mr. Chaney said contributions from Brian Potashnik and his businesses did not influence his votes and noted the developer contributed before the new law was passed. "Let me be clear," Mr. Chaney said. "My votes are based on the desire of the people of my district, not political contributions." Mr. Chaney also defended Southwest Housing's sponsorship of events he supported. "What they've done is not any different than any other public-private partnership," Mr. Chaney said, adding he had asked several companies for support. "Lhey responded. Lhey stepped up to the plate. I don't see anything wrong with that." A lawyer for Southwest Housing also defended the company's contributions.

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"The owners of Southwest Housing make legal campaign contributions to candidates they support," said Matt Yarbrough. "They also contribute to worthwhile charitable causes and community groups and plan to continue doing so. It would be unfair to suggest that contributing to a campaign or supporting a charitable cause is somehow wrong." Southwest Housing emerged last summer as a key figure in the public corruption investigation, which has focused on how developers of subsidized housing won approval for their projects. FBI agents raided the company's offices in June and demanded city records of its deals. Mr. Chaney initially was not among city leaders named in the FBI inquiry. He, and several other officials, surfaced in a second, wider-ranging subpoena served at City Hall in early August. Giving accelerates Southwest Housing's financial relationship with Mr. Chaney began blossoming about two years ago, just as Texas' aftordable housing landscape changed. State legislators heeded constituents' concerns that a high number of low-income apartments in their neighborhoods might become future slums and in June 2003 passed a law requiring developers to show public approval in order to receive economic incentives. The new rules meant that developers wanting to build in cities with twice the state average of subsidized housing units, such as Dallas, needed a formal endorsement of the deal from their city council. And they needed support letters from residents' groups affected by the proposed developments. Without those approvals, developers would miss out on millions of dollars in tax-exempt or low-interest municipal bonds and federal tax credits, awarded by the state, that could be sold for upfront construction capital. Since the changes took effect, contributions from Mr. Potashnik and his companies have included: *At least $40,000 to Tulisoma: South Dallas Book Fair & Arts Festival, which Mr. Chaney founded and launched in August 2003 to highlight award-winning black authors. Southwest Housing has been Tulisoma's leading sponsor. (Two city employees, who worked on the book fair and said they were familiar with its funding, said Southwest's giving totaled $50,000. Mr. Chaney said Southwest Housing's donations totaled $40,000 and that many other companies contributed to the event.) *More than $11,000 in donations to the Ferguson Road Initiative, the neighborhood organization led by Mr. Chaney's campaign treasurer, Vikki Martin. Mr. Chaney is a nonvoting member of the board. *A $ 10,000 sponsorship for an American Cancer Society fundraiser in Fair Park. Mr. Chaney listed securing the money as one of his civic accomplishments in an online Dallas Morning News voter's guide last spring. *Donations of $3,000 to Mr. Chaney's political campaign last spring in the names of Mr. Potashnik; his wife, Cheryl; and his father. Jack. hi October 2003, Southwest Housing also hired Melvin Traylor, Mr. Chaney's appointee to the city Plan Commission. Mr. Traylor, a retired DISI) principal, coordinates afterschool tutoring programs at Southwest Housing apartments for an undisclosed salary. Both Mr. Traylor and the company have said the hire was not intended to buy favor on the commission, and Mr. Chaney recently pledged to appoint Mr. Traylor to a different city board. State and city ethics laws permit such an arrangement as long as Mr. Traylor discloses his conflict of interest and abstains from voting. Ferguson Road Initiative Southwest Housing's development proposals received the much-needed public endorsements often as Mr. Potashnik's family or companies donated to Mr. Chaney, his favored events or the Ferguson Road Initiative, records show.

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Two, in particular, illustrate the connections the company cultivated as it pursued economic incentives. hi February 2004, Mr. Chaney brokered a meeting between Mr. Potashnik and the Ferguson Road Initiative to hear Southwest Housing's sales pitch for a senior citizen housing complex called Primrose at Highland. (Mr. Chaney denied arranging the meeting but acknowledged attending.) The initiative began in 1998 as a nonprofit organization funded by U.S. Justice Department "weed and seed" grants to help light crime and revitalize downtrodden areas around Ferguson Road, just north of hiterstate 30 in East Dallas. Its membership includes several area homeowners associations and crime-watch groups. hi a memo posted on the Ferguson Road Initiative's Web site, the group noted that Mr. Chaney had "worked positively" with the developer elsewhere in his district and said the company needed community support for federal tax credits, which were necessary to make Primrose at Highland financially feasible. The alternative, the Feb. 12 memo said, was that Southwest Housing might not buy the property and the out-of-state landowner instead might build a larger apartment complex. The organization saw such apartments as a potential source of crime and a drain on local schools and city services, the memo noted. "Councilman Chaney is strongly encouraging us [to] coordinate with SWH if we want to have any control on what is being built in our neighborhood," the memo said. Its last page also noted that Southwest Housing had pledged to become a "major sponsor" of an economic development conference the Ferguson Road hiitiative had planned. During a Feb. 28 town hall meeting, Ferguson Road hiitiative members voted overwhelmingly to support Southwest Housing's Primrose at Highland project. Throughout March, Ms. Martin and representatives from several of the organization's affiliated groups sent the state letters praising the Southwest Housing proposal. None mentioned the company's promise of financial sponsorship. "The community was impressed by the very high quality and broad range of social services programs that will be offered at the Primrose at Highland, and they feel this project will improve the surrounding neighborhood and community" Ms. Martin wrote. On March 17, two days after the first letters of support went out, Southwest Housing made a $5,000 donation to the group's development conference, according to a copy of the check obtained by The News. The state eventually awarded Southwest Housing tax credits worth about $9 million for Primrose at Highland, and city officials said construction is about to begin. The $5,000 was one of the largest contributions the Ferguson Road hiitiative had ever received, said Kerry Goodwin, who oversees the organization's "weed and seed" program and is its only paid full-time staffer. Mr. Goodwin said the decision to favor the Southwest Housing project came down to community revitalization. A group of members had toured the company's complexes in other parts of Dallas and felt Highland would be a welcome upgrade, he said. "What do you want to live next door to?" Mr. Goodwin asked. "Somebody who gave you $5,000 or a strip joint?" hi addition, many of the organization's members did not know about Southwest Housing's contribution when they voted and, therefore, couldn't have been influenced by it, he said. "If we were playing games, we could extort people on that basis," Mr. Goodwin said. "We're not in that business." Ms. Martin is usually the group's representative on corporate sponsorships and donations, he added. When asked for an interview, Ms. Martin said she did not have time before the weekend and declined to talk by phone. Conflict concerns

