The Anacostia Economic Development Corp., which has spent millions of federal and District dollars in an effort to revitalize the city's blighted Southeast corner, is going broke, the victim of spending cutbacks and its own unwise investments.
"We expect to have only $4,000 in cash by March," said Albert R. Hopkins Jr., president of AEDC, which has tried for years to lure developers to the poorest 13 square miles in the District. "Either we will close down or reduce our staff to a shell of what we once were." Hopkins already has laid off half of his 18-member staff.
Since its founding in 1969 as a local business assistance agency, the corporation has spent millions on loans, housing improvements and land-use studies--dozens of projects designed to produce jobs for the 115,000 residents of Anacostia and the Congress Heights neighborhood in Far Southeast.
Now, however, after a series of financial blunders and the cutoff last May of $350,000 annually in federal funds, AEDC faces an acute cash shortage that could drive it out of business within weeks, Hopkins said.
AEDC is not the only local development agency facing financial ruin, according to the federal officials who, until this year, monitored the spending of the Community Services Administration's 32 community development corporations around the nation. (In 1981, the Reagan administration abolished the CSA.) Contracts and grants that expired last year were not renewed--in part, because of the poor business decisions made by some of the local agencies, officials said.
"Many of the past grants were based on the good intentions of the corporations, rather than on good business sense," said Spencer Lott, an official in the new Office of Community Services, which now administers grants to local development agencies.
One of the reasons for restructuring the funding of local agencies was "to avoid situations like AEDC's ," Lott said.
Without federal money, AEDC now depends for survival on two contracts with the D.C. government, Hopkins said. But one, for $42,500 from the Housing and Community Development Department (DHCD) for loan administration, has been spent, and a $75,000 contract with the Business and Economic Development Department for an economic study of Anacostia expires this month.
In recent meetings with top city government officials, Hopkins has requested up to $225,000 in emergency funds to help AEDC survive the year. But the officials, including Madeline Petty, acting director of DHCD, told him it is unlikely that AEDC will get the amount requested, Hopkins said.
"We've made some mistakes, had our failures," said Hopkins. "But our mission has been to enhance the living conditions for the people of Anacostia. I don't think the city will abandon that mission."
As a nonprofit corporation, the AEDC has long led a hand-to-mouth existence, scrambling for federal and city grants that its officials hoped would lure developers to what Hopkins called Anacostia's "forgotten neighborhoods."
But with its income tied up in unprofitable loan programs and ventures that had little chance of succeeding, AEDC became a victim of its own spending, according to Hopkins and federal officials familiar with the corporation's activities.
"AEDC wasted time, effort and money . . . because they haven't or did not get involved in any kind of ventures that would kick back income," said Eddie L. Beasley of the federal Office of Community Services, who managed loans to AEDC and similar corporations around the country. AEDC made too many investments in housing for the corporation to ever break even, Beasley said.
Among AEDC's disappointing projects since the late 1970s, Hopkins and Beasley mentioned are that:
* In 1978, AEDC purchased Howard Gardens, 89 run-down apartments in the 1500 block of Howard Road SE, for $520,000 and renovated them. In 1982, the corporation sold the property for $770,000, but instead of making money on the deal, it lost more than $130,000 through costly repairs, maintenance and utility bills.
* In 1980, AEDC established a $450,000 loan program to aid small businesses throughout Southeast Washington. Six of the 21 businesses that received loans--including a pet shop, delicatessen and gasoline station--have defaulted, while six others are "seriously delinquent," according to Hopkins. The agency has recovered only a small fraction of what it lent, Hopkins said.
* Also by 1980, AEDC had converted 16 apartments in the 2800 block of Second Street SE into eight single-family town houses, hoping to sell each for $62,000. But because of a slump in the housing market, none of the units sold for more than $55,000 each; one is still for sale. On that project alone, AEDC lost at least $80,000 through a contractor's delays and cost overruns, Hopkins said.
Hopkins, an attorney, was hired for the $43,000-a-year post in July 1979. He defended the AEDC's practice of investing in and renovating housing, but said that several risky projects had been launched prior to his arrival.
"We are in the business of taking risks," he said, "of taking on business risks that most banks wouldn't touch. In many cases, we're in the same boat as a lending bank--but we don't have a cash reserve to fall back on."
One project Hopkins said he inherited was the development of Howard Gardens. AEDC paid $60,000 cash for the property and assumed a $384,000 debt and an $82,000 water and tax bill on it in 1978.
Refurbishing the apartments was costly: most of the water pipes needed replacing, Hopkins said. By the time the apartments were sold last year to a private developer, repair and upkeep costs--$4,000 monthly over four years--ate away any possible profit, he added.
"We should never have bought Howard Gardens," Hopkins said last week. "We had assumed too large a debt. It was too much of a drain on our finances."
Rehabilitation of the 16 apartments on Second Street during 1979-80 proved almost as disastrous financially as Howard Gardens, Hopkins said. It took six months longer than planned to transform the apartments into eight town houses known as Shepherd Glen.
"From an economic standpoint, both Howard Gardens and Second Street were failures," Hopkins said. "But in terms of what we provided to this city, in terms of what we are here for, they were successes. The people in Howard Gardens are substantially better off than they were before we bought it." Many of Howard Gardens' original tenants still live there, AEDC officials said.
Beasley, however, cited the two housing projects as symbols of AEDC's unprofitable investment policies.
"The emphasis has always been on housing--to try and put a new face on Anacostia," Beasley said. "But the problem with those kinds of projects is that they don't pay off very soon. There's never any kind of cash coming in."
Another troubled venture managed by AEDC was the Grand Farmers Market on Benning Road SE. Located in an abandoned Safeway store, it opened in June 1980 with festivities attended by top city officials, including Mayor Marion Barry. Welco Costruction, the contractor hired by AEDC to renovate the store, went bankrupt last summer, leaving several subcontractors unpaid for their work, according to Hopkins and one of the subcontractors.
"AEDC told us they had checked Welco out with a fine-toothed comb," said Charles S. Dowrick, who installed cabinets in the store. Dowrick said he has received only $4,000 of the $12,000 he was owed.
Hopkins, who said he was informed of the Welco bankruptcy only last October, said the subcontractors will be paid within two weeks but will recover only 60 percent of their billed expenses.
"It would have been hard to avoid that problem," Hopkins said, "because the bid the main contractor put in was the low bid. We had to use him."
Hopkins said AEDC's crisis "has come at the worst possible time." He said AEDC recently undertook one of its largest projects ever: managing renovation of the 163-unit Congress Park apartments near St. Elizabeths Hospital on Congress Street SE. AEDC also would like to develop the 25-acre site of Camp Sims, a National Guard facility the government has designated as surplus land.
AEDC also had hoped to prepare space in the old Curtis Furniture warehouse near the AEDC headquarters on Martin Luther King Jr. Avenue SE for the D.C. Lottery Commission's planned new computer operation.
"There are some rays of hope now," said Hopkins. "All we're asking is to last out the year. If we can do that, we should be able to make it." CAPTION: Picture 1, The Anacostia Economic Development Corp. lost more than $130,000 on the Howard Gardens Apartments.; Picture 2, Converting 16 apartments on Second Street SE into town houses turned into a financial disaster for the AEDC.; Picture 3, AEDC President Albert R. Hopkins, Photos by VANESSA BARNES HILLIAN -- The Washington Post; Map, The AEDC's sphere of influence has extended across the Southeast, By BRAD WYE for The Washington Post