To a taxpayer's eye, the City of Denver's decision to lend $180,000 to Manuel Fernandez and his partners five years ago might look like a mammoth mistake.

Fernandez's Mammoth Events Center, a historic music hall located on depressed East Colfax Avenue, was renovated with money from the loan but has since struggled financially. Cash-flow problems forced Fernandez to ask for a one-year deferral of principal and interest payments last March. Not long before that, Fernandez and his partners had fallen more than $40,000 behind on payments to the Colorado Housing and Finance Authority, which itself had loaned the Mammoth almost $800,000. Until December, the Internal Revenue Service had a lien on Fernandez's home in Arvada, securing more than $37,000 in unpaid federal taxes. Another IRS lien, this one placed on the Mammoth property for delinquent unemployment insurance payments, remains in effect.

But Bill Lysaught, the city's point man on the Mammoth loan, is a born optimist. As deputy director of the Mayor's Office of Economic Development (MOED), Lysaught sees the troubled Mammoth venture as more of a success than a failure. With the city's help, Lysaught says, Fernandez has occupied the Mammoth property for eight straight years now. Simply having someone in the building, he says, has helped prevent further economic decline along East Colfax, one of the city's most blight-ridden business districts. And Mammoth's rock concerts and cultural festivals have provided jobs for low-income residents. Indeed, Lysaught says, Fernandez has done a lot better at the center than the long string of hapless entrepreneurs who owned it before he did. "People were in and out of there on a six-month basis before," he says. "It was a constant revolving door."

So goes the thinking at MOED, the controversial Denver agency that makes dozens of high-risk loans to businesses and nonprofit groups every year. Credited by some for sparking the economic renaissance of South Broadway, lower downtown and other once-moribund commercial areas, the agency is taking an increasingly high profile. It put $300,000 into the Denver Dry building on the 16th Street mall in 1993 and loaned a full $7 million to finance Elitch's move to the Central Platte Valley after the amusement park's owners had trouble raising the money on their own.

But MOED is routinely castigated for rolling the dice with tax money--and for lending to borrowers whose ability to repay is questionable at best. In 1993, for instance, a federal-government audit charged that a Denver nonprofit group that had received millions from MOED had misused a $350,000 city loan--and faulted what it termed lax oversight by Denver officials. Last February MOED made headlines when it was revealed that the agency loaned $173,000 to Denver businessman Willie Kellum shortly after a bank foreclosed on property he owned in 1988. Kellum later received a lucrative concessions contract at Denver International Airport.

Last spring the historic Rossonian Hotel in Five Points, subject of an ongoing multimillion-dollar MOED revitalization effort, was transferred into the hands of a nonprofit group after the hotel's developer, Tom Yates, was accused of misleading state regulators liquidating his defunct insurance company. In October, Joyce and Ronald Ford sued the city after their MOED-financed deli on Welton Street went belly up; the couple claimed that they were lured into the ill-fated project by the agency's false promises and rose-colored visions of prosperity. Around the same time, MOED let Johnny Copeland, the owner of a Park Hill shopping center, borrow $270,000 even though Copeland owed the Denver treasury almost $60,000 in delinquent real estate taxes.

City councilman Ted Hackworth says MOED is guilty of a long line of "stupid business decisions," including pouring more than $1 million into four separate grocery stores in the last few years. Three of those stores have gone out of business. "When you fail [so much] of the time, you wonder about the viability of the program," adds the councilman.

But within MOED, whose loan portfolio has now swelled to more than $30 million, the agency's failure rate is actually a source of pride. Lysaught claims MOED's "loan losses" average about 8 percent--not much worse than private-sector banks. The occasional high-profile disaster is inevitable, Lysaught and others note, since MOED's stated mission is to venture into poor neighborhoods that private lenders have abandoned.

"That's our mandate, to take on the tough deals," Lysaught says. Max Wiley, a former banking executive whom Mayor Wellington Webb put in charge of MOED last October, agrees, saying Lysaught has nothing to apologize for. "I think he's done some spectacular things in areas that needed assistance," Wiley says. In fact, adds MOED's new boss, "I'm amazed that the losses aren't greater than they are."

Two pictures of the same building hang in George Brantley's office at the nonprofit Hope Center in northeast Denver. One shows the center's facility at 3400 Elizabeth Street in its former state as an abandoned neighborhood grocery store: empty, surrounded by blacktop and covered with graffiti. The other shows the property as it is now: an educational center for low-income children that is clean, fully renovated and skirted by a playground and well-kept lawns. The contrast between the two pictures, Brantley says, speaks volumes about the value of MOED's loan program.