Harrisburg must repay $3.2 million federal loan from failed Capitol View project

Another financial debacle from Harrisburg's past has reared its ugly head.

Harrisburg this year must begin repaying $3.2 million over the next 11 years because of a failed federal loan by bankrupt developer David R. Dodd II in connection with the Capitol View Commerce Center.

The city originally guaranteed a nearly $3.8 million loan for the project in 2006. The project imploded two years later when unpaid contractors walked off the job site at Cameron and Herr streets.

In 2013, the city repaid $630,000 of the loan but remained on the hook for the balance.

The city will use nearly 20 percent of its annual allotment of Community Development Block Grant money to repay the defaulted loan. That means the city will have about $320,000 less each year until 2026 to finance programs that would benefit poor and moderate-income residents.

"It is devastating to the city" to have so much of the annual CDBG budget go directly to debt service instead of "essential community services," Harrisburg Mayor Eric Papenfuse said. "It is another irresponsible Reed-era financial transaction for which Harrisburg residents will have to pay for years to come."

The Dodd loan came up this week during a council committee meeting, when council members reviewed a report prepared for the U.S. Department of Housing and Urban Development describing the city's three-year plan for CDBG grants.

Papenfuse said he asked HUD officials for the loan to be forgiven, but was told that would be highly unlikely. The city then asked to defer payments and refinance the loan at a lower interest rate.

Harrisburg filed a claim for restitution against Dodd, who was convicted of federal criminal charges of money laundering and misusing government funds, but city officials aren't hopeful. Dodd remains in prison, where he is serving an 87-month sentence.

Harrisburg had already been siphoning off $330,000 from its CDBG money every year to pay debt payments for an unrelated loan dating back to the 1990s. That loan paid for improvements along Market Street, Papenfuse said.

The new penalty from HUD brings the total debt service payments coming out of the city's CDBG funds each year to $663,546.

Last year, the city got $1.9 million in CDBG money.

Harrisburg has used some of its CDBG money to pay for emergency demolition of blighted buildings and for low-interest loans for homeowners to bring their homes into codes compliance. The city had to turn down requests from 12 agencies last year because there wasn't enough money to go around.

Dauphin County, for its part, guaranteed a different $3 million federal loan for Dodd, which it began paying back out of its CDBG money in 2012.

Dodd was promised more than $17 million in federal, state and county and city financing for his $28 million project and had spent about $8 million of it before unpaid contractors walked off the job.

Investigators claim Dodd instead diverted millions of government funding that was supposed to pay contractors.

John Moran, of Moran Industries, bought the Capitol View property in 2013 and renovated it to house his offices and logistics operation, among other companies. He originally expected to open it last year, but the project has not yet opened.

City officials said Moran Industries was still working through right-of-way and vehicle access issues with PennDot.

Source: PennLive