Loan agency run at deficit of $3 million Another loss %J expected for past fiscal year

December 24, 1996|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

A city-financed loan agency, now under federal scrutiny for a purported kickback scheme involving an ex-employee, operated with a deficit of nearly $3 million over four years and is expected to post another six-figure loss in the fiscal year that just ended.

A review of the latest available tax returns for the nonprofit Baltimore Community Development Financing Corp. shows annual losses ranging from $236,560 to $1.5 million in the four-year period ending June 30, 1995. The agency has not filed a return for the fiscal year ending June 30, 1996, but is projecting a deficit of about $400,000.

The existence of the losses stands in contrast to assurances made at the time the agency was created in 1989, when officials of the Schmoke administration said it would be self-sufficient.

Mayor Kurt L. Schmoke reiterated that assurance Friday, but said that avoiding losses is simply not achievable in the short run.

"The long-range hope was that it would be self-sustaining, but I've been told that can't be done in the start-up period," Schmoke said.

Since its founding nearly seven years ago, its backers say the financing unit has helped pay for the construction or renovation of 1,800 housing units in some of the city's poorest neighborhoods. Just last week, Schmoke cut the ribbon for one such project in the 1000 block of W. Baltimore St.

Officials at the agency also downplay the losses.

Wayne R. Frazier Sr., vice president of the agency, said as much as 90 percent of the deficits could be attributed to what he called "bookkeeping requirements" and not actual losses. Among those bookkeeping requirements is the obligation to create a reserve for bad loans.

He also said an agency like his that was set up to make high-risk loans expects to have losses. That point, however, is disputed by former City Council President Mary Pat Clarke, who was involved in reviewing the original agreement creating the agency.

"We do expect to lose money," Frazier said. "Doing the kind of work we do, you can't expect to break even."

Frazier said agency borrowers pay interest that is approximately two percentage points below the rates being charged by commercial lenders. But just who gets the discount loans, which are made with a combination of federal, state and city funds, is secret.

Frazier refused to release a list of borrowers. He also declined to identify who had defaulted on loans, stating that the identity of its clients is "strictly confidential."

When Schmoke announced the creation of the agency in 1989, he declared it "a program for all the people of Baltimore, and all the neighborhoods of Baltimore."

However, a review of agency documents filed in Baltimore shows a high percentage of borrowers are Schmoke partisans. Those include the project opened late last week by the mayor. Records show the Frederick Avenue Development Corp., which received $876,700 in loans, donated $1,100 to Schmoke's campaign committee in 1995.

Frazier, who took over as executive vice president of the agency in late 1995, said that he was unaware of the campaign contributions and that they played no role in the loans, which were granted on the basis of need and merit.

Asked if campaign donations played any role in the granting of agency loans, Schmoke said he refers all those interested in appropriate projects to the agency regardless of whether they have backed his campaign.

"I refer everyone to them. It has nothing to do with contributions," Schmoke said.

Despite the agency's reluctance to disclose who gets loans, a Sun sampling of more than a dozen mortgage records shows much about who is given funds.

Between Sept. 1, 1995, and Dec. 31, 1995, the agency issued 15 loans with a total value of $4.4 million. Of that total, a little over $4 million, or 90.8 percent, went to firms or individuals who contributed to Schmoke's campaign from 1989 through 1996.

Among those receiving loans are partnerships affiliated with Struever Bros., Eccles and Rouse, the J. R. Owens Corp. and the French Co. Struever has long had close ties to the Schmoke administration. Schmoke's top aide, Daniel P. Henson III, also chairs the agency's board and was formerly an executive with the Struever Bros. firm.

Records show Harris Hill Corp., which is affiliated with Struever Bros., got a $1.5 million loan from the financing corporation in late 1995. Campaign finance reports show Carl W. Struever has donated $4,500 to the Schmoke campaign since 1989. Another partner in the firm, Winstead Rouse, has donated $2,000.

The J. R. Owens Corp., which got a $277,621 loan, donated $500 to Schmoke's most recent re-election campaign.

Jay French and the company that bears his name also have been contributors to Schmoke's campaign committee. Contributions to the mayor's committee totaled $1,500 in 1995.

French is a strong supporter of the agency and says that without it he would not be able to undertake inner-city projects.

Yenot Development Corp., which got a $434,200 agency loan, donated $1,200 to the Schmoke campaign committee.

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