Copyright 2002 The Washington Post

The Washington Post

February 25, 2002, Monday, Final Edition

SECTION: A SECTION; Pg. A01

LENGTH: 4390 words

HEADLINE: Risky Ventures, Little Accountability; After Years of Public Funding, Nonprofits Have Completed Few Projects

BYLINE: Marcia Slacum Greene, Yolanda Woodlee and Carol D. Leonnig, Washington Post Staff Writers

BODY:


Second of two articles The $ 40 million commercial "gateway" of shops and offices in Anacostia is still just a dusty corner in Southeast Washington, vacant but for a sign proclaiming, "Another Investment in our Communities." A similar proposal for H Street NE exists only on paper -- the reality is an unused lot with a chain-link fence. The same is true in Columbia Heights and along the Georgia Avenue business corridor, areas in Northwest where gateways have never been built and revitalization remains an elusive concept.

A walk in the nation's capital shows how little has been bought with the millions of public dollars turned over to community development corporations, the nonprofits charged with using taxpayer funds to bring stability and security to struggling neighborhoods. Today -- after a decade of steady funding totaling $ 100 million -- the community development corporations have completed just 70 of 200 publicly funded projects. The failure extends even to those that have been completed because many have been marred by overspending, delays and lawsuits.

A host of factors has contributed to the failure, including business decisions that have taken the community development corporations far from their urban renewal mission. In some cases, directors have invested in risky ventures, steered contracts to friends, arranged for personal bonuses and shifted key activities to for-profit companies, which operate in private and are not subject to public accountability. Although taxpayer dollars moved back and forth between the nonprofits and their subsidiaries, city monitors did not track how most of the money was spent or distinguish between public and private funds. And political ties have protected several organizations that year after year have made no visible progress.

Community development corporation directors point to shopping areas and homes they have helped build as proof of their commitment to their neighborhoods. They acknowledge that some of their work has stalled but say that turning around struggling communities is a formidable task that private developers have avoided. Also, they say, the city has not done enough to support their projects.

Over six months last year, The Washington Post examined the performance of four of the city's community development corporations. In all four cases -- the Development Corp. of Columbia Heights, Anacostia Economic Development Corp., H Street Community Development Corp. and Peoples Involvement Corp. -- officials had only a handful of completed projects to show, despite spending millions of public dollars.

While the practices of each of these organizations differ, there are common threads. Each has been headed by a powerful executive director with strong political connections, who is able to operate with a virtual free hand. In some cases, boards of directors have been kept in the dark about finances; in other cases, their wishes have been ignored. The community development corporations, in turn, have engendered frustration and ill will in their neighborhoods.

"They say these community development groups are representing the community's interests, protecting the neighborhood. They're not," said Ruben McCornack, a founder of a local business and critic of the Development Corp. of Columbia Heights. "They're entrenched political operators who are milking a government system without delivering squat."



East of the Anacostia River, where many neighborhoods are in their fifth decade of decline, the Anacostia Economic Development Corp. and its longtime chief executive, Albert R. "Butch" Hopkins Jr., operate in the heart of the community on Martin Luther King Jr. Avenue. But the group's neighbors -- the community it is charged with serving -- complain that there is little tangible evidence of its 30-year tenure.

"They create the paperwork as if they are doing something," said Lamont Mitchell, a former Development Corp. board member whose Imani Cafe on Martin Luther King Avenue closed in recent months. "A man cannot buy a pair of shoes or a suit east of the river. It is ridiculous."

The Development Corp. has received more than $ 23 million over the past decade in public and private grants and loans. Nearly $ 4.7 million from the government was spent to manage 14 redevelopment projects, only five of which have succeeded. Five remain incomplete, and four have been dropped as city-sponsored projects.

But even as its projects have stalled, the group has shifted much of its development activity to for-profit subsidiaries that receive little or no scrutiny from the government or the nonprofit's board.

By 1998, the group and one of its for-profit subsidiaries, Anacostia Holding Co., had a financial interest in 17 for-profit companies, which were supposed to generate funds to further the nonprofit's public mission. The nonprofit had majority ownership of a computer manufacturing company, for example, and a company that owns Good Hope Marketplace shopping center.

