By Gregory Korte
The Cincinnati Enquirer

The agency responsible for running the Cincinnati Empowerment Zone misspent thousands of federal dollars and failed to produce results in key programs, according to a just-released federal audit.

The findings come as President Bush released a proposed 2004 budget Monday that contains no money for the Cincinnati program and 14 others through the U.S. Department of Housing and Urban Development. It's the second year in a row that the administration has cut empowerment zone funding, citing "no convincing evidence" that up to $10 million a year in federal grants have produced results.

The Clinton-era program was intended to revitalize the poorest urban neighborhoods by providing jobs, job training, housing and neighborhood development. In Cincinnati, those neighborhoods are Avondale, Clifton-Fairview, Corryville, Evanston, Mount Auburn, Over-the-Rhine, Queensgate, Walnut Hills and the West End.

The audit, mandated by Congress, was the first review of the Cincinnati program in its four-year history. HUD's inspector general is auditing seven empowerment zone cities, and Cincinnati's findings are the most serious of the five released so far.

The Cincinnati Empowerment Corp. said it "wholly refutes" the audit's findings.

According to the audit, the city and the Cincinnati Empowerment Corp:

• Misspent $15,364 in federal money, using it to support salaries and expenses that aren't related to the empowerment zone, and failed to provide documentation for $311,346 in federal money;

• Misstated the progress of the 10 programs reviewed by HUD; and

• Spent $594,462 on programs that aren't benefiting residents of the neighborhoods in the zone.

For example, Nu-Blend Paints Inc., a zone-funded nonprofit company in Over-the-Rhine that recycles latex paint and containers into new paints, failed to complete job training or employ a single zone resident - despite spending $239,489, according to the audit. The Empowerment Corp. disagrees, saying it provided check stubs and documents to show one employee completed job training.

The audit said only 37 percent of the residents who benefited from the Cincinnati Recreation Commission's "Arts for All" program were residents of the empowerment zone neighborhoods.

The city also overstated the accomplishments of eight other programs, according to the audit. Those include the school nurse program; the Cincinnati Youth Collaborative's youth capacity and resource building project; Inner City Health Care's Walnut Hills clinic; the Liberty Street Learning Center; People Working Cooperatively, a housing rehabilitation agency; Nanny's Multi-Level Learning Center; A.D.A. Investments, a restaurant, laundry and storage facility project; and the Big Dollar discount store.

The city administers the program through a separate nonprofit board, the Cincinnati Empowerment Corp. In order to get the federal funding, the city committed $208 million in matching funds and services over 10 years.

Harold L. Cleveland II, the agency's executive director, protested the findings in a letter to HUD officials. "The audit was conducted with very little due professional care and a strong negative bias," he said.

At the agency's monthly board meeting Monday night, Cleveland said the auditors ignored documentation included in more than 2,000 pages of records the agency sent to the inspector general's office. And he said other empowerment zone cities have had problems with the auditors' tactics.

The chairman of the Empowerment Corp.'s board said the audit was much ado about nothing, and said he was reluctant to distribute it publicly because "we don't accept it."

"There is no story here. There's no scandal. Nobody stole anything. Nobody did anything improper," Robert Killins Jr. told board members Monday. "For us to bring it to you today and go through it at this meeting would be unproductive."

City officials said they could not comment until they had a chance to review the 148-page audit report, much of which is devoted to back-and-forth responses from the Empowerment Corp. and the inspector general's office.

Under federal law, HUD has 120 days to respond to the auditor's findings.

A HUD spokesman said it was too soon to respond to the report, but said it was unrelated to the Bush Administration's proposal to eliminate empowerment zone funding.

"There is an emerging philosophy in Washington that instead of a one-time grant for a business, there's $17 billion in tax incentives. That's money in the pocket and cash in the bank for them to expand their payrolls," said HUD spokesman Brian Sullivan. That's the opinion of U.S. Rep. Steve Chabot, a longtime critic of the grants whose 1st Congressional District includes most of the zone. He said the audit demonstrates the need for Congress to maintain "vigorous oversight" over the program.

"This report raises serious questions about the ability of the city and the empowerment zone to properly implement the program," he said through a spokesman. "I have expressed similar concerns in the past and shared a deep disappointment with people living in empowerment zone communities, who hoped that the program would offer new opportunities for economic development and job creation."

E-mail gkorte@enquirer.com