Numerous other MOED beneficiaries have had tax difficulties as well. KJME, a Spanish-language radio station that received $236,000 from MOED in 1990, was slapped with an $18,000 lien by the federal government three years later, IRS records show. The lien has since been released. KDKO, a radio station on Welton Street, fell more than $15,000 behind in its taxes before paying the government back in 1993. In June the same year, MOED allowed J Beatty's to modify the terms of a $66,400 city loan--five months after the IRS put a $10,700 lien on the East Colfax Avenue restaurant.
Some of MOED's largest and most problematic loans went to the nonprofit Denver Community Development Corporation (DCDC) and its subsidiary, El Dorado Denver Industries. DCDC has borrowed more than $2 million from the city over the years for a string of redevelopment projects, including the Pecos Square and Prospect Plaza shopping centers on West 38th Avenue. But a 1993 HUD audit found that DCDC had misspent city money at the centers, including $77,000 it paid itself in rent at vastly inflated prices. Last year DCDC defaulted on a separate $400,000 MOED loan for a commercial development at Federal and Speer boulevards.
DCDC executive director Cyndi Kerins insists that the organization's efforts on West 38th have been "very successful" despite its myriad problems. "It was a very blighted area," Kerins says. "It's now vital and much improved."
Lysaught also defends DCDC, saying the agency used city money to develop a highly successful industrial park on West Bayaud Avenue. The group didn't run into real problems, Lysaught says, until it stuck its neck out too far on the Federal-Speer project. DCDC hoped to put a Walgreens drugstore and Taco Bell at the site, Lysaught says, but community opposition eventually scuttled those plans. Even so, Lysaught says, the city has repossessed the still-vacant Federal-Speer lot and expects to get all its money back by selling the property to another investor. "I'm very confident that we're looking at a full recovery," Lysaught says. "We have not lost a penny."
MOED also occasionally raises eyebrows by loaning money to businesses and organizations with close ties to City Hall. The wife and son of politically connected contractor King Harris received--and defaulted on--a $30,000 MOED loan in the 1980s, according to the Rocky Mountain News. (Harris later repaid the note, the paper said.) A corporate affiliate of the nonprofit group NEWSED, one of Mayor Webb's staunchest supporters in the Hispanic community, currently enjoys a deferment of all payments on a 0 percent, $390,000 loan--even though a recent city audit found the group had fallen more than $2,000 behind on a city property assessment. RMES Communications, a Denver electrical supply company, asked for and won a six-month deferment of payments on a $191,000 MOED loan in October, citing a drastic reduction in cash flow. The company's president, Herman Malone, has been a generous contributor to Mayor Webb--in fact, he made a $250 contribution four months before asking the city for relief on his loan payments.
"You wonder why you'd be able to make a political contribution and not pay your debts," Ted Hackworth says. "It sure leads you to believe there's some political connection to this whole thing." (Webb spokesman Briggs Gamblin says politics never influence MOED decisions. "Just being a friend [of the mayor's] is not a good enough reason" for a person to receive city loan assistance, he says.)
Wiley says it's important to keep in mind federal-government guidelines when evaluating the prudence of individual loans. HUD requires that the city use grant money to improve "blighted" commercial neighborhoods and to support businesses that will provide jobs for the poor. The city can't be as tightfisted as a bank, Wiley says; if it were, MOED wouldn't make loans at all.
At the same time, says HUD's Roy Porter, MOED is supposed to make loans only to those who have a reasonable chance of paying the money back. "The business [receiving MOED money] should be financially feasible," Porter says. "We don't want them going in knowing that the project's going to fail."
Wiley says MOED rarely provides 100 percent of the funding for any project. With the exception of businesses developing a small number of "anchor" projects financed by MOED's special Skyline fund, all borrowers have to come up with at least half the money they need from other sources: banks, alternative lenders or their own savings accounts. "Every one of these loans has a private-sector participant," Wiley says. "We're not making these decisions on our own. We're doing them in partnership with other lenders."