Long Beach Violated Loan Terms, HUD Says

Federal housing officials, in what they called an unusual action, have found that the city of Long Beach failed to hire enough low-income residents on a waterfront project, violating terms of a $40-million HUD loan guarantee.

The city said Thursday that although it disputes the U.S. Department of Housing and Urban Development’s conclusion that it did not make a reasonable effort to ensure that 30% of the development’s newly hired workers were low-income Long Beach residents, it will draft a restitution plan to provide replacement jobs and opportunities over the next three years.

That plan was demanded in a 14-page letter from Carolyn Peoples, assistant secretary for fair housing and opportunity at the agency. The April 28 letter outlines its investigation in exhaustive detail but does not explain why it took six years to complete.

If the city fails to submit its restitution plan or follow through with it over the next several years, future federal funding for such projects might be suspended, HUD wrote. The city receives about $10 million annually in federal community development block grants.

The city sought the loan backing in August 1995 to help finance the earliest construction of the project that is anchoring its ambitious makeover of downtown.

HUD began its investigation in July 1998 after a complaint was filed by the Legal Aid Foundation of Los Angeles representing residents of the federally subsidized Carmelitos housing project in Long Beach.

Attorney Dennis Rockway, who filed the complaint, said Thursday that it is especially egregious that Long Beach, a city with the country’s 10th-highest number of residents living below the poverty level -- more than Oakland -- would fail to find work for its own poor.

“The key here, above all the technical details, is that you would think the city would do all it could to follow the federal rules it agreed to,” Rockway said.

Instead, as HUD found, the city made a concerted effort only after the agency had launched its investigation, and even though staffers had many meetings with marginalized labor groups and unions, it did not ensure that the newly hired poor lived in Long Beach.

Craig Beck, the city’s administrative and financial services manager, said Thursday that the city believed it was complying with HUD requirements by hiring low-income residents from surrounding communities, although the agency found even that figure fell short of the 30% required.

Beck said the city applied to HUD to guarantee, or co-sign, a $40-million loan from Bank of America.

Such loan guarantees are referred to in government shorthand as Section 3, and they help local governments secure financing from private institutions that might otherwise balk at investing in urban renewal projects.

In doing so, HUD is guaranteeing that the loan can be repaid with federal community development block grant funds that cities such as Long Beach receive as a stable source of income.

As the agency wrote to the city: “The purpose of Section 3 is to ensure that employment and other economic opportunities generated by certain HUD financial assistance shall, to the greatest extent feasible ... be directed to low- and very low-income persons, particularly those who are recipients of government assistance for housing, and to business concerns which provide economic opportunities to low- and very low-income persons.”

The city borrowed $40 million to pay for dredging, building esplanades and other infrastructure around Rainbow Harbor necessary before construction of the Queensway Bay development, which has been renamed the Pike at Rainbow Harbor.

The project fronts a better part of the city’s downtown waterfront and is critical to the city’s effort to transform the area into a major visitor hub.

It has condominiums, restaurants, a theater and a pedestrian bridge that links the Aquarium of the Pacific to the expanded Long Beach Convention Center.

Although HUD said it has had no previous violations by Long Beach, it also called its finding uncommon after a years-long investigation and monitoring of the project.

Rockway suggested that its rarity was largely due to low-income residents lacking advocates who could withstand years of dealing with different governments and a changing cast of players.