Bolton: Revamp empowerment zone loan process
11/24/2009 12:00 AM
11/23/2009 6:17 PM
FEDERAL housing officials questioning loans connected to two Columbia City Council members also should examine the overall loan process, including their own role in it.
While it's noteworthy that the Department of Housing and Urban Development raised concerns about loans connected to council members Tameika Isaac Devine and Daniel Rickenmann, this isn't the first time HUD has questioned Sumter-Columbia Empowerment Zone loans in Columbia. And it won't be the last if the feds and the city don't improve communication and revamp the process.
A lot rests on the recommendations city staff make. It would be beneficial for the staff to get guidance from local HUD officials on the front end rather than for federal authorities to conduct reviews after the fact - far too late to halt a questionable loan.
Who knows? More cooperation might have prevented the problems surrounding the loans connected to council members Devine and Rickenmann.
The current process, implemented per HUD's guidance when the empowerment zone was established in 1999, is ripe for not only abuse, but simply bad decisions. A mostly citizen-driven board oversees the empowerment zone, including approval of loans. While there are guidelines and goals, the board has a certain degree of leeway.
It depends on city staff to do much of the underwriting and background work on loans. But in the end, the empowerment zone board - not City Council or any other city-controlled entity - makes the final decision.
While City Council appoints the board, the federal government wants there to be an arm's length relationship between the empowerment zone panel and city decision-makers. (Curiously, there are two council members on the empowerment zone board - E.W. Cromartie and Sam Davis.)
Federal guidelines give the empowerment zone's loan committee the leeway to provide dollars to people and groups that might not normally be approved by a bank. The system allows nontraditional loans that call for higher risk. But there are some sound business and ethical practices that must not be abandoned.
Although the city doesn't have direct control over making loans, it's on the hook if there's a problem with a loan.
In the case of Mrs. Devine and Mr. Rickenmann, HUD demanded the city explain why the loans connected to them did not violate "federal, state and local conflict of interest guidelines."
One of the loans - in the amount of $280,000 - was extended to Veronica Isaac, Mrs. Devine's mother, who used it to purchase a building on Richland Street. She later leased the building to Mrs. Devine's law firm, Jabber & Isaac. The feds questioned whether Mrs. Isaac met the criteria of using the loan to create or retain jobs in the empowerment zone and demanded the city repay it. Mrs. Isaac told me recently her mother has repaid the loan.
The other loan, of $179,000, was made to CamBry Inc.; HUD says it was part of a larger financing plan to purchase two Birds on a Wire restaurants owned by Mr. Rickenmann. Mr. Rickenmann adamantly declares HUD is wrong when it claims he received money from such a loan. He has produced documents in his favor and written letters to HUD demanding a retraction.
Why can't there be a system that ensures the kinds of questions HUD's now raising are answered up front? That would be much better than HUD allowing the empowerment zone board to extend problem loans and then parachuting in after the damage is done, and crying foul. The goal isn't to catch the city in the act of doing wrong and penalizing it; it's to finance good projects that can create or retain jobs in poor areas.
The current system hasn't always served the best interest of those in the empowerment zone.
In 2002, the city was embroiled in another controversy over an ill-advised loan, to a group that wanted to build a youth home in Fairfield County. The loan to Rosewood Youth Development Academy was approved despite concerns raised by a city loan officer. Although the group didn't put up any of its own money, provided no background information on its officials and offered no collateral, the empowerment zone board voted to grant it a $437,000 loan.
After the loan was granted, it was discovered that Rosewood officials either misled the board or botched the loan process. Rosewood officials admitted making mistakes, but the bottom line is the loan never should have been extended.
HUD appropriately raised questions. But, again, a process that calls for some assessment on the front end could have prevented the bad decision ever being made.
This sort of problems will continue to crop up if something doesn't change.
I don't know how much of the $25 million or so the city has received in empowerment zone money remains. But even if it's only $1, it needs to be spent well.
About Warren Bolton
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