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Selling the future

Big spending during Campbell administration will mean less money for Franklin

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For the record, Bill Campbell was nowhere to be found during Shirley Franklin's inaugural festivities last weekend. He was in North Carolina, visiting his brother.

But make no mistake, Campbell's presence in the Franklin administration won't be fading anytime soon. And we're not talking about the endless stories of corruption in the Campbell administration. Bad karma is the least of Franklin's worries.

In the eight years Campbell was mayor, the city borrowed $23.8 million from the federal Department of Housing and Urban Development program called Section 108. Section 108 is supposed to be used for projects that generate money -- like an office building with high-priced tenants, for example. That money then would be used to pay back the loan.

Campbell, bless his heart, used most of that $23.8 million to seed economic development projects in some of the city's poorest, most neglected neighborhoods. Places like Vine City and Mechanicsville.

It was a good idea. Problem is, most of the projects haven't generated money to repay the loans. If the city can't pay off its Section 108 loans with revenue, the feds take the money out of another federal program that benefits the city -- in this case, the $12 million in annual Community Development Block Grants, which, as its name suggests, is free money and not a loan.

Bottom line? Taking out Section 108 loans "basically mortgages the city's CDBG future," says Larry Keating, a Georgia Tech professor and head of the city's gentrification task force. Unless you identify a project that's a moneymaker, he says, "it's a bad idea to use it."

In this case, the Campbell administration controlled and limited the resources of future Atlanta administrations -- including Franklin's.

Besides the $23.8 million in Section 108 loans, there was a $6.5 million loan made to the Atlanta Development Authority to pay for the land that one day will be the Historic Westside Village. That project, too, has yet to turn any profit, though the development authority says it will not use CDBG money to repay the 108 loan.

All told, of the $23.8 million, the city has paid back less than half of the money -- $11.26 million -- and all but $100,000 has come from its CDBG allocation.

The big question is: How big of a hit has been delivered to the city's future CDBG funds -- money that is supposed to be used to help Atlanta's poorest communities? In response to an Open Records request, the city decided it didn't have to say how much it had borrowed.

What seems clear, though, is that the damage the Section 108 loans do to the city will come in the form of needs that will be neglected, and those needs are felt most acutely in the city's poorest areas. For Franklin, the possibility of diminished block grants means her administration may have to come up with creative ways to fund projects that normally would have been handled with CDBG money, and that includes a number of low-income housing initiatives.

Asked about how many loans have been made to the Campbell administration through 108, City Councilwoman Felicia Moore says simply: "too many."

"It's already a significant impact on the CDBG allocation," Moore says. And that "allocation is not growing. It's dwindling" because the CDBG money given by the federal government has stayed relatively constant while the 108 commitment has eaten away at it.

Normally, the City Council also adds money to the CDBG pot with cash from the city's general fund. "With increasing deficits, we may have to revisit that, which would mean even less money" for CDBG projects, she says.

Moore says she doesn't think 108 is a bad program but the council and the city don't have a good policy for when they should enter into a 108 loan. Some of the initiatives, like a $4.4 million plan from 1998 to buy 174 pieces of property to build 100 new single-family houses and a 96-unit apartment complex near Turner Field in Mechanicsville, haven't even gotten off the ground. In that case, "we're wasting money," she concludes.

The 108 program is designed to prop up big-ticket economic development projects in down-at-the-heels areas that block grants aren't large enough to support. Governments can borrow up to five times its annual CDBG commitment for each project using the 108 program.

Section 108 is "one of the most potent and important public investment tools that HUD offers to local governments," according to the agency's website.

Generally, Section 108 money is the highest-risk money in a deal. It's used for things like building parking decks or other infrastructure improvements needed to get a venture going. A government often uses it when it wants to see a deal get done but is dealing with a developer who isn't willing to take all the risks.

But one of the cornerstones of the CDBG program is community input. Critics claim that Section 108 loans don't require the same level of public scrutiny.

"108 seems to happen behind closed doors," says one government source.

Jim Talley, Atlanta's deputy director of grants management, disagrees. There is a public hearing required before the city submits any 108 loan application to HUD. The difference is that the debate about the way CDBG money is spent occurs citywide, whereas 108 money is neighborhood specific.

But Keating, the Georgia Tech professor, says 75 percent of all CDBG money must go toward Atlanta's low-income housing needs. Section 108 loans represent a convenient way to take money out of the CDBG pot and skirt the housing requirement.

Jill Strickland, a spokeswoman for the Atlanta Development Authority, says the agency will repay its HUD 108 loan with tenant leases. However, the authority also plans to repay its own $4 million construction loan with tenant leases, and the project has yet to generate a dollar -- except for construction companies.

But it's not all Campbell's fault, say two sources familiar with administering the loan program. They blame the reliance on 108 on HUD itself. The agency pushed the program as a ready-made cash source -- especially to big-city mayors, the government sources say.

That's because much of HUD's political support comes from those very same mayors, who every year lobby for HUD's budget allocation in front of Congress. Section 108 is just a way for HUD to return some favors. The problem is the agency didn't make clear just how costly the political back scratching could turn out to be.

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