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A conflict of interest?

Questions arise over relationship of PDC and Portland Family of Funds

As the Portland Family of Funds moves into its new digs at Fox Tower this week, Mayor Tom Potter is asking the city attorney to investigate whether a too-cozy relationship between the Portland Development Commission, the agency's creator, and the PFF fostered backroom loans and bad policy.

Potter's request came Friday, just hours after the City Club of Portland released a report saying the PFF's relationship with the Portland Development Commission, the city's quasi-public urban renewal agency, was 'inconsistent with good public policy.' The commission created the PFF to administer federal tax incentives to encourage investment in needy areas.

The City Club report said the commission granted up to $1 million in loans to the fledgling agency 'without using the typical security devices it normally uses to secure loans to private parties.'

Kenny Asher, PFF general manager and currently a commission employee, denied any improprieties.

Potter, calling for the city attorney to look at whether the agencies conformed to city policy and the law, said in a statement: 'My goal is to increase transparency, accountability, inclusiveness and civic engagement in the governance process through the city.'

The report says that PDC's 'significant control over staffing and making unsecured loans to the Portland Family of Funds' could violate the state constitution. The development commission is not allowed to make investments in private entities; PFF is a registered corporation.

It says the 'continuing entanglements between PDC and Portland Family of Funds seem to mask significant aspects of public business under the mantle of private entities not subject to public review.'

On the other hand

Development commission executives, who met last Friday with the City Club's research team, disagreed with the report findings.

'We're confident that the findings of a city attorney will show that the founding of PFF meets the letter of the law, and going forward we have an important source for resources in the community,' said PDC Executive Director Don Mazziotti.

But Wade Fickler, the City Club's research director, said assurances from the commission were not enough. 'We think an outside legal opinion needs to be rendered. City Council has to decide if this is good government. We aren't prepared to say they are breaking the law; but we believe the spirit of law is being broken.'

Since the PFF is 'perceived as having the approval of the city of Portland, we want to make sure they have more oversight,' Commissioner Sam Adams said.

Family of Funds staffers are PDC employees, although PFF will become independent under an agreement being negotiated. Family of Funds Executive Director Norris Lozano and Asher will remain as commission employees until February. Mazziotti will serve as a nonvoting advisory member of the PFF.

The PDC board will vote on the agreement at its Jan. 26 meeting.

After the agreement's adoption, the two organizations would continue to jointly review new projects and confer on the expenditure of $100 million from the New Markets Tax Credit program, a complex financing process that can confuse even the most astute developer.

The tax credits, from the U.S. Treasury Department, are earmarked for two construction projects: Vanport Plaza on Northeast Martin Luther King Jr. Boulevard, and the Gateway Transit Center. The credits are seen as a way of making a development more attractive to investors.

Much like government savings bonds, investors can buy the New Markets credits at a bargain price and then receive up to 6 percent a year in tax savings for seven years. The federal government pays 39 percent of the investment. Developers can then use the money for construction costs.

Family of Funds also manages another $97 million in tax credits received independently of the PDC for the Meier & Frank redevelopment, and is pursuing another $100 million in credits from the Treasury Department's 2005-06 budget.

New Markets tax credits also are seen as a vehicle for boosting Portland jobs, historic renovations and new projects.

But critics dismiss the New Markets program as a windfall for favored developers, and a bribe to companies threatening to leave town.

Asher said they're not favoring anyone.

'These credits are available for any investor,' he said. 'We would love to do the same deal with any of Portland's companies facing the same constraints.'

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