Luzerne County should return $6 million in federal funds misspent on the failed project to revitalize the historic Hotel Sterling in downtown Wilkes-Barre, according to a federal audit.
The county "did not properly evaluate" or monitor "a high-risk loan" of $6 million to CityVest, the nonprofit owner of the Sterling property, and CityVest spent federal money on "ineligible program expenses," according to the audit from the U.S. Department of Housing and Urban Development's office of inspector general.
"The county's lack of objective evaluation and underwriting of the project and its lack of proper project monitoring contributed to $6 million in block grant funds being spent on an incomplete project that failed to achieve its job creation national objective," the HUD audit concluded.
HUD has not decided whether to enforce the audit recommendation that the county pay back $6 million, said Andrew Reilly, executive director of the county office of community development. In a Sept. 28 response to draft findings from the HUD audit, Mr. Reilly said imposing "a financial sanction would be counterproductive."
The goal of the project from 2002 to 2010 was preserving the historic hotel, and CityVest and the county claimed the revitalization project would create at least 175 full-time jobs, with at least 90 benefiting low- and moderate-income people.
The HUD audit, which has an issue date of Oct. 31, concluded the project "will not meet its designated national objective" because the 104-year-old structure was deemed unsafe and demolition is planned.
In the Sept. 28 response, Mr. Reilly said the county "is fortunate in the final analysis" because it can "restart the project" after the Sterling is demolished and "ultimately succeed in redeveloping the site to create the jobs for county citizens."
CityVest has claimed it can't pay back the $6 million from the county Business Development Loan Program, which is funded by HUD's Community Development Block Grant program. CityVest offered the 4-acre property to the county in April 2011 after releasing a report recommending demolition.
The city condemned the Sterling as unsafe and diverted traffic away from it in September 2011. County council on Sept. 25 approved county Manager Robert Lawton's recommendation to spend up to $232,729 on a demolition if certain conditions were met, but a dispute over liability issues has held up an agreement between Luzerne County and CityVest.
"The success of the new developer, the accompanying jobs to be created, and tax revenue to be generated remain to be seen," the HUD audit said in response to Mr. Reilly's Sept. 28 letter. "The county believed the first developer (CityVest) would be successful. ⦠We disagree with the county's characterization of this situation as fortunate. In our opinion, we believe the exact opposite is true. ⦠The ultimate success of redeveloping the site to create jobs for county residents has yet to be demonstrated."
The HUD audit backs up findings from a county audit released in June 2011 by Controller Walter L. Griffith Jr. A federal grand jury initiated a probe of the Sterling project in December, according to a subpoena issued to county commissioners. To date, that probe has not produced any indictments.
Contact the writer: mbuffer@citizensvoice.com