CINCINNATI, OH (FOX19) - A FOX19 investigation uncovered millions of tax dollars lost to failed loans to dozens of private businesses across the city. Our investigation found the city's forgiven more than $13 million in loans since 2005 and plans to forgive more in the future.
Cincinnati city officials call the practice "loan extinguishment" where the city forgives taxpayer-funded loans to borrowers and, in many cases, the city never pursues collection of collateral connected to the loan. This has cost taxpayers millions of dollars; money that will never be recovered.
Our analysis found of the 38 loans the city's forgiven, all but one was targeted at low-to-moderate income housing projects. One loan was specifically targeted toward a retail development in the West End.
We filed an open records request with the city on June 16, looking for a list of who owes, how much is owed, how much was loaned, past due amounts and the city's efforts to collect. Late Friday, the city released some of those records showing 27 of the 59 outstanding accounts in the city's loan programs are at risk of default. The total past due among the 27 debtors totals $1,045,116.49.
On May 14 and June 11, Cincinnati city council voted to accept two separate loan extinguishment proposals from the city manager's office. The loans were forgiven—a total of $550,000 of tax dollars given to the corporations that borrowed it more than a decade ago. Both loans were given to spawn economic development in two sections of Cincinnati the city determined was in need of development.
MAY 14, 2014: 1019 LINN STREET
The first of two loan extinguishments came before Cincinnati city council on May 14 in a request from interim city manager Scott Stiles, asking council to forgive principal balances on two loans given to ADA Investment Group, Inc. Secretary of State records show the group's registered agent is a man named Antonio Moore. The loans were given in 2002 for the corporation's car wash and retail outlet store at 1019 Linn Street in the city's West End neighborhood. The city described the property as "vacant and blighted."
The day council voted, city records show ADA Investment Group, Inc. owed the city $194,358.07 on a 12 year old loan. The original loan balance was $250,000. The corporation also owed $34,214.45 in delinquent taxes the day council voted to forgive the taxpayer-funded loan the corporation received in 2002.
The lone "no" vote on the deal came from Councilman Christopher Smitherman. There was no vote recorded from Councilwoman Yvette Simpson as council records show she was absent. The remaining seven council members all voted "yes" to approve the forgiveness, overriding Smitherman's lone opposition to the gift to ADA Investment Group, Inc. There was no discussion of the vote before or after council made its decision.
In exchange for forgiving the loan, Stiles explained to council, the same property would then be sold to Winton Hills Medical and Health Center, Inc. The medical corporation was given $4.2 million by the U.S. Department of Health and Human Services a few years ago to build a 20,000 square foot building to provide "affordable quality health services" to Cincinnati. The forgiveness stood in the way of the medical center's desire to use the Linn Street property, according to Stiles. The deal would produce 20 jobs and provide service to 5,000, according to Stiles' report to council.
The deal included an agreement for ADA Investment Group, Inc. to sell the property to the medical group for $65,000 and Winton Hills would pay off the $34,214.45 in delinquent taxes. The city could not provide records to show any attempt to collect the $65,000 paid to ADA Investment Group, Inc. for the sale of the property.
In fact, city records show no desire by the city manager's office to collect anything from the property sale, evidenced by this line in the ordinance approving the deal: "…there will be no remaining sale proceeds to pay off or partially pay off the $50K Loan or $200K loan…" County records do not show any attempt by the city to pursue the repayment of this loan through the courts or hold the borrower in default.
The spending isn't finished on this project. On July 16, the city approved a plan to spend another $46,000 in tax dollars to tear down an abandoned car wash and outlet stores on the Linn Street property. The city is funding the demolition of the property for the medical group.
FOX19 tried several times to reach Moore to include his comments in this report. We visited Mr. Moore's Avondale Food Mart and left a message with a woman running the store. We visited Mr. Moore's home and left another message with his neighbor. As of this report, none of our messages to Antonio Moore were returned.
JUNE 11, 2014: 1123-1125 WALNUT STREET
On June 11, city council again voted to forgive a $225,000 tax payer funded loan to a private corporation named 1123-1125 Walnut Street, Limited. State records show the corporation was founded in Dec. 1998 and three names appear on the filing records: Chip Hunter, a Hyde Park-area realtor, Michael Tanner, a Cincinnati plumbing contractor and David Pemberton.
Council voting records show Councilman Christopher Smitherman was the only "no" vote on the deal. Councilwoman Amy Murray was marked absent from the vote. Councilman Kevin Flynn voted for the deal, explaining his reasons as the return to tax payers was "hard cost redevelopment dollars." Both Flynn and Smitherman briefly discussed concerns over the way the city was underwriting and securing the tax payer dollars it's loaning. Councilman Chris Seelbach also voted for the deal, explaining a "change" will result from the new promise to renovate the Walnut Street address.
Council voted to forgive the group's $225,000 loan that ballooned to $261,218 at the time of the vote because the group "failed to make any principal or interest payments on the City's Loan," according to the ordinance approving the deal. The loan was supposed to provide "government housing allowance recipients" housing in Over The Rhine. The loan provided the group a 30 year term with 1 percent interest, but city records show the group never made a single payment since getting the loan in Sept. 1999.
The group was required to renovate 14 rental units and two commercial store fronts at 1123 and 1125 Walnut Street. The ordinance approving the deal shows when city leaders visited the property in June 2014, "City administration determined that the Property is in need of renovation…"
The deal would require renovations by the new owner, So-Li Interests, LLC, of 14 "market-rate" apartments by Dec. 2015 and the city would forgive the $225,000 loan. The loan forgiveness is characterized as a "subsidy" for the project meaning tax payers would gift the $261,218 owed on the original loan to the new developer. So-Li Interests, LLC told the city it planned to spend $288,500 in renovating the property.
