Whole lotta money, not so many jobs
Atlanta's Empowerment Zone gets little bang for taxpayer buck
In the five years since its inception, the Atlanta Empowerment Zone's Business Development Fund — designed to encourage job growth in some of the city's bleakest neighborhoods — has loaned out $8 million.
But that money has gone to just three businesses. What's more, those firms have hired only 14 people as a result. Total cost per job? $570,000.
While it's too soon to declare the program a failure, an examination of financial statements, correspondence and loan documents shows that the program has seen little return on its investment. In one case, a company that received a loan in June 2000 still hasn't moved into its building and probably won't until next year. And in another case, an 18-month loan procedure actually endangered the company it was designed to help.
Meanwhile, as legal fees for just two of the loans climbed past the $150,000 mark, it turns out that the lawyers who have profited have close ties to Bill Campbell who, besides being mayor of Atlanta, also chairs the Empowerment Zone board.
Long-term or long shot?
The Atlanta Empowerment Zone, shaped vaguely like a Y, stretches south to the Lakewood Freeway, northwest to Ashby Street and northeast to North Avenue.
In 1996, Atlanta, like other large cities, received $250 million in cash grants, loans and tax breaks to improve some of the country's most impoverished urban areas.
Of that $250 million, $12.8 million comprised the Atlanta Empowerment Zone's Business Development Fund.
Excellatron, a high-tech battery manufacturer, received its $3.9 million loan through the fund in June 2000. Excellatron's building at 263 Decatur St., near Grady Homes and underneath some MARTA tracks, still sits unoccupied. On a recent sunny afternoon, the 172,000-square-foot complex of office and warehouse space seemed abandoned save for a few buckets of paint remover and some pigeons fluttering in the rafters.
Excellatron's chief operating officer, Tony Pace, says his company, which was founded by the man who developed Super Soaker water guns, hopes to move into its new building by the first of next year.
Maybe the workers' absence was weather-related. "Might have been a picnic day," Pace jokes.
Quarterly reports for the Smyrna battery manufacturer indicate that Excellatron has hired four Empowerment Zone residents to help with renovating its Decatur Street site. (The quarterly reports for the second and third quarters of last year were turned in March 19 — two days before Creative Loafing was scheduled to examine them.)
Pace says his hope is that Excellatron will eventually employ "a few hundred people." The original business plan predicts 30 jobs created by the end of 2000, 74 by December 2001 and 327 total jobs between 1999 and 2003. Pace says his company currently employs 22 people — all in Smyrna. Revenue projections from 1999, also submitted to the AEZ, indicate expected earnings of $7.3 million in 2000 and $11.7 million this year.
Ron Diamond, interim director of the Atlanta Empowerment Zone, says structural problems have put the project slightly behind schedule.
With friends like these ...
Also last June, Empowerment Plastics Co. Inc. finally closed on its $1 million loan from the Atlanta Empowerment Zone. For the company, which recycles plastic into waterproof faux lumber for such things as playground equipment, the closing was the end of a two-year process.
"That would be an unusual time frame" to receive a standard commercial loan, says Karen Kitzmiller, spokeswoman for the First Union Corporation. Depending on how quickly the company is able to assemble its application, she says, it's usually only a couple of weeks between commitment and closing.
Besides the time involved, the loan process cost Empowerment Plastics $61,500 in legal fees, part of which went to Troutman Sanders, the law firm the zone has hired for its loan work.
One of the partners at Troutman Sanders is Michael Coleman, a former city attorney and currently one of the lawyers for the mayor. Coleman himself has worked on some of the Atlanta Empowerment Zone projects. He could not be reached for comment.
A report by Georgia's Department of Community Affairs states, "There is no documentation in the AEZC files indicating by whom, through what process, or why [Troutman Sanders] was selected for this work; in fact, there is no procurement documentation for any of the law firms involved in this project." In a faxed statement, Diamond says Troutman Sanders was already chosen as the AEZ attorneys when he joined in 1996.
As for the company itself, Dale Evans, Empowerment Plastics' executive vice president of administration, estimates her company has done about $300,000 in business since opening up six months ago and "trained" 38 Welfare to Work Program participants to gather recyclable materials from the Renewal Atlanta Clean-up Site. Twenty-nine other Welfare-to-Work Program participants were also trained in Empowerment Plastics own job training program on Empowerment Plastics machinery, Evans says. A few, she has heard, have gone on to get full-time jobs elsewhere.
