Loan council gets back its U.S. funding HUD reverses position on minority lender after congressional appeals.

May 03, 1991|By Joan Jacobson | Joan Jacobson,Evening Sun Staff

Despite its $1.4 million worth of bad loans, missing records and other problems, the embattled Council for Equal Business Opportunity appears to have regained federal funding.

CEBO, a private non-profit organization, was created 24 years ago as a lender and adviser to high-risk minority businesses in Baltimore that cannot get bank financing.

The organization relies on public money and until yesterday had faced extinction because the U.S. Department of Housing and Urban Development cut off funding last year.

But the federal government reversed itself in a letter sent yesterday to Rep. Kweise Mfume, D-Md., from an assistant secretary at HUD, giving conditional approval of CEBO's funding for 1991. HUD's action followed appeals from Maryland's congressional delegation.

The amount was not specified but is expected to approximate last year's $617,000 grant.

The HUD letter said that no money will be released until the city shows that it will keep closer tabs on CEBO's activities.

The organization's problems with bad loans and missing records came to light recently in a confidential report prepared by CEBO at the request of city officials. A copy was obtained by The Evening Sun.

Of 479 loans made since 1972 totaling $7 million, 100 loans -- or nearly 21 percent -- have not been fully repaid, the report says.

The unpaid portion of the 100 loans totals $1.4 million.

Moreover, CEBO sometimes lent money to companies that had defaulted on earlier loans from the organization, the report shows.

For example, an electronics company owned by Robert L. Douglass, a former state senator and city councilman, received a $76,094 loan in 1986, three years after defaulting on a $30,000 loan.

In 1987, the company filed for bankruptcy, and CEBO has been unable to collect the total debt of $125,246 in principal and

interest.

Over the years, loans to companies that later collapsed have been a recurring problem for the organization.

In 1983, for instance, $50,000 went to a construction company owned by Baltimore lawyer Robert F. Dashiell -- who in the late 1970s had represented CEBO by suing businesses that had defaulted on loans.

Dashiell's company repaid $5,676 but then filed for bankruptcy, forcing CEBO to sue in an unsuccessful effort to recover the remaining $49,532 in principal and interest, according to court records.

The Evening Sun also has found that:

* CEBO violated federal regulations governing the use of money in its loan fund. The dollars can be used only for business loans. But in the last two years, CEBO has borrowed $347,000 for its day-to-day operations.

Officials of the organization say that $170,000 has been repaid, but city officials say that only $50,000 has been restored.

* CEBO strayed from its mandate to help only businesses in the city. Companies in Virginia and Pennsylvania have defaulted on CEBO loans, as have businesses in Annapolis, Columbia, Glen Burnie, Hyattsville, Owings Mills, Randallstown and Reisterstown.

* The organization paid Samuel T. Daniels, its founder and long-time director, a salary of $89,000 for the year before he retired in 1989. His salary the year before was $66,000, according to CEBO filings with the Internal Revenue Service. Daniels has said his final salary included 450 hours in unused vacation pay.

* CEBO granted loans to two of its board members, including an unusual $100,000 line of credit to a businessman shortly after he joined. Two other board members received business counseling from CEBO's staff, says Daniels. Both Daniels and officials now at the organization say the loans, which were repaid, broke no rules and received prior approval from the rest of the board.

* The United Way has placed CEBO on "conditional status" and has cut its $25,000 annual grant in half for failure to submit a financial audit, according to United Way spokesman Mel Tansill.

In their own defense, CEBO officials point to new leadership -- Michael A. Gaines became executive director more than a year ago -- and to tighter lending standards, including a ban on loans to out-of-town businesses.

Moreover, CEBO proposes to restructure its programs, concentrating on neighborhood revitalization projects to better meet federal guidelines.

Today, the organization's survival is crucial to the black community, says Gaines, the executive director.

"One of the most important things CEBO has done in 24 years is to make available to the minority community resources they could historically not obtain," he says.

Loans stimulate business activity, which in turn creates jobs, says Gaines, and this cycle of opportunity has an uplifting effect on the minority community.

"Without it, you probably would not have some growth in the middle class with respect to the business and economic development in Baltimore," he says.

Since it began, the organization has received at least $11 million in combined federal and city money.

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