It was just the kind of partnership Congress had in mind: a predominantly black city suffering from decades of urban decline and a federal government flush with money for revitalization.
So in 1978, a new U.S. Housing and Urban Development (HUD) program designed to rescue areas in "severe economic distress" gave the City of Compton a $2.1-million grant to start the community's first home construction in 20 years.
A few blocks of blighted apartments within sight of City Hall were to be replaced with 133 prefabricated town homes. The goal was not only to meet a serious housing need but to create a lasting local construction company that could bring permanent jobs to 100 of the city's hard-core unemployed.
To accomplish it all, Compton loaned the money to Hub City Urban Developers Inc., a nonprofit firm organized by a group of community leaders.
In the seven years since, however, the venture has fallen far short of its billing as a textbook blend of federal resources and local resourcefulness. Rather, it has absorbed increasing amounts of money, frustrated officials, spawned charges of corruption and cost Compton taxpayers millions of dollars.
It has also proven to be an expensive lesson in the limits of the city's redevelopment ability.
"It was a good idea that didn't work because those who ran it didn't have the experience to make it work," City Councilman Maxcy Filer said recently. "They just didn't know what they were doing."
Hub City officials, while acknowledging their lack of experience, say the project mostly fell victim to the same kinds of economic forces that private developers often face--slow sales, unanticipated construction delays and difficulties in securing mortgage financing.
However, many officials believe that neither Compton nor HUD watched Hub City closely enough, that the grant contract was drawn too loosely and that taxpayers were made to carry too much of a financial burden. As a result:
- Although the project was supposed to have been completed in 30 months--by February, 1981--construction delays and a slumping real estate market have extended it to nearly three times that length. Yet even with the extra time, it has produced barely a quarter of the 133 town homes promised.
- The amount of local tax money contributed to the cause has now swelled to more than $3 million--nearly triple what city officials anticipated.
Hub City's assembly plant on East Alondra Boulevard, a renovated Foster Freeze factory once bustling with project workers, has stood virtually idle for the past several months, staffed by less than a dozen employees. And HUD officials who oversee the massive Southern California region regard the whole endeavor as one of their biggest failures.
"It would have been a real showcase kind of story," said Herbert L. Roberts, HUD's regional director of community planning and development. "For many months and several years it looked like it was going to happen." Since August, Roberts said, he has been trying to get a status report on the project from Compton officials, but so far they have not responded.
"It's always been one excuse after another," he said. By the end of this week, he expects to have sent some of his staff to the Hub City plant and construction site to gather information.
After that, it will be up to HUD administrators in Washington to decide if the city should be declared in default of the grant agreement and made to repay about $1 million that still sits in a loan-guarantee fund.
"We've got an (all but) abandoned ex-ice cream factory that tried to be a housing factory," Roberts said. Beyond that, "I'm not sure what there is to recover."
Compton officials, too, are worried about Hub City's ability to complete the project and repay the debts that have accumulated. They include:
- $2.1 million that Compton loaned Hub City from the grant, roughly half of which remains in a loan-guarantee fund. In theory, the money was to be repaid gradually as each town house was sold, and then recycled by the city into some other worthy project.
- $3 million in other city loans made after Compton had already spent a similar amount making improvements to the town house sites.
In a memo in July, City Manager Laverta Montgomery wrote that Hub City was mired in a "financial crisis."
"Hub City may never be able to generate a significant amount of revenue to meet their (own) financial obligations, let alone repay the city," Montgomery wrote.
In fact, when Hub City missed about $68,500 in interest payments on a $1-million construction loan from Family Savings & Loan Assn. last spring, records show that the city paid off the debt to protect the loan-guarantee fund.
After Montgomery's memo, City Councilman Robert L. Adams said Hub City was given 90 days to show results or face being taken over by the city. When that deadline expires this month, he said, "we may consider selling the whole project or turning it over to a private developer."
Unusual Escape Clause
Because of an unusual escape clause in Compton's 1979 contract with the firm, the city may also have to eventually "forgive and disallow the repayment of all or part" of a $1.19-million interest-free loan that enabled Hub City to buy its plant. That debt must be canceled by the city, according to the contract, if Hub City simply "fails to fully perform . . . due to circumstances beyond their ability to control, which is not due to misfeasance or malfeasance. . . ."
Regional HUD officials say that they have never seen such a provision in any of the more than 45 Urban Development Action Grant (UDAG) programs they have overseen. Unlike most HUD grants, which underwrite a single project, UDAG money is meant to be recycled from one community development to another as it is loaned, repaid and loaned again. So any forgiveness of the debt defeats part of its purpose.
"The action grant program is not in the business of giving money away. . . . This is not charity," said Roberts.
Former City Manager Allen J. Parker, who helped fashion the contract, recalled recently that the "hold harmless" clause was viewed as only fair because Hub City was essentially a corporation acting on Compton's behalf. Had the city itself undertaken the project and failed, he reasoned, the results would have merely been chalked up to experience.
