How former RI Housing Secretary Pryor used a law firm to funnel some state housing contracts

PROVIDENCE – In his zeal to quickly address Rhode Island's housing availability crisis, former Housing Secretary Stefan Pryor leapfrogged some of the state's requirements for hiring contractors by funneling at least $252,196 in contracts through Savage Law Partners.

Instead of seeking competitive bids or hiring consultants through normal channels, Pryor, who left state government this week, oversaw payments of $634,993 to Savage to provide legal services and, less typically, hire a parade of subcontractors to scope out sites and other work.

Because of the nature of this arrangement, the state, and more specifically the Department of Housing, has been unable to readily state how much the "subcontractors" – including Sage Environmental Inc., the Peregrine Group and Jones Lang LaSalle (JLL) – have been paid so far.

But, in an unsigned memo obtained by The Journal, the Department of Housing advised state purchasing officials days before Pryor announced he was leaving that it was discontinuing its unorthodox contracting practices and that Savage had been instructed to end its "existing subcontractor arrangements" with Sage and Peregrine.

The agency promised to go through required state channels in the future.

Why go this route in the first place?

This is the explanation of the approach that housing spokeswoman Emily Marshall gave The Journal:

"In certain circumstances and often to maintain attorney-client privilege, attorneys can procure services directly, as they do when using experts and other consultants in litigation."

In this case, she said Friday, "The department [now] understands that, while Savage’s subcontractor arrangements related directly to the legal work that Savage was performing on behalf of the department, going forward the department will seek the Department of Administration’s approval before such subcontractors are secured."

Going deeper: Pryor's unorthodox approach

When he announced in late June that he was leaving the top job in the state's housing arena for an unspecified job in the private sector, Pryor pointed with pride to an uptick in new homes permitted on his watch, a 32% increase in available beds for people experiencing homelessness and the 2,600 new homes financed by Rhode Island Housing, "including 2,000 that are 'affordable'."

But critics in Rhode Island's housing realm – including one or more employees within the relatively new Department of Housing run by Pryor – raised red flags behind the scenes over his management style. His approach may have moved some projects along more quickly, but the contracts were not the only issue.

The agency also left the first $30 million the legislature earmarked for low-income housing tax credits on the table untouched.

Here is what is known so far about the subcontracts and the delayed start of the $30-million-a-year low-income housing tax credit:

The contracts

In the budget year that ended on June 30, the Department of Housing paid $1,009,993 to the Savage law firm – which is one of two law firms the McKee administration has also hired to pursue potential damages from the Washington Bridge contractors.

The payment to Savage included a $375,000 "real estate acquisition deposit" for the state's purchase of the former Charlesgate Nursing Center in Providence and unknown payments to the subcontractors.

According to a June 21 memo from the Department of Housing to the state purchasing director, Sage and the Peregrine Group were hired by Savage in connection with the state's purchase of Charlesgate for "over $6 million for use as a shelter, and – eventually – affordable housing."

The memo says "SLP recommended that, in the interest of protecting taxpayers, it should conduct standard, rigorous due diligence on the property prior to Housing acquiring it."

Sage was then engaged to do the Phase I, Phase II and bore drilling on the property, and Peregrine was brought in to help in the due diligence process "without any cost markup," the memo states. (The closing has not yet taken place.)

JLL was hired to "assist with due diligence for site selection and acquisition for homeless shelters,'' which entailed "complex ownership structures, utility requirements, timing considerations, and regulatory and zoning requirements'' on various sites, including state-owned land at the Route 146 on ramp off Douglas Avenue in Providence for a still unoccupied pallet-shelter village.

The memo stated there were several "legal implications" in the creation of the village, including local zoning compliance, building and fire codes, seeking variances, permits and "analyzing plans for satisfaction of requirements such as emergency vehicle ingress and egress and utility access."

Savage also hired JLL to assist with "due diligence" on 111 Westminster St., Providence (knownas the “Superman” building) to "among other things, understand the legal requirements and financial value of two federal programs'' that could be used to convert vacant commercial buildings in a transit area into apartments.

JLL provided advice on cost and financing fluctuations so that Savage "could understand the implications, if any, on current or future legal structures of any public investments ... for the developer."

According to the memo: "JLL charged an hourly fee that was less than SLP’s agreed-to hourly rate, which, in turn, reduced costs to the state."

According to an agency rundown, the amounts Savage paid so far to these and other subcontractors doing work for the Department of Housing include:

• Peter M. Scotti & Associates $13,000

• Novogradac & Co. $8,000

• Sage Environmental $21,072.68

• Peregrine Group $53,696.68

• Homeport Inspections of RI $7,746.96

• InSite Engineering Services $14,500

• Jones Lang LaSalle Americas Inc. $134,179.75

The tax credit

In the state budget approved in June 2023, state lawmakers created "a five-year competitively awarded tax credit for housing developments,'' with up to $30 million available each year for developments that also qualified for federal low-income housing tax credits.

The problem: The Department of Housing did not post the proposed regulations for the program created until nearly a year later, in May 2024. And while the public comment period is over, the regulations are still winding their way through the state's labyrinthian approval process.

Asked why the housing tax credits are not yet available, more than a year after the legislature's final June 15, 2023 budget vote, Department of Housing spokeswoman Emily Marshall confirmed: "No state low-income housing tax credits have been issued to date.

"The team is reviewing these comments in line with the rulemaking process," she said.

The time lag? "Setting up an effective state LIHTC program requires careful consideration to maximize the impact of this new financing for affordable housing."

This article originally appeared on The Providence Journal: Memo traces how former RI housing official skipped state procurement process