By its own admission, the Gary-East Chicago-Hammond Empowerment Zone was not out to make money.
"Their goal was to succeed with every project they tried," said Jeffrey Johnson, a Gary nonprofit consultant who worked with a zone serving Philadelphia and Camden, N.J., in the 1990s.
But to succeed, Executive Director Scott Upshaw and others acknowledge, was not necessarily to make a buck.
Instead, Upshaw said, "The Empowerment Zone was looking to make a difference."
A decade later, the zone faces an uncertain future and a lot of unpaid bills.
"We would definitely love a return on our money," Upshaw said at a January zone board meeting.
Instead, the zone has given more than it has taken in, suffering in part from what government researchers called a lack of consistent local and federal oversight.
Loose federal guidance
Starting in 1994, empowerment zones were designated in three rounds, with funding administered by two federal agencies, the departments of Health and Human Services and Housing and Urban Development.
Second-round recipients, which included Northwest Indiana, fell under HUD.
"They're our overseer," Upshaw said. "They never really formed regulations for us."
That was a key flaw, researchers have noted.
In September 2006, the Government Accountability Office published a two-year report criticizing a lack of verifiable success in zones across the country. It did not review Northwest Indiana's zone.
The report chastised the agencies administering the program for not collecting data on activity benefits, "hindering the agencies' efforts to oversee the program."
It also was difficult to determine overall effectiveness, the GAO said, because the program was designed to give communities flexibility in administering and monitoring. This led to inconsistent, varied approaches and outcomes across the country, the GAO said.
"There's a lot of room for interpretation," Upshaw said.
Northwest Indiana's zone, like others, gleaned guidance from a hodgepodge of rules and guidelines from the federal agencies. When there were questions about what to do, the default was to seek HUD's counsel. The GAO condemned this lack of single-agency oversight.
"We have tried to mimic as many programs as we possibly can," Upshaw said.
For example, a key objective of the overall program was to benefit businesses and residents specifically within the zoned area.
But Northwest Indiana's zone administered loan programs that loosened those restrictions. The group was one of the first zones in the country to administer its own revolving loan fund as well as at least four other loan programs for the communities surrounding the zone, including Small Business Administration loans.
As a result, two businesses that received zone loans - Ms. Elle's and Eye2Eye Conflict Resolution - are in Highland, far outside the zone's 16.6 square miles.
Federal and state agencies alike also knocked national and local programs for lacking financial management.
A March 2010 GAO report noted federal agencies "did not account for amounts actually spent on specific activities."
Audits from the Indiana State Board of Accounts and the local zone's own auditor cited weaknesses in internal financial controls.
A 2008 audit by accounting firm Clifton Gunderson concluded the zone didn't have personnel to ensure accurate financial data, nor did it have the money to hire such a person.
A 2009 state audit of the city of East Chicago noted there was no formal agreement on an $870,635 grant the zone gave the city, making it impossible to track whether the funds were spent properly.
Upshaw said aside from site visits on certain projects, the zone had little control over how its money was managed once disbursed.
In all the money the zone has given, it has come across "nothing grossly improper," he said.
"I haven't seen any Bentleys."
Not sweating the 'small' stuff
Ed Glover, co-chair of the zone's advisory council, defended the zone's loan choices, saying because it wasn't out for money, it gave chances to projects others would not.
"Not-for-profits ... are notorious for doing things for-profit organizations wouldn't touch," Glover said. "Because of that, we have a greater percentage of failures than for-profit entities."
Some for-profits, for example, might not gamble on projects with past financial hiccups.
At least 12 people or businesses faced varying financial struggles in Lake County court prior to being approved for a zone loan. At least five had filed for bankruptcy.
Federal court records show Gary resident Ronald Ross has filed for bankruptcy at least seven times. Five of the cases were filed before the zone granted Ross a $7,500 loan in August 2007. The zone gave Ross a second loan in January 2008 for more than $19,000.
Zone records show Ross still owes the zone $24,791.
