EDC tax-exempt status in question

Anne Arundel agency might run afoul of IRS

November 20, 1999|By Laura Sullivan | Laura Sullivan,SUN STAFF

Anne Arundel's Economic Development Corp. may have run afoul of federal tax regulations, putting at risk hundreds of thousands of dollars in state and federal grants meant to boost the county's economic growth.

In light of revelations that the agency lent money to companies with financial ties to some board members, the Internal Revenue Service could revoke the agency's tax-exempt status, which qualifies it for such grants.

Domenic J. LaPonzina, chief IRS spokesman, said he could not confirm whether the IRS is investigating the agency but added that the law prohibiting nonprofits' board members from profiting from board decisions is taken seriously.

"At the end of the day, no singular individual should have personally benefited or profited from a decision that individual made on behalf of the organization," he said, speaking generally.

"The actions taken are supposed to be above reproach and are supposed to be in the best interest of the organization, not the best interest of an individual."

Under the law, the IRS could also impose fines, remove board members or shut the agency down if it is found to be in violation.

The Sun reported this week that in six cases, the agency approved loans from its multimillion-dollar fund for companies with financial connections to board members or agency attorneys.

Earlier reports concluded that four board members appropriated thousands of EDC dollars for such things as accounting and legal work, computer and stationery supplies.

The agency's tax-exempt status could be further threatened by other loans it made that appear to violate its mission statement, as written on its IRS application.

The agency opened in 1993 as the lender of last resort, with the stated purpose of boosting minority-owned businesses and start-ups in depressed parts of the county, funding companies that could not qualify for bank loans.

On its tax application, the agency wrote, "The incentive loan program is limited to those businesses without sources to commercial lending. Those businesses are typically minority owned businesses or businesses locating in urban renewal zones."

Loans don't fit criteria

In the six years since, records show, the agency has issued more than $1.5 million in loans fitting none of these criteria, including several to companies that had received hundreds of thousands of dollars in commercial financing.

One such loan provided $250,000 to a Pasadena yacht club to build boat racks in an exclusive waterfront community.

Another gave Chancellor Holdings of Severna Park, among the county's largest real estate firms, $300,000 to help secure a $2 million bank loan.

Chancellor Vice President John Coile said recently that the company didn't need the loan but preferred not to use its own cash when building an office complex in Annapolis.

"Is it bad to loan to us rather than some small-time guy?" Coile asked. "I don't think so. Why does it matter as long as we repay it?"

In an interview last month, David J. Steinhoff, the EDC's loan administrator, said the most important consideration in determining who gets a loan is whether the company can pay the money back, not whether the borrower meets the criteria.

Status initially denied

To become a nonprofit agency, the corporation had to meet a challenging set of standards in 1993, so challenging that it initially was denied the status.

Board Chairman Konrad M. Wayson, who was appointed in June as part of County Executive Janet S. Owens' effort to rein in the agency, said it will do whatever is necessary to hang on to its status.

"We're going through everything now, trying to rectify and clean up the situation," Wayson said.

"That status allows us to apply for all kinds of grants, some for educational funding, [that] the county wouldn't normally get, and it is very important for us to keep it."

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