Today, though, the company employs just five people, two of whom are zone residents.
But of the three companies that have so far received Business Development Fund loans, the one that suffered the biggest headaches was Light & Energy Management Inc.
"Nobody worked as hard as we did," says Courtney Pollard Jr., chief executive officer of the company, which is partly owned by baseball great Dave Winfield. "We were on the phone every day. We refused to give up."
It took the company 18 months to secure a $3.25 million loan with a 5 percent interest rate. That wait translated into $103,011.72 in legal fees. The lucky law firm this time, though, wasn't Troutman Sanders. (Troutman Sanders was already Light & Energy Management's corporate law firm.) Instead, Minkin & Snyder, home to David Minkin, the husband of Campbell spokeswoman Glenda Blum Minkin, was brought in. Sheri Labovitz, a former attorney with Minkin & Snyder and wife of close Campbell friend and former Chief of Staff Steven Labovitz, charged the company $270 per hour; Minkin & Snyder collected a $50,000 payday, according to AEZ information. Meanwhile the AEZ pays its own attorneys only $130 to $170 per hour.
LEM's legal fees were so high it had to pay the bill with money from the loan.
In hindsight, Pollard says he would go through a commercial bank for the loan.
The process took its toll. While Pollard waited and, as he says, the zone tried to figure out what it was doing, an investor pulled out. The AEZ also made Light & Energy Management purchase its equipment and property with loan money instead of allowing the company to put the money in the bank and use the interest to make monthly payments on each. LEM was left with little working capital, Pollard says, and if the company defaults on the loan, the zone will be trying to recoup its investment by selling equipment that's years old and used.
To make matters worse, LEM discovered that one of its founders embezzled from the company — twice. What's more, two major contracts (with the city of Atlanta, incidentally) were suspended indefinitely.
The suspensions forced the layoffs of 12 zone-area employees — half the number of residents that the company had employed.
"It's a little rough right now," Pollard says. "We're struggling to make a go of it."
And payments on the loan haven't even begun yet. Like the other businesses, LEM is allowed to defer payment on the principal for two years. Each of the companies faces "balloon" payments at the end of the loan terms — LEM's totals nearly $1.4 million — so the companies will need to be a picture of fiscal health.
A mixed bag
From its inception, Atlanta's Empowerment Zone has been plagued by sloppy management and infighting between its 17-member governing board and the zone administrators. In 1997, nearly the entire Empowerment Zone staff was fired after it was discovered administrators blew through most of the zone's $4 million, 10-year administrative budget in a year. In 1998, the federal Department of Housing and Urban Development forced the Empowerment Zone to repay $1.1 million in misspent money.
Since 1997, four different bodies have occupied the Empowerment Zone's director's chair. And the door keeps revolving on the governing board, too, a board headed by Campbell.
The turnover has been a tremendous problem, says Michael Rich, an Emory University political science professor who tracks zone progress as part of a research project that is submitted to HUD. One of the surprises of the program "is that it's still alive given all the trouble it's been through," he says.
Not that it's been without its successes. The Empowerment Zone pumped $1 million into the Fulton Bag and Cotton Mill, a multi-million dollar loft apartment project in Cabbagetown. Money has also been allocated for the Sweet Auburn Curb Project, the North Yards Business Park and the Historic Westside Village project.
It's unclear if and when any other businesses will receive loans through the Business Development Fund. J and R Foods Inc., a bakery business on Metropolitan Parkway, has been favorably recommended by the Empowerment Zone's outside consulting firm, Beresford & Hilliard International, and has been approved for a loan.
But even J and R has gone through a three-year Empowerment Zone wringer.
"The zone has hurt a lot of people by making promises that never came through," says Jonathan Handman, president of J and R. He's dealt with all three directors and twice been told that no money existed in the Business Development Fund. The turnover and ineptitude at the top kept delaying the loan process, which threatened the health of the company, Handman says. And a lack of coordination between different arms of the AEZ meant J and R Foods missed out on opportunities for tax abatements and utility bill breaks, among other goodies, he says. "One hand didn't know what the other hand was doing," Handman says.
While the loan process might have run off some businesses, Handman says he's hopeful Diamond will complete the deal. They're scheduled to meet Friday. "He's the only one who has been director who has done anything," Handman says of Diamond. "Ron is starting to get the programs put together."