Although some of the companies have made thousands of dollars, there is little evidence that the community has benefited from it. Most of the for-profit companies, Hopkins said, never turned a profit and in many cases borrowed funds from the nonprofit that were not repaid. Last year, the nonprofit had a $ 245,000 deficit. This year, it anticipates a shortfall of $ 260,000.

Meanwhile, the for-profit subsidiaries have operated like businesses with deep pockets, with public and private money flowing from and to the nonprofit.

Through the subsidiaries, Hopkins has enjoyed a controversial perk: luxury cars. The Mercedes-Benz he drives -- as well as previous cars, including two Jaguars -- has been leased by Anacostia Holding as part of his compensation package. The lease payments for Hopkins and two other employees totaled $ 56,225 in a recent three-year period, according to an audit submitted to the city by the nonprofit.

The for-profit subsidiaries have contributed more than $ 8,000 in the past decade to political candidates, donations spread among Mayor Anthony A. Williams (D), D.C. Council member Harold Brazil (D-At Large), Prince George's County Executive Wayne K. Curry (D) and the National Republican Senatorial Committee.

Hopkins, a confident, gregarious businessman fond of stylish clothes and dealmaking, has initiated risky investments, including a $ 25,000 loan from Anacostia Holding to purchase raw gold in Mali. Seeing the investment as a quick way to turn a profit, Hopkins lent a friend the money to travel to the West African country and make the purchase, only to have the gold lost in transit.

The details of the gold venture are known only because Hopkins successfully sued. The finances would otherwise be private because the for-profit subsidiaries are rarely open to scrutiny, even though many have received taxpayer money and often share the same publicly funded office space with the nonprofit.

The Mali gold venture also illustrates how the for-profit arms have taken the Development Corp. far from Anacostia, the struggling neighborhood in Southeast that, fairly or unfairly, has come to epitomize entrenched urban blight.

Elsewhere across the country, private subsidiaries, from restaurants to building supply companies, have earned profits that could be put back into the community development corporations, diminishing the need for public funding. While that is the Anacostia Economic Development Corp.'s goal, a 1999 audit showed that the for-profit companies owed the nonprofit $ 200,000.

Today, Hopkins calls the Mali gold deal "not one of our finest moments." But he said his dealings with the for-profits are proper because private -- and not public -- funds have been used. Hopkins also said the for-profits have helped build housing, including the five-unit Anacostia Mews and the 113-unit Knox Hill Village town houses, both in Southeast.

Current and former board members say they have questioned the need for so many for-profit companies. But their oversight has been hindered because of Hopkins's secrecy about the finances. Hopkins, they said, insisted that financial papers distributed during meetings be returned before members left the room.

"You can't run a nonprofit and not have financial statements every month," said board member Carol Casperson, also executive director for DC Habitat for Humanity. Funders, she said, "are not going to give you money if they are not sure where their money is going to go. I guess Butch can explain it, but I want to see it in writing."

Hopkins said the records are available for board members whenever they ask.

Where documents are available, a review of some investments that began with public funds shows how precarious they can be. In 1995, for example, the Development Corp. received a $ 450,000 grant from the District to purchase 51 percent ownership in ORB Technologies, the computer manufacturer established to employ and train 1,200 workers. But ORB never obtained any contracts, never employed more than about 10 people and never made any money. Hopkins, the chief negotiator in ORB's financing, said the company spent about $ 500,000 before closing last year.

Hopkins cites as a great success an investment by a Development Corp. subsidiary, Eastcoast Development, in the massive Portals Development Project, an office complex in Southwest. Portals created more than 1,600 construction jobs. Few went to residents of Southeast because, Hopkins said, they generally lack the skills. Through the project, he said, "AEDC has helped to foster job creation in the city."

The Development Corp. is one-third owner of Eastcoast, which has earned at least $ 2 million in recent years from Portals alone, according to Eastcoast President James H. Dowdy. While the company has been the most profitable of the Development Corp.'s subsidiaries, just $ 385,000 had come back to the nonprofit over the past 10 years, according to the group.

Most visibly, the Development Corp. has yet to deliver on its signature project, the $ 40 million office-retail complex at Martin Luther King Jr. Avenue and Good Hope Road. Dubbed the Anacostia Northern Gateway, the project has long been viewed as the key to revitalizing more than 100 struggling businesses in the area. Despite an estimated $ 1.3 million spent on land and other predevelopment costs, the site remains an undeveloped lot.

