Agency taken to task over development loans

Federal report says county office spent $1.6M but helped few businesses

Sunday, February 15, 2009

BY PHILIP READ

Star-Ledger Staff

The agency that administers Essex County's federally funded economic initiatives spent $1.6 million to generate just a handful of community development loans and to offer technical assistance to a scant few businesses over six years, a stinging federal audit says.

The Office of the Inspector General's 31-page report paints a portrait of an ineffective Economic Development Corp. According to the audit, the agency had pledged to help companies prepare business plans but assisted only seven of 161 businesses that sought such help.

The audit demands that the agency repay $133,000 for ineligible and duplicate loans, document the $1.6 million in administrative expenses and begin to institute safeguards over the disbursal of the Community Development Block Grant funds.

The audit recommends that funding to the EDC be discontinued.

The findings drew a sharp retort from Joyce Harley, the Essex County administrator.

"We don't agree with the analysis," she said. "We certainly can account for every penny."

The audit's recommendations have been sent to the Newark field of the U.S. Department of Housing and Urban Development, which has asked the county for a written response by tomorrow on corrective actions.

"We are awaiting their response," said the spokesman, Alan Gelfand.

The audit maintains that Essex County's EDC had "little activity" in a $660,000 revolving loan fund intended to stimulate economic growth and "lacked evidence" to justify the administrative expenses.

Of the 161 businesses that sought help from the agency, only seven received assistance, the audit said. Of those agencies, only three received the EDC-administered loans, the report says in a conclusion that Harley contested.

"The notion that we only made three loans is not correct," she said. "There were three loans using CDBG. The EDC made many more loans through programs that the CDBG administers."

The same arguments are made in the EDC's initial seven-page response to the inspector general.

In those pages, the EDC says that it closed 19 loans totaling $771,000 since the inception of CDRLF, or Community Development Revolving Loan Fund, in the 1980s, and created 59 full-time equivalent jobs for low- and moderate-income people in the process.

The EDC, headed by Deborah Collins, goes on to say that during the audit period, the EDC closed two of those revolving loan funds, one facade improvement loan and 20 other non-CDBG loans. It agreed that new loan activity is a "priority."

The inspector general, however, remained adamant in his response to the EDC comments, pointing to the few loans in the audit period of 1999 through 2006.

"We did give credit for the non-CDBG loans in evaluating the corporation's achievements (i.e., job creation objectives) ... however, the corporation official's responsibility to originate a reasonable amount of CDBG loans cannot be replaced with non-CDBG loans."

Last week, Harley countered the auditor's reply.

"It was a surprise to get the same response back again," she said. "Hopefully, they'll see the light."

She described the agency's back-and-forth with the auditor.

"They seemed to not fully appreciate how important it is when a business owner comes into the EDC looking to borrow money. Our staff spends a lot of time with them."

Not everyone should get a loan, she said, so they might be advised to seek technical assistance elsewhere. Providing that information, she said, is a valuable service.

A spokesman for the inspector general's office, Mike Zerega, would not characterize the severity of the Essex EDC's problems compared with other audits. "Every situation has its own different features," he said.

The inspector general's office, he said, has been in business since 1964. "We've been routing out waste and abuse all of that time," he said.

Philip Read may be reached at pread@starledger.com or (973) 392-1851.