Federal officials may take months or even years to reach a final decision on whether Luzerne County will be forced to repay $10 million in loans for projects that have not created jobs, county Community Development Director Andrew Reilly told County Council.
Reilly attended Monday’s council meeting to discuss a recent U.S. Department of Housing and Urban Development (HUD) letter instructing the county to put $10 million back into its community development business loan fund.
HUD said the measure is warranted because seven projects that received loans have not created jobs in a timely manner, including the Hotel Sterling project in downtown Wilkes-Barre.
County officials argue the county should pay nothing because the projects eventually will create jobs, and HUD regulations contain no specific time limit on the job creation. Patience is needed because the recession slowed development, they maintain.
A conference call was held Tuesday with the county administration and HUD officials in Philadelphia and Washington, D.C.
During the more than hour-long call, HUD representatives said they will take no action on the May 15 repayment deadline as long as the county “continues the dialogue with them and agrees to continue to work on this issue,” Reilly told council in an email update Tuesday afternoon.
The county “made HUD aware of some issues” during the conference call, and the federal agency requested additional documentation from the county that will be furnished as soon as possible, Reilly told council.
“This phone conference is the first step in a long process of review of this issue. This determination of HUD is a matter of high priority to Luzerne County, and the county will actively seek to work with HUD to protect its interests,” Reilly wrote.
Disagreements about fund repayments usually are resolved in local governments’ favor, but the resolution process is cumbersome, Reilly told council Monday. Other communities throughout the state are challenging similar recent repayment orders by HUD, which flagged more than 22,000 projects nationwide, he said.
County Chief Solicitor C. David Pedri has said HUD won’t have final say because the county has the option to appear before an administrative law judge if it disagrees with the agency’s decision.
If the county loses, it could apply $5.3 million already in the $13 million loan fund toward the $10 million repayment, Reilly has said.
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.
Councilman Jim Bobeck asked Reilly if the loans from his office have resulted in new jobs.
Reilly said the 669 loans have created 16,613 jobs — 5,343 that were retained — since 1982. The loans were instrumental in developing most industrial parks in the county, he said.
Reilly’s update sparked a discussion on the status of the Sterling project Monday. He said jobs will be created at the Sterling site after Wilkes-Barre assumes ownership from the nonprofit CityVest and markets and sells the land at the corner of River and Market streets to a developer.
CityVest still owns the property, though the city has initiated legal action to gain possession of the site through a process similar to a mortgage foreclosure sheriff’s sale. The county will receive any proceeds from the land sale toward its $6 million loan to CityVest after the city recoups the $471,000 it spent on traffic barriers and demolishing the landmark former hotel in July.
Councilman Stephen A. Urban questioned why the county isn’t first in line to receive payment. The question keeps coming up, and county Manager Robert Lawton reminded council members they relinquished first lien position when Wilkes-Barre funded the demolition on its own.
Attorneys say demolition due to condemnation takes precedence over other liens. Lawton had publicly stressed the county would move to the second slot if the city handled demolition.
The county had tried to enter into a demolition agreement with the city and CityVest so ownership issues could be resolved in advance, but the county wouldn’t accept CityVest’s demand for a special liability release protecting the nonprofit from any future claims or actions, officials said.
The county could reclaim first lien position and take control of the 4-acre property if the county pays the city what its owed, county Chief Solicitor David Pedri told council Monday.
Council members did not discuss that option.
The county will receive any sales proceeds after the $471,000, regardless of whether the city or county handles marketing to sell the site, Lawton said Tuesday. The question is whether County Council members want to “be in the real estate or development business” or leave that job up to the city, he said.
The administration will leave it up to council members to decide if they want to pay the city lien now so the county can acquire the site, he said.
CityVest spent most of its $6 million county loan on consultants, enlarging the parcel and tearing down another structure.