HUD finds city still mishandles development funds


In the summer of 1988, Baltimore housing officials promised to correct problems in the way a city economic development program used federal funds to provide jobs for poor people. But the promised improvements haven't happened, and now the city may be forced to repay $2 million spent by the economic development program, according to a federal report.

The city's failure to properly monitor the activities of the Council for Equal Business Opportunities (CEBO) is symptomatic of a greater problem plaguing the city -- the lack of adequately trained staff to manage the estimated $21 million awarded to City Hall through the federal Community Development Block Grant Program, according to federal officials in Baltimore who oversee the block grant program.

In a 74-page report issued last month, the regional office of the U.S. Department of Housing and Urban Development identified a series of problems, including poor record-keeping, insufficient documentation of how funds were used and failure to comply with federal program rules and regulations. The report raised questions about money given to a variety of agencies that was used for a variety of purposes -- from helping minority businesses to boarding up vacant houses.

"The prevalence of such problems and the failure of the city to address previous findings demonstrate the existence of acute weaknesses in the city's overall management of its Community Development Block Grant Program," Maxine Saunders, the regional HUD manager, wrote in a Nov. 13 letter to the city.

Failure to correct the problems or provide documentation to show that projects financed by the block grant program met federal requirements could mean that the city would be forced to return millions of dollars -- as much as $2 million in one program alone. But that money, if returned to the federal government, would most likely be reapplied to the city's pot of block grant funds for use in other suitable projects in Baltimore.

The city has challenged the HUD report and is preparing a lengthy response to the agency's findings, according to Robert W. Hearn, the city housing commissioner.

Mr. Hearn disputed HUD's contention that his department was not equipped to properly manage the community development block grant program, which for years has helped finance housing developments and job opportunities for low- and moderate-income people in Baltimore. He said staff reductions have affected his agency's ability to respond to HUD concerns, "especially when there are different interpretations of rules that require a lot of give and take" between the two agencies.

"We have a capable staff," he said yesterday. "[But] we are stretched thin. That is not an excuse. That is a fact."

Although several of the problems cited by HUD have persisted since the administration of former Mayor William Donald Schaefer and were cited in past monitoring reports, the November review assessed the city's compliance since its last review in October 1987.

The administration of Mayor Kurt L. Schmoke, who took office in 1987, has not lived up to its obligations either, according to the report. Specifically, the report cites the city housing department's oversight of CEBO, an agency founded in 1967 to assist and promote minority-owned businesses and other economically disadvantaged people, in the past two years. In recent years, CEBO has received about $600,000 annually.

"In the two years since the city's August 1988 assurance that it would closely monitor CEBO, this subrecipient has received substantial funding for economic development activities which, in fact, either are ineligible or do not meet a national objective or both," Ms. Saunders said in the November letter.

In reviewing several activities of CEBO that were financed by block

grants, federal officials said they could find no documentation that the programs generated or retained jobs for low- or moderate-income people, the criteria by which it received the money. In one example, the report questioned the practice of using block grant money to make several loans to one businessman.

That practice, the report said, suggested that "the primary beneficiary" was the businessman and not the creation of permanent jobs. The report also raised concerns about loans made to Clarence Gross, a contractor and member of the CEBO board of directors. If Mr. Gross was on the board when the loans to him were approved, "his presence on the board constituted a conflict of interest," the report said. Mr. Gross received more than $600,000 in loans, the report said.

Mr. Hearn, the housing commissioner, said his agency assumed responsibility for the CEBO program in the summer of 1988. Before that, the city's Urban Services Agency was overseeing the program, he said.

In mid-1989, CEBO's executive director for nearly two decades, Samuel T. Daniels, retired. A new director wasn't named until February of this year, and Mr. Hearn said some of the problems cited in the HUD report may be a function of staff caught in transition.

He said his staff has met with CEBO personnel on several occasions to brief them on the block grant reporting requirements. Mr. Hearn conceded that perhaps "there's work to be done there, more documentation that needs to be done. We have to go back and look at the documentation."

Harold D. Young, director of community planning and development for the regional office of HUD, said his agency's intention is "to put the city back on track so they can continue to comply with all the federal regulations and use the money." But he added, "The findings are substantial. They need immediate attention."

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