Family members of agency staff also benefited, records show
When audits last year revealed that a local nonprofit finance agency had paid out hundreds of thousands of dollars in taxpayer-subsidized low-interest loans to the brother of its former director, the fallout was swift.
Barbara Major, through a corporation that bears her name, received nearly $160,000 in taxpayer-subsidized loans -- about $100,000 more than the amount disclosed in audits filed with the state for 2008 and 2009.Within a day of the first news reports about the payments, Greg St. Etienne, who by that time had left the helm of Citizens United for Economic Equity and signed on as one of Mayor Mitch Landrieu's six deputy mayors, resigned his City Hall post, though he insisted that nothing improper had transpired at his former job.
A far different outcome befell Barbara Major, a longtime community activist who served as CUEE's executive vice president at the time the loans were authorized.
Though the audits also found that Major and her son received several loans from CUEE, Major was promoted, taking over the top post vacated by St. Etienne. Her political star hasn't dimmed, either: She continues to serve as Landrieu's hand-picked chairwoman of the Regional Transit Authority, and as one of his appointees on the board of the New Orleans Redevelopment Authority.
Under her direction, problems have lingered in CUEE's administration of the Louisiana Small Firm Loan and Grant Program, a state initiative designed to ensure economic parity in the Hurricane Katrina recovery by distributing federal money to disadvantaged and minority-owned small businesses.
Seven 'areas of concern'
In a Jan. 19 letter, an official with the Louisiana Office of Community Development, the successor to the agency that hired CUEE in 2008 to distribute more than $11 million in federal funds, cited seven "areas of concern" that state monitors discovered when they visited CUEE offices late last year.
Among them: CUEE made "multiple loans ... with little to no justification" to parties with close ties to the agency. While state rules didn't bar lenders outright from issuing loans to CUEE employees or relatives, they did call for adherence to lenders' own "conflict of interest" policies.
According to the letter, CUEE didn't have such a policy.
Monitors also found files were missing key documents such as "loan applications, credit reports, employee information, financial analysis and other pertinent lending information." In one case, paperwork for a loan to a company owned by St. Etienne's brother, David St. Etienne, lacked the borrower's signature, the letter states.
Moreover, officials in recent months discovered that CUEE lent out or paid itself nearly $250,000 more in administrative fees than it was entitled to, state spokeswoman Christina Stephens said in an e-mail message. CUEE pledged to remit half the overage by last week and to submit a plan by month's end for repaying the rest, she said.
As for the conflicts of interest, state officials instructed CUEE to create a policy for dealing with borrowers with ties to agency personnel and to apply it retroactively. They also directed CUEE to clean up its records.
According to Stephens, CUEE has "provided us with an updated loan policy and made improvements to their files." But in light of the raft of problems, she said the agency still could be on the hook to repay the state for money it has already given out.
"We have not reclaimed any of the fund, but (the state) has warned CUEE that the fund will be recaptured if these problems are not remedied," she said.
Taking advantage of the rules
The main account under scrutiny is a second-generation financing vehicle of the initial grant and loan program. Known as the "revolving capital fund," it was created with money that came in when borrowers from the primary loan program repaid their debts.
Greg St. Etienne, the former head of Citizens United for Economic Equity, resigned as one of Mayor Mitch Landrieu's deputy mayors, though he insisted that nothing improper had transpired at his former job.With less stringent rules -- revolving-fund loans didn't have to go to low- or moderate-income borrowers, for instance -- CUEE had far broader discretion for distributing the money, records show.
Agency leaders apparently took advantage of the freedom.
Whereas the 125 loans and grants distributed through the initial financing program largely went to little-known recipients from Hammond to New Orleans to Buras, about half of the 43 loans distributed through the revolving fund went to companies with direct ties to CUEE executives, according to state records obtained by The Times-Picayune through a public records request.
Of $1.7 million lent through the revolver, almost $831,000 -- about 48 percent -- was issued to firms owned by Major; her son, Gentry Major; or David St. Etienne. A nonprofit agency that assists homeless mothers -- and that counts Greg St. Etienne among its officers -- also received loans through the revolving account.
