In most cities, there is an unspoken tension between economic development and community development, between aiding the private sector and funding nonprofit groups, between big downtown projects and neighborhood concerns.
In Toledo, Mayor Mike Bell is an economic-development kind of guy. During his first two years in office, Mr. Bell has spent federal money intended for community development on a plane flight to China, tried to shift city revenue away from a neighborhood housing group, and asked one of President Obama's Cabinet members to waive a rule limiting the amount of grant money set aside to help low-income residents that can be used to pay salaries at a business-development group.
For many housing and community-development advocates, that's a disturbing pattern, part of a culture on the top floor of One Government Center that favors downtown and business interests over Toledo's neighborhoods.
"You see a lot of emphasis on economic development at the expense of housing," said Michael Marsh, vice president of the Toledo Fair Housing Center.
Typically, neighborhood-development boosters hesitate to criticize the administration, given that the city controls much of the federal funding on which they depend. But that silence was shattered when one of the city's foremost neighborhood organizations, United North, sued the city.
The nonprofit community developer argues that the Bell administration dealt it out of a deal involving the sale of a riverfront office complex constructed in the 1980s with the help of a $2.5 million federal loan that was supposed to be repaid to United North. As part of the dispute, emails surfaced in which Deputy Mayor Tom Crothers treats United North as little more than a punch line, punctuating statements about the group's director with "LOL!"
"It seemed like the neighborhood was almost a joke," said Terry Glazer, executive director of United North.
CDBG: A primer
* Toledo receives roughly $8 million each year in Community Development Block Grant funds from the U.S. Department of Housing and Urban Development.
* Use of the money must meet one of three national objectives: benefiting low and moderate-income persons, preventing or eliminating slums or blight, or meeting other urgent community development needs that pose a serious, immediate threat to health or welfare when other resources are unavailable.
* Twenty percent of CDBG funds can be spent on administration, such as employee salaries.
* Common uses include new housing, home repairs, demolitions, nuisance abatement, down-payment assistance, neighborhood planning, homeless shelters, food pantries, and health services.
Mr. Bell would not comment about this topic, despite several interview requests. But Mr. Bell's spokesman Jen Sorgenfrei dismissed accusations that the mayor doesn't take neighborhood concerns seriously or that he favors the private sector over community groups. The mayor is intent on supporting the best plan to spur economic development, whether it comes from the private or the nonprofit sector, she said. The spokesman acknowledged that the administration has stressed development of Toledo's downtown but said this is based on a philosophy that doing so is the most effective way to revitalize the city and create more jobs, which will then have a positive effect on the neighborhoods.
"If we don't focus on job creation to increase tax revenue we're not going to have any money to put into neighborhoods," Ms. Sorgenfrei said.
The Berdan plan
Such tensions are not unique to Toledo, nor are they new.
"The tension between neighborhoods and downtown development is a long-standing one and there are good arguments on both sides of the issue," said John Accordino, a professor of urban and regional planning at Virginia Commonwealth University in Richmond. "However, that doesn't and shouldn't mean that just anything goes."
Mr. Bell has made no secret of his reverence for the for-profit sector, often spelling out his intention to run the city like a business. When the former city fire chief announced his campaign in 2009, he wore a business suit and said he would consider city council his "board of directors."
"Toledo must restore its reputation as a city where it is easy for business to function," he said in the campaign. "This starts with city government removing unnecessary regulations and red tape, communicating with employers to keep and grow their businesses here, and moving quickly to take advantage of every job development opportunity."
Soon after taking office in 2010, the mayor requested approval for $20.5 million of federal Section 108 loans to help finance private developers' attempts to renovate two vacant downtown buildings -- the Berdan Building and the former Fiberglas Tower. The catch: If the projects failed, the city would be on the hook to repay the money using federal Community Development Block Grant, or CDBG, funds -- the city's primary source of money for assisting low-to-moderate income residents and combating blight.
In short, the mayor was gambling big on downtown development, and the city's neighborhoods were taking on the risk.
The Berdan Building was the more controversial of the two projects. A Cleveland-based developer wanted to convert it into upscale, loft-style apartments, but the renovation would rely largely on public financing, including a $10.2 million Section 108 loan.
The proposal sparked serious concerns about the potential impact on the city's neighborhoods funding.
"If that loan were to be defaulted upon, the result would have been the city having to spend that neighborhood money instead to repay this loan," said Aneel Chablani, a lawyer and director of advocacy for Advocates for Basic Legal Equality. "That's money that goes to neighborhoods and is intended to support affordable housing and economic development [in the neighborhoods]."
John Carney, the developer spearheading the project, said he was confident the renovation plans would succeed. He said the city's economic development department proposed applying for the Section 108 loan, and he considered it the best option for financing the project. Mr. Carney added that his firm invested about $200,000 of its own money in the planning process and was ready to back $9 million in state and federal tax credits.
But Adam Martinez, one of three city councilmen who raised strong objections to the deal, said the plan also showed how the administration goes out of its way to help a private developer, holding it to less stringent standards than it would a nonprofit agency.
"It was blatant. They really had no care as to what council had to say or the concerns we raised," he said. "We were concerned about loan guarantee and what the underlying criteria were. We were just dismissed."
