In The News › The Lens: Failed economic development

Jan 20, 2010

Source: Fox 8 News

Filed under: Economic Development, Orleans Parish

The Lens: Failed economic development

Wednesday, January 20, 2010
By Jennifer Hale
Fox 8 News

New Orleans – Questions are swirling about a tax payer supported economic development fund in New Orleans.

Administrators say the fund is helping to develop small businesses, but others worry it could be a multi-million dollar slush fund for political patronage or corporate welfare. This is a fund that’s generated a lot of controversy. A few years back – a New Orleans East couple received $350 thousand to develop a personal, portable toilet seat.

So far, still no toilet seat company.

Now, two more questionable projects have surfaced; a defunct restaurant and an empty strip mall.

Fed up with still questionable accounting habits, some council members are vowing they won’t approve another grant until the process is revamped.

“We as a council have received nothing relative to the back end reporting,” Arnie Fielkow said at a recent city council committee meeting.

The New Orleans city council says it won’t approve another penny of grant money from the New Orleans Economic Development Fund until the city makes some big changes.

First, the city council wants a full accounting of how much tax payer money is in the fund.

Plus council members want to see the bi-annual reports grant recipients are supposed to file, showing how tax payer money has been spent.

Fielkow: “I have not seen a report.”

Fox 8: “Not a single one?”

Fielkow: “Not a single one. That’s where the checks and balances are to make sure taxpayer money has been spent wisely.”

The City Council started requiring cost benefit analysis numbers and bi-annual reports from grant recipients in 2007 because members were concerned about where grant money was going.

Council members aren’t sure whether grant recipients haven’t filed the reports – or whether the city just hasn’t turned the reports over to the council.

“I’m sure the reports are on file. They just haven’t forwarded them to the council. And if they’re not on file, they better hurry up and get them. We’re not going to move any further with this until we get the information,” says City Council member Cynthia hedge-Morrell.

The economic development fund’s director Thomas Nash says he wasn’t aware the council didn’t have the progress reports.

“That is something we’re getting to the city council as soon as we can”

DMK Acquisitions is a business in line to receive $250,000 to redevelop Lake Terrace Shopping Center on Robert E. Lee Blvd.

DMK received an initial check from the city for $100,000 in June of 2009.

“Each economic development fund project has a project requirement and prior to any disbursement they grantee must submit a project status report before funds are released,” Nash explains.

In August, DMK submitted a progress status report listing facade improvements as “developing,” increasing new business as “developing” and generating sales tax revenue as “developing.”

That triggered the city to cut DMK a $62,000 check in September 2009.

So far, there have been no visible changes to the shopping center.

Nash says all the money has gone into appropriate “soft costs”…blue prints, site cleaning, permits.

“I’m good with where it’s at right now,” he says.

DMK requested its checks be sent to the home address of DMK’s owner on Lark Street.

DMK’s grant application lists its official address as 64 Newcomb Place. That’s Tulane’s address, specifically Newcomb College. Tulane confirms DMK’s owner has never worked for the University. And the suite number listed on the application, 4238, doesn’t exist. DMK’s owner declined to answer questions on camera.

These city records show another grant recipient, the owner of Big Shirley’s Restaurant, Mike Dummett, was awarded $40,000 for a restaurant that is no longer in business.

City council members are concerned.

“I think that the issue with Big Shirley’s is a crucial issue because monies were expended, renovations were made and then the business shut down,” says hedge Morrell.

Dummett is concerned too. He says in October 2007, the city notified him he would receive the $40,000 grant. Dummett signed a lease and opened up shop – with $60,000 of his own money for cushion until his grant money arrived.

“I was expecting a check within at least 6-7 months,” Dummett says.

Instead, that’s when the City Council and mayor’s office began negotiating through the red tape of requiring the cost benefit analysis, progress reports and disbursing grants in increments as recipients showed proof of successful businesses.

As a result, none of the grant money was dispersed in 2007 or 2008.

“The City Council versus Nagin’s Administration and I’m in the middle of a dysfunctional family, and I just need help and I couldn’t get it in time,” says Dummett.

Dummett went before the city council and economic development fund testifying that although his business was meeting its goal of generating $45,000 a month in gross revenue, it would fail without the infusion of the planned grant money.

“If you tell me the rules, I can play. But you just can’t change them up. If everything would have worked according to the original plan, I would definitely be in business,” says Dummett.
Dummett’s first check for $30,000 didn’t arrive until March 2009 – by then Dummett says it was too late.

“That red tape became a rope. I couldn’t make it. It’s one thing to say 6 months, it’s another thing to wait a year and a half,” says Dummett.

Dummett’s last check came August 5, days after Dummett shut his restaurant down at its old Carrolton location.

“The city was not aware whatsoever that that business was out of operation. Had it been, I would have immediately stopped the check,” says Nash.

After losing his initial location for Big Shirley’s, Dummett tried to relocate his business to the Marigny but closed down again several months later.

Nash believes while a few grantees may have struggled, there are many more success stories, like Equipco, University Strip Mall and Lighthouse for the Blind.

“The program is working. The businesses that have submitted they’re project reports have received their grant monies, depending on the level of their project completion,” says Nash.

Fielkow agrees some grants have produced successful projects, but he says there’s no excuse for the ones that have failed or are in question.

Fielkow: “The program in my opinion – really has problems. We have limited dollars to begin with and to have any of our tax payer dollars not used for the benefit of our citizens is not good.”

FOX 8: “Do you feel like taxpayer money has been wasted?”

Fielkow: “In some cases.”

The Bureau of Governmental Research, a watchdog group says, “The fund has no clear strategy for economic development, there’s a poor criteria for what projects qualify, there’s no grading system to rank the projects based on merit and that funding personal business ventures is not true economic development.”

“We don’t believe that giving out grants to individual businesses is wise. It leaves you very exposed to the risk of patronage,” says BGR’s Janet Howard.

Plus Howard warns it unfairly rewards certain businesses while leaving others at an unfair competitive disadvantage.

“For example, if you fund a restaurant in an area that has existing restaurants – what are you doing? You’re giving one restaurant free money while leaving the others to deal with it in the private market,” she explains.

Nash believes the program is an overall success. But he does say the city is looking to make adjustments, although City Hall is not ready to talk specifics.

“That hasn’t been decided on. The city you know is working toward what ramifications or what options we may have,” says Nash.

Instead of funding private businesses, which Howard says is like “A goodie for you- a goodie for me.”

She and BGR suggest the fund be used to deal with economic development on a larger scale, to create organizations that help multiple small companies: for example: business incubators that provide office space and equipment or support services like consulting and help with drawing up business plans.

Regardless of what changes are made, Dummett says he’s done with government-run economic development:

“I would not even look in that direction. I’d rather start off selling hot dogs and bottled water doing it on my own the next go around,” he pledges.

Dummett says if he finds a new location to re-open Big Shirley’s, he’ll rely on private investor dollars instead.

Many city council members want to see New Orleans’ Economic Development Fund come back.

But they’d like to see the money split between a public private partnership arrangement and a federal program that would match local tax dollars.

Catch is the City Council and City Hall would no longer decide who receives the money – a bank or certified financial institution would make the call.

Jan 20, 2010

Source: Fox 8 News

Filed under: Economic Development, Orleans Parish

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