The Community Services Administration said yesterday that a special concession for Philadelphia's Hahnemann Hospital in 1975 - which gave the hospital an extra $1.5 million in federal funds - was "illegal."
CSA Director Graciela Olivarez said in a statement that the General Accounting Office has been asked to explore "the question of repayment by Hahnemann Hospital" of the extraordinary subsidy.
CSA officials launched an inquiry last month into the special arrangement which, The Washington Post disclosed Feb. 12, had improperly increased the Philadelphia hospital's appropriated share of federal funds.
The controversial hospital construction project in downtown Philadelphia has been under federal grand jury investigation in connection with allegations that Reps. Daniel J. Flood (D-Pa.) and Joshua Eilberg (D-Pa.) may have profited from the undertaking.
As chairman of a powerful House Appropriations subcommittee with oversight on the Community Services Administration, Flood rammed through a special $14.5 million grant for the hospital three years ago by making it a rider on the anti-poverty agency's budget. Eilberg's Philadelphia law firm was hired by Hahnemann around the same time to help complete the financing for the $64 million replacement hospital.
CSA officials sanctioned the provision giving Hahnemann the additional subsidy on Oct. 1, 1975, when they formally cleared the $14.5 million construction grant. Despite long-standing rules prohibiting the collection of interest on federal funds, CSA officials not only paved the way for early delivery to Hahnemann of the entire $14.5 million, but told the hospital it could bank the money and keep the interest it earned.
According to records from the Girard Trust Bank in Philadelphia, which invested the money as trustees for the special Hahnemann Construction Fund account, the interest accrued as of mid-January totaled $1,544,654.71.
CSA General Counsel Frank N. Jones held that "the grant provision permitting the grantee (Hahnemann) to retain interest earned on the grant funds" was illegal, the CSA announcement stated.
According to CSA records examined by The Washington Post, hospital officials regarded the extra income as crucial to additional financing for the project - which was finally secured in 1976 by a $39.5 million bond issue.
CSA Director Olivarez said a complete internal investigation of the Hahnemann grant showed that it was "not monitored effectively until recently," but added that "no evidence of any wrongdoing on the part of agency (CSA) employes was uncovered."
She called the $14.5 million grant itself legal but "inappropriate," especially "when the apparent purpose for using CSA was to avoid HEW standards for the selection of appropriate hospital grantees."
"The type of political pressure involved in this funding," Olivarez continued, "was unfortunate at best and should have been vigorously and openly resisted, particularly by an agency whose scarce dollars are to be committed only to the most efficient means of alleviating poverty."