We contacted Chip Hunter, listed as the first member of the three in the LLC. Hunter initially agreed to interview with FOX19 on July 21 at his Madison Road office, but later declined to participate in this report. By phone, we asked Hunter why he did not make any payments to the city on the tax payer funded loan and Hunter declined to comment. Hunter did tell us "there was nothing shady or underhanded" with the deal.
CITY "PLAYING BANKER" AND "NOT PLAYING IT WELL"
"They screw the city and the city goes, Oh! Dang! We got screwed again and then they bury it under the rug," COAST treasurer Mark Miller told FOX19. COAST is a tax payer watchdog group based in Cincinnati. Miller's group has fought the city in the past on issues involving spending and protecting the rights of the tax payer.
We wanted the organization's perspective on the way the city's handling loaning tax dollars.
"Some of these are starting to look like liar's loans," Miller explained, "Just gifts to a favored few and that gets real old. Whether you're a Democrat or a Republican that's just wrong; period. And, people aren't going to put up with it anymore."
Our investigation uncovered dozens of other loans the city handed out to private businesses. The loans fall under multiple loan programs, each tasked with separate economic development goals. On June 16, we filed an open records request with the city to see the loan agreements, who all the city's loaned money to, the reasons why, amounts loaned, amounts past due and who is in default.
The list shows 59 borrowers who collected $24,893,528.31 in tax dollars as loans for various reasons. There are 27 borrowers past due; many are more than 120 days late in loan payments to the city. The total past due owed to the city as of this report is $1,045,116.49, according to city loan records.
The largest past due balance belongs to Goodall Properties, Limited located at 324 W. Ninth Street in Cincinnati. The corporation is $228,836 past due and more than 120 days late, according to the city's debtor list. State business filing records show a man named David Foxx as the person in charge of the corporation, established for real estate purposes. We found Foxx at the Goodall building address listed in the city's loan records and asked him about the past due balance on the $550,000 loan to Goodall Properties, Limited.
Calls to Foxx's offices were referred to a lawyer connected to the Goodall property. We visited Foxx's office in person after trying to reach him by phone, but we were told we'd have to make an appointment. While outside shooting video, Foxx walked out and headed toward city hall. We decided to ask Foxx about the loan then, "I don't have any comment about that, that's the city's business," Foxx told FOX19.
Foxx declined to comment further about the past due or any intention on repaying the loan.
"We have people playing banker. This is not Monopoly," Cincinnati City Councilman Christopher Smitherman told FOX19. Smitherman was the only councilman to vote against two other loan extinguishments in May and June. "It's really the best place in town for someone who is irresponsible, who wants a very liberal underwriting process to come to the city and get a loan," Smitherman said.
The problem for Smitherman is the lack of security written into loan agreements between the city and the people who borrow tax dollars. Even when collateral is put up, Smitherman said, the city doesn't collect that and has adopted the practice of "simply giving away" tax dollars owed to it.
"Banks have already said no and the city is saying yes and that to me is part of the problem," Smitherman said. "It definitely concerns me that we have claw backs, we have collateral in some of these instances, or there was no collateral in other instances and the city did not take the right steps to collect tax payer money and that's why I voted no on both of those transactions," Smitherman said.
"They're trying to play banker inside city administration and they're not playing it well," Smitherman told FOX19.
The sole reason for the city of Cincinnati getting into the loan business is: economic development. That's according to the arguments put up before council as to why it's a benefit for the city to give away tax dollars it initially loaned out. We requested an interview with interim city manager Scott Stiles on July 16 and in a follow up email, Stiles had the city's spokesman, Rocky Merz deny our interview request.
We wanted to have Stiles explain to the public the benefit of forgiving loan obligations funded by tax dollars after years of failing to repay them. Stiles office instead issued a statement and again declined to interview as part of this report. The reason for both loan extinguishments, according to Stiles' statement, was economic development.
On July 22, we went to Stiles' office to question him about the loan forgiveness and to find out what the city's doing to collect the $1,045,116.49 in past due loans. Stiles agreed to talk with us between meetings at his office, but called his spokesman to escort us out of the office and again deny our interview request.
"He's not going to be interviewing with you today," City spokesman Rocky Merz told FOX19 in the hallway outside the city manager's office.
"You did get the statement?" Merz asked FOX19 reporter Jody Barr.
"I got the statement but it didn't answer any of our questions," Barr replied.
"You can read?" Merz asked.
Merz took us to a hallway near his office to answer questions about our loan investigation.
"Why did the city decide to go with the extinguishment of two loans that were severely past due," Barr asked.
"I'd refer you to our statement on this subject," Merz said.
"Ok, the statement didn't answer any of our questions," Barr said. "The question is why did the city choose to—in two cases—just simply forgive tax dollars that were loaned out to private citizens here in the city of Cincinnati?"
"We had an instance where two loans were not going to be paid back and so this allowed us to get other economic development benefits for the surrounding neighborhoods. These were loans that were never going to be paid back," Merz said.
"Is that a good enough standard to say, well, let's just forgive the loan ever happened," FOX19's Barr asked Councilman Christopher Smitherman.
"No. Because it speaks to the origination of the underwriting, meaning there was a failure in the underwriting on the front end to properly assess risks," Smitherman said. "We have set up this pattern of someone who might want to pay, might have the money to pay, decides not to pay. And, we have a history of saying it's okay not to pay and it's incredibly dangerous for the city of Cincinnati."
Merz could not readily provide specific details on any of the loan information his office provided to us under an open records request. Merz offered to provide that information to us at a later date. We'll update this investigation as soon as the city provides this information.