July 24, 2007
The city of El Paso could be responsible for hundreds of thousands of dollars in disallowed costs related to the El Paso Empowerment Zone’s handling of the $25 million grant given to the city and operated by the EPEZ since 1999.
There is a little more than $3 million left of the grant, and the city took control of that in late March. During that time period, a team from the Department of Housing and Urban Development, which issued the grant, reviewed the finances and operations of the EPEZ.
The report, sent to the city in June, came on the heels of a city review that found a number of issues, including questioned administrative expenses, questionable loans and $300,000 improperly spent on the Texas Festival Association, which sponsored the Texas Street Festival in 2005.
The HUD audit confirmed that finding, and seeks repayment of the money spent on the Festival Association from the city, which is the responsible legal party. The city, however, may seek the money from what remains of the El Paso Empowerment Zone, said Bill Lilly, the director of the city’s department of Community and Human Development.
“The HUD position in that the city is responsible,” Lilly said. “However, there was an agreement between the city and Empowerment Zone Corporation and we need explore the remedies available under that agreement.”
The Empowerment Zone, a corporation formed to administer the grant, still is in existence. Luis Sanchez, the board president, was not available for comment. Clyde Pine, the EPEZ lawyer, declined to comment on the issues involved, one of which is whether the Empowerment Zone has any funds from profits or grant sources other than HUD.
The HUD findings were outlined in 10 “Findings,” which totaled 14 different elements.
"These findings represent significant issues that the City must resolve. While we understand that the City is in the process of regaining control over the EZ program ... a substantial workload remains if EZ-funded activities are to continue," warned HUD.
The findings included:
-- Finding 4a: Lack of documentation for invoices/bills. The city must review all credit card and other billing accounts for late charges and finance charges and reimburse the grant by that amount from September 2004 to present.
-- Finding 4b: "For a staff of approximately eight or fewer employees, the following expenses totaling $275,224 ... appear excessive." Those include travel and training, telephone expense, consulting fee; a charge for $15,000 for the 2005 EPEZ Corp. Annual Report "appears to be excessive" and "the work is not described."
-- Finding 4c: Credit card statements from 2005 and 2006 include "ineligible costs, excessive costs and/or costs questioned because eligibility cannot be determined." Those include $153,521.89 for such items as liquor, charges with no documentation, wire transfers to Texas Festival Association, grant-writing and "an ineligible trip with teenagers to the Women's conference."
-- Finding 5b: Lists specific issues related to previous findings (2, 4a, 4c); for example, the $300,624.65 to the El Paso Festival Association that still has not been paid back. Former Director Phyllis Rawley spent $750 for a lawyer to incorporate a company called Empower El Paso, and the EZ paid Rawley's company, Professional Resources, $204 on March 30, 2005, and there are four other payments totaling $3,300 (which relates to finding 4c). Rawley declined to comment on the report, saying only that she has offered to speak to HUD but has not been contacted by the agency.
-- Finding 9 and 10: Loans were not repaid into the revolving fund, but fund transfers were made from other EZ accounts. Other loan problems also were noted. The city is required to review all loans from Nov. 1, 2003 to present.
The HUD report also references the city's review, which was dated Jan. 22, 2007. One of the items referenced in that city review was a $99,500 loan to Chama Lounge, a Downtown business owned by the son of the EZ Board Chairman, Luis Sanchez. Initially, the city claimed a conflict of interest, but in its July 2 letter to HUD, the city states that the finding is closed and there was no conflict.
The city reply asks for more time to evaluate most of the issues. The city does support many of the expenses identified under Finding 4b. On 4a, 4c, and 9 and 10, the city asks for an extension until Aug. 31 to answer.
Read the source documents here. They're not long – the HUD review is 15 pages, and the city response is 7 pages.