Barbara Major, through a corporation that bears her name, received nearly $160,000 in taxpayer-subsidized loans -- about $100,000 more than the amount disclosed in audits filed with the state for 2008 and 2009, according to records obtained by The Times-Picayune. As CUEE's No. 2 executive, Major earned $116,000 a year, federal tax returns show.
The documents also show that Major Construction LLC, owned by Gentry Major, received $90,000 in loans from CUEE, nearly triple the amount previously reported.
Meanwhile, nine loans worth almost $470,000 -- $120,000 more than the amount listed in the audits -- were issued from the revolving fund companies registered to David St. Etienne, including Ultimate Health, Ultimate Records, Ultimate Technical Solutions and Ultimate Technical Services, records show. Though the latter firm is not registered with the secretary of state, online business listings show it has the same address as other Ultimate ventures.
The only loan or grant issued to a CUEE employee or relative from the initial financing pool went to Ultimate Technical Solutions, which got an $80,000 loan and a $20,000 grant. Stephens said CUEE disclosed "a few loans to related parties" under the original program, in compliance with its cooperative endeavor agreement with the state.
St. Etienne did not return phone and email message seeking comment.
It was not immediately clear what other recipients with close ties to CUEE got money through that program.
Greg St. Etienne, who earned $140,000 annually as CUEE's chief executive, said in an interview last week that discrepancies between the audit findings and information provided by the state probably owe to 2010 loan activity that occurred after the latest audit was filed.
CUEE's 2010 audit, due June 30, has not yet been submitted to the legislative auditor. Suzanne Elliott of the auditor's office said the organization has been notified that the report is late. Until it's submitted, no state money is supposed to flow to the agency, she said.
Political connections
Besides the two agency executives, at least two other politically connected recipients benefitted from the revolver: former Mayor Ray Nagin's communications director, Ceeon Quiett, who received $37,500 in loans for her consulting firm; and Bill Rousselle, a popular local political and media consultant, who got a $25,000 loan.
Quiett and Rousselle could not be reached for comment.
The records provided by the state to The Times-Picayune do not indicate the date or terms of the awards or explain why the recipients were selected.
In responding to the audits nearly a year ago, Major said CUEE's five-member board of directors, on which she serves, had been completely unaware of the loans connected to St. Etienne. By contrast, Major said, board members knew about the loans to her business and to Major Construction.
Major last week declined to discuss other details of the lending programs with The Times-Picayune, including how the loans were advertised, participation requirements and the disposition of outstanding loans.
In an email message, she said that CUEE to date has loaned $3.5 million from the revolving fund, about 14 percent of which has been repaid. She wouldn't disclose the firms that received loans beyond those recipients detailed in state records.
The average interest rate on a loan from the revolver is 7 percent, she said.
Through her attorney, Kriste Talton Utley, Major also declined to explain apparent discrepancies between the audit findings and information contained in records obtained by the newspaper.
Utley added that the state appears to have provided the information to The Times-Picayune "in violation of state and federal privacy and consumer credit protection laws."
In an email message to the newspaper last year, St. Etienne said CUEE processed about 255 loan applications during his time as chief executive and approved 124, with most loans carrying an interest rate of 7 percent.
He said at the time that CUEE's "policies allowed loans to companies owned by relatives as long as they were handled as any other applicant."
As for loans to agency officials -- such as in the case of Barbara Major -- St. Etienne last week said he didn't think such arrangements were allowed.
"I think that you can't own the company that you're lending to, you can't have an financial interest in that respect," he said. "That's self-dealing."
Gentry Major this week said he learned of CUEE's financial programs after Katrina through organizations that assist entrepreneurs, though he couldn't provide names. He said his mother didn't provide him with information about the programs or help him apply.
"I went through the process like everybody else," he said.
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Michelle Krupa can be reached at mkrupa@timespicayune.com or 504.826.3312.