Accord Clears Way for Community Development Bank Start-Up : City Council: Dispute over governing board ends in last-minute compromise. Institution’s aim is to bring investment dollars and jobs to poor neighborhoods.

A groundbreaking community development bank designed to pump jobs and money into Los Angeles’ poorest areas cleared its last major hurdle Wednesday when the City Council approved the complex agreement governing the public-private enterprise.

Working against a Friday deadline for submitting the agreement to the federal government, which is providing $450 million in grants and loan guarantees, bank proponents headed off a potentially fatal power struggle over who could choose a majority of the nonprofit institution’s 15-member board.

The council’s 14-1 vote on the agreement cleared the way for the bank’s start-up this month. It also honored a federal requirement that only seven of the bank’s board members be appointed by elected officials.

The Department of Housing and Urban Development, which is providing the bulk of the start-up funds, insisted on this arrangement in order to preserve the bank’s independence and the privacy of its applicants. But several council members and residents of the targeted areas said they were concerned about the levels of community involvement and the board’s public accountability under such an arrangement. A series of eleventh-hour compromises averted a crisis over the governance issue.

“We have an opportunity to invest in the community. . . . I think it will change the course of Los Angeles,” said Councilman Mike Hernandez, co-chairman of a special committee overseeing the bank’s creation. Hernandez helped fashion some of the compromises.

Proposed by the Clinton Administration as consolation for the city’s embarrassing failure to win a federal “empowerment zone” designation last year, the development bank plan has become the centerpiece of Mayor Richard Riordan’s economic development program. During his campaign in 1993 and his first two years in office, the mayor has repeatedly promised to bring in jobs to rejuvenate the city’s most impoverished neighborhoods.

By combining the HUD monies with $250 million from several private financial institutions, the community development bank is supposed to bring investment dollars into neighborhoods where capital has long been scarce.

It can do so in several ways, including making direct loans, picking up part of the interest costs, paying for land or improvements, and making equity investments in promising enterprises.

The bank, which is designed to work in conjunction with other institutions rather than compete with them, can also help community groups provide such services as housing and child care in the designated areas.

The funds must go to enterprises that want to open or expand in neighborhoods where at least one-fifth of residents meet federal poverty standards, and a majority of the jobs created must go to residents of those areas.

Deputy Mayor Mary Leslie, who interrupted her family vacation to be in the council chambers for Wednesday’s vote, called the bank “a good example of cooperation between the mayor, the City Council and the federal government” and “the best example I know of public-private cooperation.”

Councilman Mark Ridley-Thomas, who also helped oversee the bank’s creation, said he and others still have concerns but are willing to give the bank a chance. “We’ve needed something like this,” he said.

Noting, however, that future federal social services grants would be used to pay back the loans if the bank fails, he added, “The oversight question is one that remains in the back of our minds.”

City Administrative Officer Keith Comrie said his office believes that the city has several key opportunities to intervene if it feels things are not well with the bank. The council will have a chance to review the operations and business plan each spring, and there will be regular audits. The council can also add several appointees and in effect take over the board if serious problems materialize.

Six of the bank’s publicly selected board members will be chosen by the City Council, with the seventh choice to be made by Los Angeles County, which is participating in the project. Half of the other eight board members will be chosen by the three volunteer legal and business experts that Riordan picked to oversee the bank’s start-up, and the others will be selected by four college presidents. Community residents must be included on the board and the bank’s staff.