L.A. Community Bank Gets Ultimatum

The Los Angeles Community Development Bank, created after the 1992 riots to fund businesses in depressed areas of L.A., has 18 months to become self-sufficient or it will be shut down, the City Council decided Tuesday.

The bank, the largest community lending experiment in the country’s history, has been racked by bad investments, risky loans, poor management, lawsuits and accusations that it misdirected federal money intended for businesses in the bank’s service area, which includes parts of central, east and South-Central Los Angeles as well as Pacoima.

On Tuesday, council members approved a plan from the city’s Community Development Department and the bank that aims to improve the bank’s financial condition, focus more tightly on creating jobs in the target area and minimize the city’s liability if an upcoming audit by the inspector general of the U.S. Department of Housing and Urban Development determines that the bank used federal money improperly.

When the bank was created in 1995, it was given 10 years of federal funding--routed through city government--before it had to become self-sufficient. The 18-month deadline, imposed unanimously Tuesday, accelerates the process. Council members also approved only six months of funding to keep the bank operating. By October, they want to see a business plan.

“This is to keep things on a short leash and to make sure we have continued oversight of what is happening throughout that 18-month period,” said Councilman Eric Garcetti, chairman of the council’s Economic Development and Employment committee.

“The clock now is ticking,” Garcetti added, saying he is confident the bank can become self-sufficient if it can attract outside investors.

Bank officials plan to begin doing that, President and CEO William Chu said Tuesday.

“There’s still a need for economic development in the empowerment zone and other low- and moderate-income areas,” Chu said. “Obviously, there is a need for us to be there.”

According to bank figures, the bank has lent and invested $130 million since its inception, helping to create more than 3,200 jobs at more than 120 businesses. Loans have been as small as $5,000 and as large as one $23-million loan to a company that tanked. Tens of millions more was channeled into venture capital investments that withered in the dot-com collapse.

Critics of the bank say the high-tech venture capital program created almost no jobs for the low-income residents the bank aims to serve, because the companies required highly skilled workers. Furthermore, the companies were in the heart of downtown, outside the bank’s target neighborhoods.

“Dot-coms don’t employ anybody in South-Central L.A.,” said Bruce Dobb, who represents several manufacturing businesses that have applied for loans from the bank and “simply can’t get their loans reviewed.”

Speaking to the City Council on Tuesday, Dobb advocated shutting down the bank immediately, not giving it more time to right itself.

Times staff writer Lee Romney contributed to this report.