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By: Paul Hammel
From:Omaha World Herald
LINCOLN — Nebraska cities running grant programs to fund economic development projects received a 60-day reprieve Thursday as the municipalities and state officials continue to debate the future control of the successful job-creation program.
At stake are local revolving loan programs operated with federal community development block grant funds.
Millions have been loaned to businesses in small- and medium-size cities across the state in recent decades, creating hundreds of jobs.
City officials, as well as U.S. Sen. Ben Nelson, have expressed concerns about a loss of local control over the programs and a “power grab” by the state.
The uproar started when about 85 cities were told they faced a Thursday deadline to surrender any remaining unloaned cash or face an extensive audit of their compliance with federal guidelines. The cities risked being kicked out of the loan program for two years.
Cathy Lang, director of the Nebraska Department of Economic Development, said the department is giving cities an additional 60 days to decide whether they want to end their local block grant loan programs or try to keep them under more stringent federal rules.
Lang said the added time will give the cities, as well as the state, more time to explore their options.
Fewer than 10 communities, including Scottsbluff and McCook, had decided to turn in their funds, she said, and they will be given a chance to rethink that decision. West Point and Nebraska City were among the remaining 75 cities that had sought an extension.
“There were other ways (the Department of Economic Development) could have approached this instead of telling us ‘You hand over the money or we're breaking kneecaps,'” said Lynn Rex, executive director of the League of Nebraska Municipalities.
But Rex said she was pleased about the delay.
About $20 million is currently loaned out across the state in the block grant programs. (Omaha, Lincoln and Bellevue are too large to be included.) About $8 million is available for new loans.
Nelson called the situation a “power grab” by state officials to take away federal dollars from local governments, based on newly clarified rules from the federal Department of Housing and Urban Development.
“I am not pleased with the new HUD regulations and intend to fight them in Washington,” Nelson said through a spokesman. “The state should join that fight rather than try to take control away from local governments.”
Representatives of Nelson and the League of Municipalities, along with former U.S. Sen. Bob Kerrey, held a teleconference call Tuesday with HUD officials about the matter.
Arnold Ehlers, city clerk of Nebraska City, said his city plans to move ahead with about $200,000 in pending loans but will carefully ensure that all federal requirements are met. Ehlers said he recently received a new checklist from state officials.
The state's move was prompted by a new federal rule, adopted in April. It clarified that state economic development officials must monitor local loan programs, for instance, to make sure that contractors working on block grant projects pay prevailing wages and that proper environmental reviews are conducted.
Lang said that state officials in the past had mistakenly assumed federal officials were conducting such compliance reviews, and that the state just needed to track the loan program's fund balances.
“We have now discovered that's not correct,” Lang said.
A spokeswoman for HUD's Kansas City office said Thursday that federal officials want to make sure the block grant funds are being spent appropriately.
“We've learned over the years that we have to track this money better,” said Agatha Gutierrez, the HUD official. She emphasized there was no information that cities had used the money inappropriately.
Nelson said it appeared that state officials were going beyond the federal mandate to take control of the money from city officials.
In previous letters, the state department told cities they should return their block grant funds and that the loan program would be transferred to regional, nonprofit development agencies.
Rex and others say that's a loss of local control that will damage job-creation efforts and could interject state and regional politics into loan decisions.
Kerrey, a Democratic candidate for U.S. Senate and a former Nebraska governor, said he jumped into the fray after reading Monday's story in The World-Herald about the jeopardy facing the local economic development programs. Kerrey said the block grant programs run by the cities were a “great example of local control at its best” and that cities should be given the opportunity to keep them.
“This is a very successful program. The cities have done an exceptional job of managing this and it's produced tremendous benefits,” he said.
Phone messages left with the campaign of the GOP Senate candidate, Deb Fischer, were not returned on Thursday.
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