The Berdan plan fell apart this month after the U.S. Department of Housing and Urban Development questioned whether the project met federal funding criteria. The city's Department of Neighborhoods, which oversees Community Development Block Grant funds, then concluded that the city could guarantee only $2 million to $3 million of Section 108 funding.
A pattern?
Kathleen Kovacs, deputy director of the city's neighborhoods department, said the confusion may have stemmed from a disconnect between the city's economic development and neighborhoods departments.
"That, unfortunately, is much more common than it should be," said Alan Mallach, a Brookings Institution fellow and expert on housing, planning, and community development. "If you have a department that has the relationship with HUD, it's just not good practice to bypass that."
Yet that's exactly what the administration did in February last year on an unrelated issue. Mr. Bell wrote a letter to HUD Secretary Shaun Donovan asking him to waive a federally mandated administrative cap on the city's Community Development Block Grant money. The reason: The mayor wanted to pay $200,000 for the salaries of economic development professionals with the Lucas County Improvement Corp. to make consultation calls to businesses.
HUD rejected the request, noting that the administrative cap of 20 percent on the funds is enshrined in federal law.
"This is a statutory requirement and cannot be waived," said HUD Assistant Secretary Peter Kovar. "General marketing, community promotion, outreach to businesses, and small-business advocacy functions, which are typically performed by Chambers of Commerce and similar organizations, are also ineligible under the CDBG regulations."
Council President Joe McNamara, whose wife works for a community-development corporation, said a clear pattern has emerged.
"The Bell administration has actively been trying to siphon away community development to fund what they perceive as economic development," he said. "It's perverse."
Ms. Sorgenfrei acknowledged there have been differences of opinion between the leaders of the neighborhoods and economic development departments, but she touted it as a positive, saying it allows for healthy debate over how best to use taxpayer funds.
Claims of bias
Mr. Glazer of United North said he doesn't oppose economic development. In fact, it's an important part of what his group does, he said. But he said the Bell administration treats nonprofit neighborhood-based groups differently than for-profit developers.
"I think there's a bias or even a prejudice that private developers are more effective than community-development corporations," he said. "If you look at the record, it doesn't show that."
Mr. Glazer said that bias has existed in past administrations too but that private deals in recent years have "not been as well thought out."
The Berdan project, for example, was handled primarily by the mayor's economic development team, he said. "In the past, a housing project would been evaluated by the department of neighborhoods," he said.
But Keith Burwell, head of the Toledo Community Foundation, which has backed economic and community-development groups, including United North, said he thinks most community-development corporations in Toledo lack "a 21st-century business model."
"If you walk into any neighborhood, the first thing [residents] are going to tell you is they don't need housing, they need jobs," he said, yet many CDCs remain focused on creating or improving neighborhood housing stock. Neighborhood revitalization efforts should instead be focused on creating commerce, he said.
Councilman Rob Ludeman, who is also a real-estate agent, said he believes private businesses are better equipped to handle big development projects such as the Berdan Building. "I agree with the mayor's focus and the administration's focus on private development because that's the core of our economy," he said. "The private sector is where most of the jobs are."
Mr. Ludeman also applauded the administration's focus on downtown. Toledo's business district, which includes Huntington Center and Fifth Third Field, has started to attract more commerce and residents over the past few years, and the local government's economic development efforts need to take hold of that energy and ensure it continues, he said.
Past deals?
Neighborhood advocates say that in some cases, Mr. Bell's effort to shift money away from neighborhoods goes beyond philosophical differences. In at least two cases, they say, he has violated agreements.
In the 1980s and '90s, the city took advantage of several HUD grants called Urban Development Action Grants, or UDAGs, to finance downtown projects, including the Superior Street Parking Garage and One Maritime Plaza, a riverfront office tower.
To show a community benefit, the city required proceeds from the projects to be used for development in low-income neighborhoods. For One Maritime Plaza, the loan was to be repaid to United North with rental income. For the garage, parking revenue was supposed to fund the Toledo-Lucas County Housing Trust Fund, an agency that funds the construction and renovation of low-income housing.
But when Mr. Bell took office, he cut off funding to the housing trust fund, citing budget needs. "If that makes people mad, oh well," he said at the time.
The move drew protests from affordable-housing advocates and city council members, and the mayor relented, although he maintained no legal obligation existed to fund the group.
A similar dispute erupted last month, when the Bell administration brokered the sale of One Maritime Plaza to the Toledo-Lucas County Port Authority. United North has sued over the deal, arguing it was due money from the sale because the building never produced enough rental income to trigger payments to the group. The city contends United North wasn't guaranteed payment in the case of a sale.
The Bell administration didn't consult United North on the deal and in several emails showed what appears to be disregard for the group's interests.
"I think you folks need to determine what you want to pay for the building and we'll 'fight the battles,' " Deputy Mayor Tom Crothers wrote in an email to the port authority.
When a port authority executive asked if Mr. Crothers had spoken with Mr. Glazer of United North, the deputy mayor wrote, "Nope, but I see him in person at 8:00 a.m. this Friday. LOL!" He added: "P.S.: Are you sure you don't want to pay $1.00?"
Staff writer Kate Giammarise contributed to this story.
Contact Tony Cook at: tcook@theblade.com or 419-724-6065.
First Published March 25, 2012, 4:00 a.m.