Baltimore city officials have cut off a total of $275,000 in federal block grant money that had been earmarked for the Park Heights Development Corp. and the Park Heights Street Academy.
The city informed the development corporation that it was losing its $175,000 grant in a Sept. 19 letter from Housing Commissioner Robert Hearn to Morris A. Iles, the corporation's president and chief executive officer. The school will lose $100,000.
Hearn's letter cited a 1989 city audit of the corporation as the reason that the funds were cut off. It also said the federal government has tightened its rules for awarding grants to private organizations.
The audit, based on federal money spent by the group from 1985 to 1987, criticized the development corporation for giving $22,964 in improper bonuses and fringe benefits to employees, and for spending more than $1,000 for funeral flowers and Christmas party supplies.
City auditors also determined that it was a conflict of interest under federal rules for the corporation to pay Iles $5,950 for a consulting contract, and to pay $9,833 in legal fees to the board's secretary, lawyer Alice Pinderhughes.
Iles said the city's actions will force his organization to reduce its budget by one-third and to lay off staff members, although he didn't know how many. The loss also will stall plans to renovate 11 houses for low-income owners, he said.
Iles was critical of pulling the grants, saying its action, "in effect, decimates all organizations that since 1974 have worked in the Park Heights Urban Renewal area."
The street academy, at 3901 Park Heights Ave., has had a history of financial problems that included a drop in private donations.
The Internal Revenue Service said the academy has an outstanding lien of $152,368 for failing to send the government payroll withholding taxes.
The school, modeled on the Harlem Street Academy, was founded in 1978 as a private, college preparatory school for students who had dropped out of public high schools.
A third Park Heights group, the Park Heights Community Corp., was closed in January. Six months later, city auditors reported the corporation had misused more than $60,000 in federal money by paying cash advances to employees, claiming office expenses that were never incurred and financing auto repairs.
The city state's attorney also is conducting a criminal investigation of the community corporation.
Block grant money comes from the U.S. Department of Housing and Urban Development. HUD requires the money to be used to revitalize poor communities and provide jobs to disadvantaged people.
Bill Toohey, spokesman for the city Department of Housing and Community Development, declined to say why the funds were withheld from the development corporation and the school.
The city's grant cancellations come while HUD and the city are battling over how Baltimore's housing department spends $24 million a year in community development grants. Auditors from the HUD Inspector General's office are poring over the city's records to see if any of the money has been misused.
A year ago, HUD released a report which said the city housing department was incapable of running the program.
HUD concluded that Baltimore gives away millions of dollars to neighborhood groups without knowing exactly how they spend it.