The federal government wants Columbia officials to pay back $280,000 loaned to a city councilwoman's mother, saying the loan violated federal requirements.
It's one of several concerns laid out by the Department of Housing and Urban Development in a periodic compliance audit of how the city spends federal grant money.
The review asks city officials to explain how two of its loans, given to people with connections to City Council members, did not violate "federal, state and local conflict of interest guidelines."
Those loans are:
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- $280,000 to Veronica Isaac, the mother of City Councilwoman Tameika Isaac Devine, to purchase a building at 1519 Richland St. Isaac then leased the building to her daughter's law firm, Jabber & Isaac.
- $179,000 to CamBry Inc., as part of a larger financing plan to purchase two Birds on a Wire restaurants from City Councilman Daniel Rickenmann.
The money came from the federal government but was administered by the city as part of the Sumter-Columbia Empowerment Zone.
The empowerment zone was created in 1999 as a way to funnel federal money into some of the city's poorest areas, with the goal of creating or retaining jobs.
But federal officials say Isaac did not create new jobs by moving an existing law firm into the empowerment zone. Specifically, it violates the program's "business relocation revisions," according to the review, which The State newspaper obtained through a Freedom of Information Act request.
"The (empowerment zone) proposed that this loan would retain five jobs, but since the jobs did not previously exist in the (empowerment zone), they cannot be retained," the report said.
After the loan was granted, Devine requested an informal opinion from Cathy Hazlewood, an attorney with the State Ethics Commission. Hazlewood said state law prohibits public officials from using their position to benefit themselves economically or someone in their immediate family. Devine says the firm pays her mother about $3,200 a month in rent.
"Immediate family," according to state law, means anyone living in your household. Because Devine's mother does not live with her, she is not considered an immediate family member.
"I know of no reason under the Ethics Reform Act why your parents could not participate in the Empowerment Zone financing program," Hazelwood wrote in her opinion.
The loan was administered by city officials and did not require a council vote. Devine said she has not discussed the loan with any city officials and did not tell her mother about the loan program.
Isaac said she discovered the loan program through her husband, who is a Realtor and heard about it from one of his clients.
"I'm a citizen like everybody else," Isaac said. "Just because my daughter's on council, I don't expect special treatment but neither do I expect to be crucified for dealing with the city or the county or anybody."
Devine said she doesn't think the loan "violates anything."
"We are held to higher standards, and I certainly recognize that, but I don't think that because we are public officials that we should not be afforded the same opportunities as any constituent within the city of Columbia," Devine said. "For them not to be able to do that because they're associated with me I think is grossly unfair."
Spokesman Joe Phillips of HUD's Atlanta office said the review is preliminary. It was issued Sept. 15, and the cash-strapped city was given 30 days to respond to it.
"They have to provide an explanation as to why they spent that $280,000 the way they did because the review determined it was an ineligible expense," Phillips said. "If it is determined that they can't explain it ... (City officials) have to repay that money using non-federal funds."
Rickenmann said the findings in the HUD review concerning his restaurants were false. He said the principals of CamBry Inc. at first planned on using a city loan to buy the businesses.
"They originally went through the (city) for a loan, and I said, 'I can't close on a deal that involves city money,'" Rickenmann said.
Rickenmann provided The State newspaper with copies of closing documents, checks and deposit slips.
The documents indicate the sale went through in February for $300,000 and was paid for at closing with two checks, one for $151,258.61 from the Ellis, Lawhorne & Sims law firm and the other a $120,000 check from First Savers Bank.
CamBry Inc. would owe him the remaining $28,000, Rickenmann said.
In a letter to HUD, Rickenmann wrote: "I am aware that CamBry Enterprises, Inc. did obtain additional financing through a city program in June, 2008, (but) I do not have any specific knowledge regarding the terms of that loan or its status."
CamBry Inc. filed for Chapter 7 bankruptcy in January 2009, according to the review; the Empowerment Zone lost the principle balance on the $179,000 loan.
Rickenmann's documents conflict with the HUD review, which says the businesses were sold for $499,000 and were paid for by a $250,000 loan from First Savers Bank and a $179,000 loan from the city.
"This whole paragraph is not true," Rickenmann said. "They made blatant charges and misinformation in this document that suddenly appeared in public."
"I can't speak to what they are telling you," said Phillips, the HUD spokesman. "They are required to provide us an official response as to why they spent this money the way they did."
The city has had problems before with the now-10-year-old empowerment zone. Under the original structure, committees of residents were to come up with innovative ways to use the money, from summer job programs to job training to business recruitment.
Many of those programs in Columbia were shut down by HUD because they were ineffective and unsustainable. For example, some summer youth programs paid parents to send their children to the programs.