State probe into Ogontz Ave. group ends

The state has ended a two-year investigation and lifted its funding freeze against a prominent Philadelphia nonprofit after the group agreed to return $1.2 million in public money, withdraw four grant requests, and accept tighter spending controls.

The agreement means state funds can again flow to the Ogontz Avenue Revitalization Corp. (OARC), an organization founded by Rep. Dwight Evans that has managed scores of projects in and around West Oak Lane.

The 25-page settlement, dated July 11, was obtained by The Inquirer under the state's Right to Know Law. It restores the nonprofit as a "grantee in good standing" with the state while assigning no wrongdoing to either side. It also ends a federal court battle that OARC had waged against the Corbett administration.

"We're overjoyed with the outcome," said S. David Fineman, its lawyer.

The state will get $1.2 million, or nearly half of the money it had demanded be returned. It also will not have to honor an additional $1.8 million in grants tentatively approved before Gov. Corbett took office in 2011. That money was supposed to fund projects including home ownership counseling, real estate development, and cultural events.

Still frozen, however, is $1.2 million in capital redevelopment grants earmarked for the West Oak Lane and Ogontz Avenue plazas.

Steve Kratz, spokesman for the Department of Community and Economic Development, said the deal showed the administration's commitment "to transparency and accountability in the expenditure of public funds."

Left unresolved are details about the probe into OARC, one the biggest recipients of community development money.

Founded by Evans three decades ago and holding his support as the ranking Democrat on the House Appropriations Committee, OARC helped reshape swaths of Northwest Philadelphia and hosted the now-defunct West Oak Lane Jazz Fest.

In December 2011, at the end of Corbett's first year, the state quietly froze its funding and barred the group from applying for grants. That followed a confidential investigation commissioned by then-Inspector General Kenya Mann Faulkner that found "irregularities" in how OARC managed and spent public money. It also coincided with a Corbett pledge to end the longstanding flow of unchecked grant money from Harrisburg.

In a report obtained by The Inquirer, the investigators concluded that OARC violated bidding rules, made questionable property purchases, and improperly shifted or used grant money between 2006 and 2011.

For instance, the examiners found that OARC used $110,000 from three different grants over two years to promote Wine Down Wednesdays, a weekly after-work promotion at an Ogontz Avenue restaurant in which the nonprofit was a part-owner.

The funding loss was no small matter for OARC. According to its tax returns, the nonprofit relies heavily on government money, collecting more than $40 million in public support between 2006 and 2010. In its most recently available tax return, OARC reported those grants accounted for 70 percent of its revenue in 2010, or $9.1 million.

After a year in limbo, OARC fired back with a federal lawsuit, claiming that the state had "laid siege" to its operations by inexplicably halting millions of dollars already approved or pledged for projects. Officials for the nonprofit complained that the investigations had been "cloaked in secrecy" and that they had never seen the results of the probes.

"To this day, no one has told me what those financial irregularities are," Fineman said Tuesday.

Officials from the nonprofit and the state repeatedly declined to discuss the closed-door investigations or allegations.

In its suit, OARC accused the governor, Budget Secretary Charles Zogby, and officials in the Community and Economic Development office of abuse of discretion, breach of contract, and due process violations. The settlement came as lawyers were scheduled to square off Friday before U.S. District Judge Juan Sanchez in Philadelphia. The hearing was canceled Thursday. In a filing made public Monday, Sanchez dismissed the suit.

The settlement agreement allows OARC to keep $1.4 million it had received from the state for some projects, including rehabbing properties along Sprague Street and Eastburn and Ogontz Avenues. Those funds must be placed in separate accounts and cannot be paid to contractors without written approval from officials at OARC, the Department of Community and Economic Development, and a licensed architect.

Fineman said OARC has not adopted any other new practices since the audits. "We didn't think we did anything wrong before, and we'll continue to operate in the same manner," he said.

In an e-mailed statement Tuesday, OARC president Jack Kitchen said the group's leaders were "pleased we have come to an amicable settlement" and looked forward to working with the commonwealth on projects again.

A similar investigation and funding freeze remains intact against the Urban Affairs Coalition, another Philadelphia nonprofit with long-standing ties to Evans. Kratz, the department spokesman, said negotiations between the state and that group were ongoing.