Two More HUD/City Loan Conflict Cases
A few days ago, I wrote a <a href="http://www.cityethics.org/content/irresponsible-handling-possible-confl…
post</a> about how several government officials in Wausau mishandled a
conflict situation involving the purchase of property fixed up with an
interest-free loan from HUD. Yesterday's <i>The State</i> of South Carolina
covers <a href="http://www.thestate.com/local/story/992134.html">two
other HUD loan conflict situations</a> in Columbia, which are being
handled only a bit better.<br>
<br>
In the first case, a HUD loan, administered by the city of Columbia
(via an empowerment zone), was used by the mother of a Columbia council
member to purchase an office building. Part or all of the building was
rented to the council member's law firm. It was HUD that discovered the
problem when it looked into how the loan was used.<br>
<br>
Here's the empowerment zone's conflict of interest policy:<br>
<ul>Any interested parties, including
employees, committee members, and
borrowers, may not receive any direct or indirect financial or personal
benefits in connection with the approval and awarding of a loan.<br>
</ul>
Note that that very important "direct or indirect financial or personal
benefit" language is there. That's the way it should be written.
Otherwise, there are many ways to get around a conflict rule.<br>
<br>
The mother says she got an informal opinion from a staff member of the
state ethics commission that there was no conflict. It's good that the
mother sought advice, but the daughter should have told her that the EC
staff member would probably not know about the empowerment zone policy.
Did the mother or council member give the EC staff member this
information? In any event, disclosure to the empowerment zone itself
would have been preferable. The loan committee would have looked at the
conflict of interest policy and, hopefully, refused to make the loan.<br>
<br>
The mother says she will repay the loan even though she does not
believe it was improper. This is good. But what she says in her defense
is not: "This has nothing to do with who we know or who we're related
to. We're citizens of Columbia. ... and it didn't have anything to do
with our
daughter." Even if this were true, there's no one who would believe it.
A council member's immediate family are not just citizens, and with a
lawyer/councillor for a daughter, it's hard to believe the mother would
have proceeded without consulting her.<br>
<br>
The response of the city administration was on target: all
empowerment zone personnel will be fully trained in the conflict
policy, and loan committee members and staff will have to sign a form
verifying that they understand the requirements and will adhere to
them. The city should have added that all applicants for loans must
fill out a conflict form and promise to ask the staff if there is any
doubt about a possible conflict.<br>
<br>
As with the Wausau case, HUD wants the city to pay back the loan, in
this case for the additional reason that it was not used for its
primary purpose: to create jobs.<br>
<br>
In the second case, discussed at less length in the article, it appears
that another HUD loan was given to a company to purchase a restaurant,
presumably to preserve the jobs there. The restaurant was purchased
from another Columbia council member. Soon after, the company filed for
bankruptcy and the empowerment zone lost the balance of the loan.<br>
<br>
The council member disputes that there was a conflict of interest,
because at the time the restaurant purchase closed, the purchasing
company did not yet have the loan. Timing is everything in many parts
of life, but much less so when it comes to conflicts. Without more
facts, there's no way of telling, but it's hard to believe the council
member knew nothing about the loan when he made the sale.<br>
<br>
Again, sadly, it appears that no jobs were created, or even saved.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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