Of the major completed projects, only a town house development and the Good Hope Marketplace were considered trouble-free. The marketplace was constructed by Safeway and purchased by a Development Corp. subsidiary largely with a $ 11.5 million federally guaranteed loan. In 1999, a city evaluation gave the Development Corp. an unsatisfactory rating on seven other projects, even as city funding continued.

"For the money that has been spent, AEDC could have rebuilt Anacostia and a couple of other communities," said Carolyn Johns Gray, president of Southeast's Frederick Douglass Community Improvement Council.

Hopkins, who has led the Development Corp. for 27 years, defends his role as the nonprofit's chief dealmaker. His salary from the nonprofit is $ 90,000, and he holds senior positions in many of the for-profit subsidiaries, from president to secretary-treasurer. Hopkins said his salary is augmented by consulting fees from one subsidiary, but he declined to disclose the amount.

He stressed that the Development Corp. and its subsidiaries have been unfairly criticized for their performance on projects, pointing to an unfavorable market in Southeast, government-caused delays and the city's reluctance to provide stopgap funding to save projects.

"The burden of guilt rests with the city and not with the CDC. We're working in the hardest area to develop," Hopkins said. "I get more praise than criticism. If I wasn't doing my job, I'd be long gone."



The negotiations over his contract lasted six months, and when they ended, William J. Barrow III was again handsomely rewarded by the board of the H Street Community Development Corp.

Aside from his annual $ 116,000 salary -- paid for primarily with federal funds -- Barrow's contract allows him to take a cut from development deals he negotiates on behalf of the nonprofit he has led since 1984.

Officials at the federal Department of Housing and Urban Development, which oversees community development corporations nationwide, say they are unaware of Barrow's contract, which in effect allows him to use government resources to execute commercial deals that then cut him a share.

Regulations stipulate that no recipient of federal grants, including employees or officers of a nonprofit, should have a financial interest, or benefit directly from, projects that receive federal funding.

Since 1992, the H Street Corp. has received nearly $ 10 million in federal and city loans and grants for projects, according to city and federal tax records. Like most community development corporations, it also uses private funds. In the case of H Street, the principal players are both pursuing private business deals and managing the nonprofit.

The District's inspector general, Charles C. Maddox, warned last year that community development corporation directors should avoid such dual roles because they lack the appearance of "arm's-length transactions" necessary to avoid conflicts of interest.

In the past several years, the nonprofit H Street Corp. has invested nearly $ 830,000 in its for-profit subsidiary, H Street Investment Corp. Barrow, a 52-year-old with a salt-and-pepper beard and a self-assured demeanor, heads both the nonprofit and the subsidiary.

The subsidiaries are not required to make their finances public, and the board of Barrow's community development corporation declined to release such information. But details of one deal obtained through interviews and financial records show how complex these public-private partnerships can be.

Barrow's community development corporation owns 84 percent of the partnership controlling a parcel of land at 12th and H streets NE, now leased to an AutoZone store. Over an 18-month period ending in June 2000, accounting records show that the community development corporation's subsidiary, H Street Investment, gained more than $ 200,000 from the partnership while the nonprofit received less than $ 700. The records do not detail how the money was spent, although board members say that the for-profit leverages funds for some of its real estate projects.

Board members also say that Barrow, who arranged the original purchase but did not invest personal funds, regularly receives a payment of an unknown amount as an "incentive compensation" or "bonus" for negotiating the deal.

Sally Donner, board chairman of the H Street nonprofit, said the board feels that Barrow's dual roles as business developer and director of the nonprofit justify a cut from the private deals he orchestrates.

"It's our way of providing a bonus to Bill for his professional services to us," said Donner, who is also secretary of the subsidiary involved in the deal. She said Barrow does not consider his remuneration when striking an agreement. "Bill never brings us a deal with a percentage for him. . . . It all comes after the fact. It's not part of his consideration."

Barrow said the arrangement was not a conflict because the project did not receive federal funding. However, city documents show that while the construction funds came from private sources, the H Street nonprofit received federal funding for administrative costs related to the project.

According to former HUD lawyers and investigators, such an arrangement sets up a conflict of interest.

"Generically speaking, that's outrageous. You cannot, should not benefit from federal funds. This does not look clean, and it substantively would appear to be a conflict," said Elmer C. Binford, a former HUD investigator who led a probe of the District's community development funding, which did not include a review of Barrow's arrangement.

