The U.S. Department of Housing and Urban Development (HUD) is trying to force Luzerne County to put $10 million into the county’s community development business loan fund because seven projects that received loans have not created jobs.
Evidence of timely job creation is required to keep the projects, which were loaned a combined $10 million, in compliance with HUD regulations, the agency told the county in a March 31 letter instructing the county to replenish the loan fund by May 15.
County administrators say they’re confident the county will obtain a reversal of the decision. All seven projects eventually should create jobs, and HUD regulations don’t specify a specific time limit for the job creation, they maintain.
If the county loses, it could apply $5.3 million already in the loan fund toward the $10 million.
The county already was contesting HUD’s directive to return $6 million to the loan fund for one of the seven projects — the Hotel Sterling restoration in downtown Wilkes-Barre that ended up with the structure’s condemnation and demolition.
County Community Development Executive Director Andrew Reilly said Friday jobs will be created at the Sterling site after Wilkes-Barre assumes ownership from the nonprofit CityVest and markets and sells the land to a developer.
The other impacted loans are associated with the Greater Wilkes-Barre Chamber of Business and Industry and its affiliated entities and CAN DO Inc., a nonprofit Hazleton area economic development agency.
HUD cited CAN DO’s $500,000 loan to purchase reclaimed mineland in 2005 and $400,000 borrowed in 2003 toward the construction of a 50,000-square-foot office building.
Reilly said CAN DO conducted a “vigorous marketing campaign” for the mineland and continues to seek developers needed to create jobs and sell the land to repay the county.
Jobs will be created at the office building in Butler Township because the vacant building was sold to the Hazleton Area School District in 2012, he said. CAN DO has repaid the $400,000 loan, Reilly said.
The four remaining Wilkes-Barre Chamber affiliated loans total $3.1 million for projects on vacant industrial park land, the Innovation Center in downtown Wilkes-Barre and the Sterling Annex that still stands adjacent to the cleared Hotel Sterling lot.
The Greater Wilkes-Barre Chamber of Business and Industry acquired the Sterling Annex for $125,000 in 2004, with hopes that someone would buy and use the building for a museum or art gallery.
G2A-B Realty LLC, a corporation owned by Bear Creek Village resident George Asimakopolous, purchased the four-story brick structure for $215,000 in 2012 with plans to renovate the structure to create housing units. The building remains unoccupied.
Reilly told HUD his office is monitoring all the projects and will report any jobs created.
The county administration is criticizing HUD for failing to recognize the recession’s slowing of economic development projects.
In response sent to HUD this week, county Manager Robert Lawton pointed to a recent report from The Brookings Institution that found Wilkes-Barre/Scranton ranked last in economic recovery in a review of the largest 100 metropolitan areas nationwide.
“This study only further bolsters the argument that continued monitoring of these loans for job creation is required, as the area’s economy improves,” Lawton wrote.
Lawton pointed out HUD regulations reference no time limit for job creation, and the agency’s protocol says jobs can’t be reported until they materialize.
The business development fund, which contains about $13 million, has provided 669 loans creating 16,613 jobs — 5,343 that were retained — since its creation in 1982, he said in his letter.
HUD reviewed the loan fund in 2010 and “did not raise the matters in dispute,” Lawton argued. HUD also reviewed and approved the original loan documents and guidelines that had no set time limits for job creation, Lawton said.
“In conclusion, it is Luzerne County’s position that the county is in compliance with each regulation and recapture of these funds is not warranted,” he wrote.
The March 31 notice to replenish the fund came from Yolanda Chavez, HUD’s deputy assistant director for grant programs in Washington, D.C.
The non-compliant Luzerne County loans were among more than 22,000 projects identified by HUD’s Office of Inspector General in 2011 across the country that were initiated between 2000 and 2006 and have “remained open for extended time periods” or were cancelled by grantees after funds were expended, her letter said.
“This is HUD’s final decision regarding the status of these activities,” the letter said.
The letter advises the county to use non-federal funds to reimburse the loan fund, though HUD is willing to consider a repayment plan or voluntary reduction in future HUD allocations.
County Chief Solicitor C. David Pedri said the decision is not final because the county has the option to appear before an administrative law judge. The administration also has a conference call with HUD officials in Philadelphia and Washington on Tuesday to discuss the matter, he said.
Time period issue
“The county is taking this very seriously and acting proactively to make sure the county’s interests are protected,” Pedri said, emphasizing HUD is not alleging funds were misspent or misappropriated.
“Essentially they’re saying it’s taking too long for jobs to be created, but HUD never set a time period,” Pedri said.
If a job creation time limit is required, developers will be less likely to take advantage of such loans, Reilly said.
Reilly also questions the logic of forcing the county to put money into its own fund now, noting much of the money will be repaid by the borrowers down the road. The exception is the $6 million for the Hotel Sterling projects because the nonprofit CityVest is out of money, though the county will receive sales proceeds left after Wilkes-Barre sells the parcel and covers city costs for demolition and traffic barriers, he said.
The nonprofit CityVest spent its $6 million county loan on consultants, enlarging the parcel and tearing down another structure on the four-acre lot.