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We audited Luzerne County, PA’s $6 million loan of Community Development Block Grant funds to CityVest that was expected to be used to revitalize the historic Hotel Sterling and surrounding properties. We did the audit because HUD Office of Inspector General audit report 2012-PH-0001 identified this long standing open Block Grant activity and because we received a citizen complaint alleging possible misappropriation of these funds. Our objective was to determine whether the County properly evaluated and underwrote its loan to CityVest and whether the project met its designated national objective.

We found that the County did not properly evaluate, underwrite, and monitor its loan to CityVest. After nearly 10 years and $6 million expended, the project won’t meet its designated national objective of job creation. The County and the City of Wilkes-Barre, PA, plan to demolish the hotel and clear the site although no permanent jobs were ever created. Therefore, the $6 million in Block Grant funds expended for this project is an ineligible expenditure of taxpayer dollars. CityVest also used HUD funds inappropriately to make an unreasonable and unnecessary expenditure of $303,000 to satisfy two municipal liens against a property that it had purchased. It was the responsibility of the former property owner to satisfy the liens.

We recommended that HUD require the County to reimburse its business development loan program $6 million from non-Federal funds for the ineligible expenditures related to the Hotel Sterling project and that it require the County to develop and implement comprehensive procedures for evaluating, underwriting and monitoring proposed projects.