We interrupt this blog for an important announcement

Today the City of Portland’s Auditor released their report on the Portland Development Commission.  The folks sitting near me while I read the report will attest to the fact that it made me hopping mad.  For the sake of full disclosure I will mention that we (CubeSpace) applied for funding from the PDC and were turned down.  However, I am confident that the facts will stand on their own and it will be made clear that my concerns are not the result of sour grapes.

All of the quotes below come from the Auditor’s report which can be found here.

The Auditor found that the developers that received PDC funding complied with the stipulations of their funding.  However, this is despite the fact that PDC doesn’t seem to monitor their results.

Here is what the auditor’s report said regarding the PDC’s oversight of the developers they funded:

We found that developers met many of the requirements of the 11 Agreements we reviewed. For example, they renovated three properties and 99 affordable housing units. Developers also constructed three commercial properties, fifteen market value residences, and one affordable home.

However, PDC was unable to consistently confirm that developers met the Agreements’ basic requirements because PDC does not follow its own policy for certifying the completion of every Agreement. In addition, PDC cannot demonstrate that Agreements fully accomplished other goals and purposes, such as finding and retaining commercial tenants.

Further, PDC is not monitoring the Agreements’ goals sufficiently once projects are completed. Therefore, PDC cannot determine if Agreements have accomplished their intended purposes and justified the public investments.

I find this lack of oversight disturbing.  Especially since the criteria for many of their loans tie job creation to a dollar value: Enterprise Loan Fund and the Revolving Loan and Real Estate Fund.  In fact, we (CubeSpace) had several conversations with them about how we didn’t qualify because we don’t have many employees, even though we exist to support small businesses.  But, we couldn’t get credit for the jobs we indirectly create through our existence.  Now I learn that we could have just lied since nobody checks anyway.

Job creation numbers are unconfirmed – PDC is also unable to demonstrate whether the Agreements created the number of jobs expected. Under the Agreements, a total of 484 jobs were anticipated based on estimates related to the size of the buildings.

By the end of our audit fieldwork, PDC was unable to provide evidence of job creation. However, when we visited the Agreement sites, we saw people working. Therefore, we attempted to verify the anticipated jobs through sources outside PDC. We were able to confirm the existence of 166 jobs. PDC told us as many as 520 jobs may have been created, but only provided evidence of 212 jobs.

Another finding was that much of the commercial space that was developed using PDC money remains vacant.  This is, in part, because the PDC did set realistic expectation for filling the commercial space.  This is interesting in light of the fact that the PDC recognizes that it can be difficult to lure businesses to a neighborhood that is perceived negatively.

PDC cannot demonstrate whether developers met some Agreement goals for commercial development At the end of our audit fieldwork, we found that some commercial development goals were not fully met.

Commercial space remains unfilled – Of the seven Agreements that include commercial space, we found that four commercial buildings are partially empty and three are full. According to PDC estimates for building size and occupancy, the developments created approximately 304,000 square feet of commercial space, but about 42,000 square feet of commercial space were empty.

One PDC manager told us that it is sometimes difficult to fill commercial space in URAs [Urban Renewal Area] because negative public perception of the neighborhood and lack of other businesses in the area make commercial tenants hesitant to lease the space. We recognize the difficulties that PDC faces in developing URAs and acknowledge that project teams assist developers in their efforts to fill the properties.

Disposition and Development Agreements
However, at the time these Agreements were signed, PDC did not clearly define realistic expectations for the time frame in which commercial space will be filled.

One of the developments featured in the report itself is located just a couple of blocks away from us.  We are both located in the the same Urban Renewal Area.  They have 15,000 square feet of flexible office space that has been vacant for over a year.  In fact, they have contacted us to inquire as to whether we would like to rent their space.  We have 13,000 square feet ourselves.  While we are not full to capacity by any stretch of the imagination, our space is heavily utilized.  We have 30-50 people here on an average day and on a crazy conference weekend, we have had over 300.

When we applied to PDC for funding to help build out our space, we were told that since we were not estmating capacity in the typical way that a landlord measures tenant capacity (because we license, rather than rent our space) they could not make the numbers pencil out.  However, our is exactly the type of business that encourages people to work in a URA because they are not required to make a commitment beyond a single hour.

In retrospect, we are just fine not having received money from PDC.  It would have left us with more operating capital, but it allowed us to develop our own metrics for success and create our own accountability.  But, if Portland is going to continue to be the hub that it has become for creative small business, PDC will need to both re-evaluate its criteria for funding and actually hold themselves accountable for those criteria.