U.S. Verifies 2-Year Probe Into Finances of Hub City

Federal agents confirmed last week that they have been investigating a city-sponsored, nonprofit firm that spent at least $5 million in federal grants and city loans without producing the low-cost housing or jobs promised to the community.

Hub City Urban Developers Inc., founded by several of the city’s most prominent citizens, is the subject of an investigation that started two years ago in the U.S. Department of Housing and Urban Development, said Richard L. Fix, director of the investigative unit of HUD’s Office of Inspector General.

“We are working that jointly with the FBI,” Fix said Thursday. The investigation has already taken two years, he said, because “it’s complicated and there are a lot of issues.”

A spokesman for the FBI declined to comment.

Hub City was incorporated more than a decade ago to help revitalize Compton. Between 1978 and 1984, the city pumped $2 million in federal grant money and at least $3 million in direct city loans into Hub City on the promise that the firm would generate prefabricated housing and construction jobs as it evolved into an independent local business.

A recent audit by the HUD inspector general, however, found that the firm does not have financial records for many of the years it operated, although all the money has been spent and no houses and no jobs exist.

Records Are Missing

Miguel P. Barrios, director of the inspector general’s audit division in San Francisco, acknowledged that it is possible that fraud might explain where the money went. But so far, attempts by HUD and city officials to trace the money have been stymied by the absence of records sufficient enough to determine whether any crimes were committed.

Regardless of what the investigation turns up, Barrios said, the federal government will continue to press for recovery of a $2-million Urban Development Action Grant awarded to the city in 1978.

“A situation needs to be resolved,” Barrios said. “It won’t go away. We will follow up on it.”

The inspector general’s audit lays blame for the firm’s failures at the feet of the city, saying officials there did not exercise any controls, supervise the keeping of accounts or require the firm to put up security for the federal money it was using.

Hub City “misused” funds, Barrios charged, and so Compton did not get any of the benefits the grant money was to generate. Under the terms of the grant, the city was to get back the $2 million from the firm’s profits and then recycle the money to other worthy projects.

HUD is pressing the city to go after assets acquired by the firm. They include a factory site on Alondra Avenue, a piece of land along the Artesia (91) Freeway, and at least $10,000 a month that Hub City receives from a developer who took over the primary housing project on which it defaulted. This money, HUD auditors said, continues to be spent by the firm in questionable ways.

For example, the audit found a $585 expenditure that was listed in the accounts as “dues” to the Republican Party. Another expenditure, according to the auditor, was for $500 worth of consulting work done by a member of Hub City’s board.

In addition, Hub City Chairman James Woods, who also is chairman of the Los Angeles County Airport Commission, was listed as having received $1,000. According to the audit, Woods “claimed” he was being reimbursed for cash payments that he made for cleanup work done at the factory site. Woods said in an interview last week that the audit report and the particular disbursements cited are wrong.

“It was not paid on any dues,” he said of the $585 payment to the GOP. “(It was) reimbursement to me for some money that I spent. The auditor picked it up the way she wanted.”

Documentation Claimed

As for the factory cleanup that he says he paid for, Woods declared: “All the documentation was there.”

Woods said he did not know the FBI was taking part in the investigation. He also said that Hub City is working with Compton officials and with HUD in an effort to repay the $2-million grant.

Touted as an example of a nonprofit firm that would help revitalize a blighted community, Hub City was incorporated in 1976. Two years later, the city received the federal grant and allocated it to the firm.

From the beginning, though, Hub City funds began inexplicably dwindling and its board of directors repeatedly sought and received direct loans from the City Council. Compton had already spent about $3 million to clear land on which the modular housing was to go. However, the council allocated about $3 million in loans to Hub City--meaning Compton’s investment of local taxpayer money amounted to at least $6 million--before it finally shut the treasury door.

Under the grant, more than 100 housing units were to be completed by February, 1980. But according to the audit, records show that only 17 units had been built by the end of 1982 and only four more by November, 1984. The audit says that sometime in early 1985 the factory construction “was abandoned with no additional units completed.”

Both city and federal officials have tried to obtain accountings of how the rest of the money was spent. One city investigation revealed that a board member who was a real estate agent received a commission for negotiating the sale of land to the firm. In another instance, Woods was called on to explain why Hub City employees had done work on his private property. He produced documents that he said showed that he had reimbursed the firm for the work.

In 1986, with the approval of the city and HUD, a private developer moved in to try to accomplish at least one of the initial goals--to create housing. The Seal Beach firm of AFFCOM Developers began building townhouses on the former Hub City housing site, which is a block from City Hall. Hub City, the federal audit said, contributes nothing to the construction but is getting $10,000 a month from the developer and spending the money rather than giving it to the city for repayment of the UDAG grant.

Adding to the Cost

HUD says the monthly payments are only adding to the ultimate cost of what are supposed to be moderately priced townhouses. The payments, HUD says, are not going toward reduction of the $2-million debt. Under terms of the agreement between Hub City and the private developer, about $6,000 from the sale of each townhouse is to go to the city for repayment of the UDAG grant, according to city records. That will repay only about $600,000 of the $2-million grant, however, and none of the city loans, officials acknowledge.

One alternative being discussed is for Hub City to give the parcel of land along the Artesia Freeway to the city in lieu of the rest of the $2-million debt. That land, however, originally belonged to the city and was part of a redevelopment tract that was declared blighted and sold to developers at low prices in an effort to encourage them to invest in the city.

City Manager James Goins, who was not in his post when Hub City was in its heyday, said Thursday that he did not know about the federal investigation, although the city is trying to find a way to get at Hub City’s assets to recoup the $2-million grant money. City officials received a copy of the HUD audit in December.

Councilman Comments

One city official who said he welcomed the FBI investigation is veteran Councilman Maxcy Filer.

“I believe there has been intentional doing of some things, in other words, the spending of funds,” Filer said. “They’ve never accounted for the spending.”

Filer said he opposed the Hub City loans from the beginning. “Every time it came up I would say, ‘Why are we doing this? They don’t have the expertise.”’

Hub City, he said, should “definitely be called on the carpet.” And he said the city is getting off lightly when HUD says Compton made mistakes. “HUD has been kind to us. I think there have been more than mistakes,” Filer said.