"I haven't done anything wrong," said Barrow, who has a business degree from the University of Pennsylvania's Wharton School as well as a law degree.

Donner said the incentive compensation goes to Barrow's personal company, Christopher Corp. Those payments, she said, were "for purposes of his personal estate planning." The company is not incorporated in the District, and neither Donner nor Barrow would say where it is incorporated.

The H Street NE corridor, once a premier strip of successful black-owned businesses, has never fully recovered from the 1968 riots and is now a collection of empty and boarded-up shells mixed with government offices and a handful of thriving shops. While Barrow's group is credited with renovating a 284-unit apartment building on North Capitol Street and constructing 43 affordable single-family homes, it is also criticized for not doing enough to revitalize the neighborhood.

"We've gotten $ 10 million over the past 10 years, and what do we have to show for it?" said Anwar Saleem, a board member for the organization and head of the local merchants' association.

An internal report dated August 2001 shows that the H Street nonprofit, through its nonprofit finance corporation, has awarded $ 600,000 in loans to businesses in the District. But only $ 245,000 of that has gone to H Street, where it was spread among 17 companies. The loan policies have been repeatedly criticized by city housing officials and community residents who say that not enough money is set aside for the neighbor- hood.

"What people in the neighborhood are curious about is, if the CDC is lending money, who are they lending it to?" said H Street businessman David Bernhardt, who sought assistance from the nonprofit but has either been rejected or offered less than he requested.

The H Street nonprofit is also allowed to make loans in Prince George's and Montgomery counties. But among those who have secured loans is the nonprofit's general counsel, Vernon S. Lynch III, who opened a law firm in Howard County in 1998 after receiving a $ 25,000 loan and later relocated the firm to Baltimore. Lynch, who received another loan in 2000, declined to elaborate on how the money was used, saying he would not "discuss the law firm's business."

Ernest T. Lindberg, ethics counsel of the D.C. Bar, said Lynch might be in violation of conflict-of-interest rules because he borrowed from the organization he represents. "There's a pretty good indication that if he's a lawyer for the firm and he's taking money from the organization, then there's a conflict of interest," Lindberg said.

The H Street nonprofit highlighted in its newsletter another of its loans, one to Jerry's Seafood in Lanham. Owner Jerry Gainey said his restaurant draws some of Prince George's County's high-profile politicians, including the county executive, and the governor. But when he tried to borrow money to expand his business, the county turned him down twice.

Then Dana Stebbins, a regular customer who has acted as a consultant to the H Street nonprofit, brought Barrow and Yulonda Queen, the nonprofit's executive director and loan officer, to eat at the restaurant and meet Gainey.

"I said that I could use $ 25,000 for soft-shell crabs," Gainey recalled. Within three days, Gainey said, he had a loan. Two additional loans followed, for a total of $ 45,000.

"When you're struggling, you can't go to the bank," Gainey said. "Yulonda came out here and signed some paper, without any red tape."



Peoples Involvement Corp. had a friend where it mattered. City bureaucrats reviewing community development funding requests would sometimes encounter a short message on an application.

"Jarvis' thing," read one note, written by a staff member. "Jarvis project," read another.

The reference was to Charlene Drew Jarvis, a longtime D.C. Council member and chairman of the council's influential Economic Development Committee. The notes help explain how Peoples Involvement Corp. -- a perennial underperformer with the worst record of any of the city's community development corporations -- managed to receive the most money. Of the 19 projects that the nonprofit proposed in the past decade, 14 remain unfinished.

"It was a political game -- the CDC shuffle," said Vicki Chambers, an advisory neighborhood commissioner in Bloomingdale. "Everybody knew all along that PIC was extremely mismanaged and failing, but they kept them going."

Vendors have sued the nonprofit 13 times since 1980. It had $ 110,000 in tax liens because of unpaid bills and taxes. In 1999, auditors found that Peoples Involvement had failed to deposit employees' contributions to their pension plans. Among the community development groups, Peoples Involvement was the deepest in debt to the city, 1998 audits show, and tried to put off $ 790,000 in payments that year.

Yet more than $ 20 million in taxpayer dollars has been given to Peoples Involvement over the past two decades. The city also turned over to Peoples Involvement key parcels of land and buildings in hopes that the group would improve the neighborhood.

