The city has done a good job of making profitable short-term investments of its funds, but it has largely disregarded a legal requirement that some of those funds be used to help extend credit to minorities, according to a new study by D.C. auditor Otis H. Troupe.
"From a policy standpoint the District has emphasized its return on investment at the expense of the social objectives stated in the intent of D.C. law," Troupe said in a report on the District's fiscal 1982 depository activities.
Troupe urged Mayor Marion Barry's administration to develop specific proposals for encouraging banks that receive city deposits to provide low-interest loans to minority businesses that traditionally have had trouble obtaining credit.
He also said that a loan program begun by the state of Maryland might be used as a model.
"Programs of this type were intended by the depository legislation, and if shown to be financially sound should be accepted by the local financial community," Troupe said.
The city has an average daily balance of $105 million available for investment, according to the latest figures available.
Troupe said the D.C. Depository Act was designed to stimulate the economy and strengthen financial institutions so that they could make loans to citizens who traditionally have not had access to conventional credit.
In a letter responding to Troupe's report, Deputy Mayor for Finance Alphonse G. Hill said the administration has not adopted a policy to subordinate social objectives to maximizing the return on the city's investment.
"The multiple objectives sought by the Depository Act create a very complex situation in the limited confines of the District's depository activity by itself," Hill said.
The dual objectives of extending credit to minorities and stimulating the local economy, "while absolutely appropriate for the District government as a whole, are very broad and are properly pursued through a multiplicity of governmental activities," he said.