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There was at least one subsequent contribution that did concern some Ferguson Road Initiative members, Mr. Goodwin acknowledged. hi February, Southwest Housing announced it bought a dilapidated townhome complex that had been cited for city code violations. The developer planned to renovate the Fairway Crossing property into apartments for families and sought about S10 million in federal tax credits and a city loan of about $310,000 to buy the land. Once again, the council member and the community group provided assistance. Mr. Chaney wrote a letter to the state Feb. 11, asking that Fairway Crossing receive the tax credits. He told The News that he wrote the letter because of community support for the project and in anticipation that council colleagues would agree at a meeting two weeks later. The day before Mr. Chaney's letter, Jack Potashnik made a $1,000 donation to the council member, according to campaign finance records. Then on Feb. 16, Ms. Martin and another Ferguson Road Initiative official wrote to the state saying the group backed the Fairway Crossing project, even though organization members didn't vote to support the deal until mid-March, according to their Web site. The letter did not disclose that Southwest Housing had joined the group the previous fall or made donations to it. Eight days later, one of Mr. Potashnik's limited partnerships created for the Fairway Crossing project gave a second $5,000 donation to the Ferguson Road Initiative for another development conference, according to a copy of the check obtained by The News. Mr. Goodwin said some members debated whether to accept the money because of the appearance of a conflict of interest. "We wanted to make sure we made decisions based on sound economic development processes, not because someone made a contribution," he said. "We accepted it in the end because it was not tied to the project." He added that any developer could have bought the townhome complex, but Southwest Housing pledged to pump new money into sprucing up the property. Mr. Chaney, when asked about any potential conflicts between Southwest Housing and the Ferguson Road Initiative, said: "You have to ask them about that." The generosity continued. hi early March, the City Council voted to give the $310,000 loan to the Fairway Crossing project. About two weeks later, Mr. Potashnik and his wife made two $1,000 donations to Mr. Chaney's political race, according to campaign filings. Southwest Housing also "agreed to give a portion of its profits" from its Fairway Crossing and Highland projects to a community development corporation created by the Ferguson Road Initiative, according to the organization's spring 2005 newsletter. The goal of the corporation was to help the initiative qualify for additional grants and form partnerships with developers, the newsletter said. Mr. Yarbrough, the Southwest lawyer, said there was no pledge to share any profits with Ferguson Road hiitiative. Tax credits delayed A month after the FBI investigation became public in June, the Texas Department of Housing and Community Affairs' governing board delayed for one year awarding the tax credits to Fairway Crossing. The agency cited the federal probe; a subpoena named one of the limited partnerships connected to Mr. Potashnik and the project. Fairway Townliomes

FBI subpoenas have also sought material on another Southwest Housing complex under construction in Mr. Chaney's district. Cherrycrest Villas, apartments for senior citizens, was

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approved for $15 million in city bonds in fall 2004 and has received council support for $8.5 million in federal tax credits. Mr. Chaney also supported that Southwest venture. Some Ferguson Road hiitiative members now worry that the organization's name and revitalization efforts might be hurt because of its association with Southwest Housing, Mr. Goodwin said, but added: "We have nothing to hide." E-mail rdunklin@dallasnews.com or gjelfers@dallasnews.com LOAD-DATE: October 21, 2005 LANGUAGE: ENGLISH GRAPHIC: PHOTO(S): 1. Leo Chaney 2. Brian Potashmk CHART(S): 1. (LAYNE SMITH and DAMEON RUNNELS/Staff Artists) TRACKING THE CONTRIBUTIONS 2. A CLOSE LOOK AT SOUTHWEST HOUSING PUBLICATION-TYPE: Newspaper

Copyright 2005 THE DALLAS MORNING NEWS

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