Arrest Jolts Entrepreneur Academy : Lynwood: Theft charge against key figure in business development program renews debate over city funding.

The arrest of a key participant in a city-funded organization established to help fledgling businesses has touched off a new round of debate among Lynwood city officials about the future of the controversial program.

Since 1991, the city has poured hundreds of thousands of dollars into the Lynwood Entrepreneur Development Academy, which was established to help local residents start their own companies.

But the recent arrest of Richard L. Calhoun, whose business was to have been the centerpiece of the academy, has provided new ammunition for critics who have long opposed city funding of the program.

Calhoun, former president of the now-defunct Lynwood Manufacturing Co., was charged last week with grand theft and money laundering. His company was given $694,800 in city funds to purchase equipment and refurbish an old warehouse next to the academy.

The shop was to have been an anchor for the new-business program, and city officials had hoped that the business it generated would eventually make the academy self-sufficient. But the shop never opened, and records show that Calhoun spent at least $300,000 of the loan on personal debts, charitable contributions and other expenses not related to the business.

Calhoun, 59, last week pleaded not guilty to the charges. In a telephone interview from jail this week, Calhoun maintained that most of the money went toward buying machinery and rebuilding the shop, but he said he did spend some money on other items.

“About $500,000 went into that building,” he said. “The rest of the money was extended to responsibilities I had to take care of before I could do business.”

But Calhoun said he did nothing illegal because the city did not stipulate how the money was to be spent.

“If I received a loan and I paid (some personal debts), then so be it,” he said. “But there was nothing that forbid me from doing this.”

His comments may renew criticism that Lynwood officials did not take proper care in drawing up the academy’s financial agreements or in putting proper safeguards in place to ensure the money would be spent in the city’s best interest.

“We should never have spent money like this, so outrageously and without sufficient safeguards or controls,” Councilman Armando Rea said after Calhoun’s arrest. Rea has consistently voted against funding the organization.

A 1992 audit concluded that the academy had kept poor records and maintained inadequate controls of $2 million that the city poured into the program.

Academy supporters say the program has been restructured since Calhoun and others left in 1992, and that the city has established tighter fiscal controls. They also say a new executive director is starting to fulfill the academy’s original mandate--helping new business owners get proper training and a solid start.

The academy provides entrepreneurs with free business classes, low-cost office or “incubator” space and free clerical support. In exchange, graduates of the academy agree to locate their businesses in the community and hire local residents.

“The facility continues to train businesses and is one of the most outstanding facilities of its kind,” said Councilman Paul H. Richards II, one of the academy’s most ardent defenders. “It has helped to create more than 100 businesses, and it seems to me that if it is operating in that matter, then something has gone right.”

Since last fall, the program has been run by Bill D. Raphiel, a member of former Los Angeles Mayor Tom Bradley’s staff and director of a business development assistance center.

About 25 people are taking classes at the academy and will graduate this spring, he said. Ten businesses are at the facility, including a casket maker, a ski-wear manufacturer, a construction company and a maker of bath and aroma-therapy products.

“We still think the principle of the academy is a sound one,” City Manager Faustin Gonzales said.

Even Councilman Robert Henning, who in the past has been highly critical of the academy, said he has mixed feelings about the program’s future.

He said the academy’s new director, Raphiel, “wants to do a good job, and I have confidence that he could really make this thing go.”

City staff plans to recommend that the council approve another $300,000 for the academy, plus $7,000 a month to help pay rent at the facility, which is situated on the western edge of town.

Henning said that even if he approves more funding for the academy, he still wants to see Calhoun and others explain their actions.

“I want the full truth about where all this money went,” he said. “The city got totally ripped off, and I want to know all about it.”