"The intention was that the city project would be a demonstration project (to prove that new housing could be successfully sold in Compton) and that from that it would create a viable industrial firm that would sell (prefabricated) housing anywhere," Parker said.
New, Stiff Competition
Hub City officials contend that they still have those goals in sight, even though they face stiff competition from private building firms that have since moved into the city.
Charles H. Hack, who became chief executive officer in September, said the firm has gradually sold more than half of the project's 36 town houses, which stand on two sites bordering the intersection of Willowbrook Avenue and Myrrh Street. And as more units sell, he said, more will be built.
"We're doing all right," said Hack, 40, a Compton native who described the two-story, stucco structures--priced from $86,000 to $89,000--as "the finest housing that's ever been in the city."
Hack said Hub City also is erecting a commercial-industrial building with $640,000 in separate state and federal economic development grants. And before landing the town house project, the firm also worked for the city on its auto plaza development, near the Artesia Freeway.
Bette Hatcher, a Southern California Edison manager who serves as one of Hub City's five part-time directors, maintained that the firm is in sound financial condition thanks to the city loans and is not behind in any payments.
Believes Project Will Work
She expressed confidence that the town house project will be completed and all debts paid if only Hub City and government officials will "join hands and keep the relationship together."
Hatcher complains that officials overlook the fact that Hub City has accomplished other important grant goals by continuing to function at this time and provide at least a few jobs to needy workers. "
Although it is true that Hub City had never before attempted such a construction project, Hatcher said, "the grant was written to give (minority) people, without experience, experience."
She said it was difficult to obtain private financing because Hub City is "a minority" firm, and that when money was available it was slowly drained by delays sometimes caused by the city.
In fact, Hatcher blames Compton officials for striking a major blow to Hub City in the spring of 1980, when the City Council investigated a series of corruption allegations against the firm--allegations that Hatcher said were never proven.
"The result of it was it held up the project, and in my opinion that is why the project is in the state it's in," she said. "We were never able to regain that momentum."
The grant funds were temporarily frozen in 1980 by HUD amid charges that Hub City employees had been assigned to perform various odd jobs for several directors and friends.
Repairs on Director's Home
Although most of the charges were not substantiated, workers acknowledged performing repairs on the home of director James Woods, a local businessman. Woods produced receipts showing that he paid for the materials, however. And he told investigators that he used Hub City workers with the approval of then-chief executive officer Robert C. Robinson because they "were not kept busy at the factory site," city records show.
Former director Evelyn Arnold, a Compton real estate broker, was also criticized in the city investigation for accepting a share of the real estate commission paid when Hub City purchased its East Alondra plant.
But the most serious accusation arose toward the end of the inquiry, when Hub City officials reported their suspicion that a former controller, Virginia Vyetta Pluton, had embezzled about $14,700. Pluton was indicted and tried on a federal fraud charge, according to the U.S. attorney's office in Los Angeles, but a judge acquitted her, ruling that prosecutors had failed to prove that any federal grant money was involved.
By the summer of 1980, Robinson had resigned and Hub City had won a court battle to keep Compton from replacing the firm as project contractor in light of the allegations. In a June, 1980, memo, then-City Manager Joseph T. Rouzan Jr. recommended that the city quickly patch up its differences with Hub City so the grant would be restored by HUD. Even though "we have found what I consider to be very poor administration, a lack of controls and an inability to meet commitments" on Hub City's part, he wrote, the "primary objective must be to get the houses built."
In December of that year, the grant was indeed reactivated by HUD. But by that time, Hatcher said, mounting expenses had prompted Hub City to obtain the first of what would eventually become seven additional city loans to keep the project afloat.
Motivation to Succeed
Roberts, of HUD, said that, with "hindsight," federal officials now realize that Compton put "too much public money in something that needed to be a private sector initiative. The motivation to succeed is perhaps lost," he said, "when there is no private loss."
If he had it to do over again, Roberts said he would also require the city to sign a "much tighter" contract before it could obtain the grant. He said the current agreement "is too vague" and fails to give HUD as much control as he would like. "We could have done a better job of monitoring it if we'd had those tools," he said.
Finally, Roberts said he wished Compton officials "had been much more straightforward and firm in their dealings with the (Hub City) business in the beginning."
Because the grant contract is only between HUD and Compton, not Hub City itself, he said, "we can't make the deals directly, we work through the city. And for a variety of reasons they were desirous of giving the organization many chances to rebound." He said HUD would not have been so patient.
Made Political Sense
"I remember numerous heated meetings with the city in debating this issue," said Roberts. But the attitude of Compton officials was always, "leave us alone, we know what we're doing," he said. "It maybe made sense politically, but in terms of dollar and cents, no, it was not done the way it should have been."
City Councilwoman Jane Robbins said she agrees "100%" that the city should have watched the Hub City project more closely. "I think there are many things we should've done. We should've kept closer tabs on it. We should've had somebody there to help them through their problems."
"It got off to a real good start," Robbins said, adding that "it may be that they just tried to do more than they were capable of doing."