Pendleton Quits Local Board; Pact Is Criticized

Clarence Pendleton, chairman of the U.S. Civil Rights Commission, resigned Thursday as chairman of the San Diego County Local Development Corp. board of directors after criticism that he arranged an exclusive contract for a close business associate, plunging the development agency into debt for the first time.

LDC staff members have charged that a lucrative $5,000-a-month contract allowing Syndey Novell to arrange Small Business Administration loans has placed the 9-year-old development organization in debt and jeopardized its future. The board awarded Novell the contract in 1984 without taking competitive bids.

Novell, a partner in the consulting firm Pendleton & Associates and an assistant to Pendleton on the Civil Rights Commission, wrote to Pendleton on Thursday asking that her contract be terminated as of March 31, a request that was unanimously accepted by the board.

Pendleton, who refused to comment on his resignation, said he was quitting because his “duties on behalf of the national agenda are taking more and more of my time and attention.” Other LDC board members, several of whom have been associated with Pendleton since his days as head of the San Diego Urban League, also refused to be interviewed. Pendleton stepped down from his Urban League post in 1982 after accusations that he had mishandled that organization’s funds.

The government-subsidized LDC is the exclusive arranger of SBA loans in San Diego County, and Pendleton has been head of its board of directors since its inception in 1977. The low-interest loans are offered to spur employment and development in minority and low-income areas of the county.

Most of the LDC’s loans were arranged according to guidelines set down by the City and County of San Diego, which have allocated federal Housing and Urban Development block grant funds to pay for the corporation’s staff and other expenses. Novell was brought onto the scene in June, 1984, and guaranteed a salary of $5,000 per month, plus commissions, to arrange SBA loans in geographical areas not designated by the city and county.

The expense of her exclusive contract was to be defrayed by the 1.5% commission the LDC receives on each loan it secures. But LDC controller Jeff Sturman recently released results of an independent audit that showed the $113,411 in salary and fees paid to Novell had yielded $17,541 in income to the corporation. Since Novell was placed in charge of arranging the loans, Sturman said, the corporation, which had never in its history operated at a deficit, lost its $26,283 reserve fund and was $19,506 in debt.

Until Thursday, Novell had been in line to take over all of LDC’s loan packaging. In November, the board, at Pendleton’s suggestion, had voted to give up LDC’s government funding and arrange all of its loans through the private sector. Pendleton had convinced the board that the LDC staff should be fired and Novell should be awarded an exclusive contract to package the SBA loans.

The 12-member LDC staff had been informed that they would lose their jobs as of Dec. 31, but SBA intervened, ordering the action frozen until an audit analyzing the effect the plan might have on the local business community could be completed. Novell’s letter also asked that she be removed from consideration from the LDC’s reorganization plans.

Results of the SBA audit are expected to be released early next month.

In 1983, Pendleton had proposed that a similar contract be awarded to his own consulting firm, but withdrew that proposal after criticism that the action constituted a conflict of interest.

LDC Executive Vice President Art Goodman, who refused to comment on Pendleton’s resignation, said in earlier interviews with The Times that the SBA audit would include an investigation into whether the 1984 contract awarded to Novell involved a conflict of interest. If that finding were made, Goodman said, SBA could terminate its arrangement with LDC.

Pendleton, in a letter to the board, said he still supports the move to eliminate governmental participation in the LDC.

“I hope that the new and imaginative goals which I have tried to set for you can still be reached in the not too distant future, including my goals of self-reliance and privatization in place of our historic dependence on public monies,” Pendleton’s letter said.

A spokesman designated by the board of directors said a decision on whether to pursue conversion of LDC to a completely private entity would be made later. He said Pendleton will remain on the board for 30 to 45 days, although contractor Gil Contreras will assume the chairmanship immediately.

At least five local lending institutions have expressed reservations about the LDC arranging all loans through the private sector, and have written to the SBA saying they might not be willing to finance SBA loans under the reorganization plan.