Today, children still walk Georgia Avenue's gantlet of drunks and shuttered storefronts on their way to school. Families in LeDroit Park, Shaw and Petworth cannot buy curtains or a Mother's Day gift close to home. But those hunting for a 40-ounce bottle of malt liquor have numerous options.

Frustration with Peoples Involvement runs deep. Last summer, when Mayor Williams toured flood damage in the LeDroit Park and Bloomingdale neighborhoods, every third or fourth house displayed a placard in a window: "Sick of PIC."

That neighborhood is home to the old Gage School, a historic redbrick structure that Peoples Involvement has been promising to renovate for seven years. But the group has not moved on the project, even after receiving nearly $ 1 million in city loans and grants and approval for $ 3.6 million in tax credits.

"What can we do as a community to hold PIC accountable?" said a letter from Gage School neighbors to D.C. Council member Vincent B. Orange (D-Ward 5). "We are tired of their misinformation and empty promises. PIC seems to answer to no one."

City officials have noted on required federal forms that Peoples Involvement had not explained its project delays. But until last year, the city never penalized the nonprofit for its lack of progress.

Andree Gandy, Peoples Involvement's executive director, blamed the problems on insufficient funding from the city. Jarvis said she repeatedly pressed the city's housing agency to deliver money, property and other support to the community development groups, particularly Peoples Involvement, which was in her ward. She felt she had to protect it against a poorly run city administration, she said.

For their part, Peoples Involvement leaders lent steady political support to Jarvis, campaigning for her, promoting her causes and holding news conferences to laud her work.

After more than a decade, Jarvis lost confidence in the nonprofit in 1999, she said. She now acknowledges that she should have demanded more. "I worked with what I had," Jarvis said of Peoples Involvement. "I am guilty of trying to keep some sort of economic development apparatus going."

That connection to Peoples Involvement, however, was instrumental in her defeat after her opponent Adrian M. Fenty repeatedly called attention to the decaying state of Georgia Avenue and its string of abandoned city properties. Jarvis was defeated in the September 2000 primaries by Fenty (D-Ward 4), who later requested that the D.C. inspector general investigate Peoples Involvement's finances, a probe that is ongoing.

In addition to supporting Jarvis, the nonprofit twice hired Curtex Construction, which was run by Curtis Cole, former mayor Marion Barry's friend and husband of former city administrator Carol Thompson-Cole. Curtex ran $ 1 million over budget on one project and had to be replaced on the other.

And one of Peoples Involvement's leaders benefited several times from its activities.

The nonprofit's full-time, 40-hour-a-week consultant R. David Hall, a former D.C. school board chairman, was paid $ 75,000 a year by Peoples Involvement at the same time that he was running his own real estate business and a construction firm, business records show.

Peoples Involvement also paid Hall's construction firm, Great Northern Management, at least $ 300,000 in 1996 and 1997 to finish renovating the seven-unit Capstone condominium in LeDroit Park. The building is still incomplete.

Peoples Involvement also paid commissions to Hall as a real estate agent to sell properties for the organization.

Hall declined to comment. Gandy, through her attorney, Dana Stebbins, said she had been having trouble completing the Capstone and trusted Hall to finish the job on a limited budget when she could not find another contractor. She said that she trusted Hall's work and saw no problems with his multiple roles, and that the Capstone is nearly finished.

In February, Milton Bailey, then-director of the city's Department of Housing and Community, suspended money to Peoples Involvement for the first time, saying that it had not reported how it spent federal money. Bailey and his senior staff pronounced the overall performance of the city's community development corporations mediocre and cited Peoples Involvement as the worst of the lot.

In the neighborhood, longtime resident Emery Adams routinely walks out of his way to avoid seeing the historic Dunbar theater, a stalled project that has been in Peoples Involvement hands since 1975. After an investment of $ 1.4 million in public funds over the past decade, work just started this month to clear debris from inside the Dunbar, a onetime hot spot in what was known as Washington's black Broadway. Cinder blocks fill the window sills, walls are stained with urine, and weeds and saplings grow in the doorway.

"You work hard all day, and you have to go past that to get home," Adams said of the Dunbar and nearby eyesores. " . . . It just does something to the soul."

Staff researcher Bobbye Pratt contributed to this report.

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