One Stop Capital Flop 

You'd think the loss of six million dollars would teach Oakland to stop making ill-advised business loans. You'd think.

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To right the course, the city hired a marketing consultant to analyze the company's prospects. The resulting verdict was discouraging: U-Wheel-It appeared to be a tough sell. "There [are] still questions regarding whether there [is] an actual demand for the product," the report concluded.

Still, the consultant suggested a loan of $200,000 to get the U-Wheel-It on late-night infomercials from Oakland to Orlando and hopefully move some units. Skeptical of Brooks-Hamilton's pitch, the loan committee recommended a compromise: $100,000. In July 1998, after a lengthy debate, the city council approved the compromise loan.

It was like throwing good money after bad money. Only $60,000 would ever arrive, and that went straight into a stack of past-due bills and payroll expenses.

The U-Wheel-It was done for.

Issuing high-risk loans is a tough business, especially when a city is playing banker. Heck, going into business is tough business: the federal Small Business Administration estimates that only roughly one in five succeed. But when a business plan is well-conceived, it often works. Success stories from Oakland's lending program include Niman Ranch Properties, which paid back $1.2 million and created thirty local jobs; Eastmont Town Center paid back $4 million. Small businesses like Sunrise Specialty, Miramontes Bakery, and Wanda's Coffee Barista at the Coliseum have all paid back their loans on time, and are still operating.

Gregory Hunter, CEDA's assistant director, says these are just the kinds of businesses that need an advocate at City Hall. "Just because you come from a low or medium income, doesn't mean you shouldn't have the right of being a business owner," he says. "And just because you come from low or medium income, doesn't mean you don't have the ideas to start a business. They have just as good ideas as someone who's living in the hills." Hunter balks at calling such loans "high risk" -- he prefers "higher risk." Hunter's boss, CEDA director William Claggett, says his department's goal is to keep the default rate on city loans below ten percent. If you take out two of the city's biggest blunders, approved when the program was still getting underway and pushed through by a previous regime, he says, then they city has a 7.7 percent default rate. "We are never satisfied," Claggett says. "We can always do better."

Better shouldn't be too hard, since the program got off to an indisputably poor start. In 1996, shortly after Brooks-Hamilton received his first installment, the lending program was delivering on what one councilmember's aide calls a "come-and-get-it basis." One $2.4 million loan, pushed through by the Oakland Redevelopment Agency, went to directors of the Women's Economic Agenda Project, a nonprofit group dedicated to education and job training for poor women. The group used the money to purchase a posh downtown warehouse, but ultimately fell behind on payments and defaulted on the loan. Only recently, the city found a potential buyer to assume the debt and take over payments on the building, despite the nonprofit's protests. (The deal is currently in escrow.)

Another "flagship loan" approved by an anxious city council in 1996 gave $1.1 million to Elijah Muhammad Health Services, an inner-city health agency proposed by Nedir Bey, whose adoptive family operates Your Black Muslim Bakeries. The council debated the loan heavily, and Bey did his part politically, arriving at council meetings with a hundred-plus supporters. While high on the prospect of creating 21 jobs, some councilmembers were skeptical about the applicant's minuscule collateral and the facts that he owed $60,000 in back taxes and had no background in health services.

The council nonetheless approved the loan, but Bey failed to ever open the agency and, according to loan reports, hasn't paid back a cent. City auditors still aren't sure where the money went, and the city is now tangled in litigation trying to collect from Bey, who did not return phone calls from the Express. One councilmember's aide who remembers the debate clearly says the episode imparted a simple lesson on city loans that still applies: "The more they argue, the less likely the loan will work out."

List off the city's past flops to Roland Smith and just listen to him sigh: Elijah Muhammad Health Services? "The city really got fleeced on that one," says the auditor, nodding. Gregory Truck Body, $350,000. "Yep." And what about Brooks-Hamilton? "You could see that was a flimflam deal from the word go," he says.

The city's costly gaffes also drew the attention of HUD auditors, who slammed the city's lending program. Oakland's loan-payback setup was so inadequate, they found, that borrowers never even received invoices for payments due. They were just supposed to send in checks. At HUD's request, then-City Manager Kofi Bonner halted all loans for one year.

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