In another case, Patricia Brown filed for bankruptcy after her Gary women's health medical lab closed in 2008. She listed the $35,000 zone loan she took in November 2004 as debt in her filing.
But records show Brown also had filed for personal bankruptcy in August 1990. Brown distinguished the two filings, saying the first was personal and not tied to any business.
Upshaw defended the loans, saying if the zone had sought to give money only to people without financial strife, "we would have never got any money out. We didn't just throw it away."
The zone overlooked some of these financial skeletons, in part because of the very way its program was established, Upshaw said.
'Lame duck from start'
How his zone was funded can be a touchy subject for Upshaw. When recently talking about the funding process, he jokingly pulled a theoretical knife from his back.
The Northwest Indiana group first applied for zone status in 1994, when first-round recipients were receiving $100 million each.
Designated in 1998, the region's zone received only a quarter of that and was subject to the congressional appropriations process, meaning getting money every year depended on congressional budgetary approval.
"It was a lame-duck program to start," Upshaw charged.
Zone officials felt cheated.
"You can't imagine how deflating that was, to feel like you were going to be able to dress superbly for a wedding, and you end up with the underwear," Glover said.
That the zone managed to sustain itself on $25.6 million for more than a decade -- paying staff, buying properties and financing multiple programs and loans -- is no small feat.
After Sept. 11, the local zone faced even greater odds, fearing its funding could be stripped for defense purposes.
"We didn't know if our funds were going to be recaptured," Upshaw said. "We needed to get money out into the streets."
That meant maybe doling dollars to less-than-spotless applicants. Zone officials found themselves stuck between pressure to support and the need to scrutinize.
"When you spend time and do due diligence, people want to say, 'You're not helping anyone,'" Upshaw said. "Past credit problems didn't deter us."
Still, the zone board's loan review committee, and representatives from each zone city, had faith projects would flourish.
"If the person (representing) the city said they thought it was a good idea, we'd honor that," Glover said.
Ultimately, many businesses failed for myriad reasons.
Battling over balances
A frustrating hurdle toward the zone's longevity has been getting loan recipients to pay back their balances.
The zone acknowledged the problem in its 2010 annual report, saying, "The major challenge to the portfolio is maintaining a consistent repayment flow from the aging loans."
In a way, the zone fostered this kind of environment of rolling deadlines and balances, a practice appreciated by many debtors.
Ms. Elle's boutique owner Lorna Moore said when she had trouble repaying her loan on time, zone staff were compassionate and cooperative.
"They said, 'What can you do? What can you pay?' " she said.
If she lost her business, she said, zone officers "would be the first ones I'd think of. I fight harder because I think of them and how they went out on a limb for me."
But collecting on some other debts has been an all-out war.
Zone records show more than $2.6 million it is owed - half the number of outstanding balances - is delinquent or tied up in court actions, including bankruptcies.
Many applicants came to the zone enthusiastic for help with projects, Upshaw said, spending countless hours collaborating with his office.
"Six months later, they won't answer my phone calls," he said.
In fact, The Times tried unsuccessfully to reach the principals of 10 businesses given loans. Zone records show loans for two of the businesses were paid in full, while three others are current in repayments, while the remaining are delinquent.
Since they received loans, four principals have filed for bankruptcy, three whom the zone has sued for nonpayment. One of the owners with a balance due of nearly $29,000 since has moved to Michigan. Public records show another, owing more than $10,000, has moved to Tennessee.
The final business is delinquent in payments, but court records show it has not been sued by the zone.
When people don't pay their bills, "it hurts the Empowerment Zone," Upshaw said. "But it hurts the next business owner that could come (wanting money from us). Once our money's gone, it's gone.
"We're spinning our wheels, taking people to court."
That spinning continues.
The zone entered a loan agreement with steel supply distributor Calumet Distribution Group in 2001.
Calumet Distribution filed for federal bankruptcy protection in February 2004. In early 2005, the zone tried to apply a lien to property it claimed it was entitled to as collateral in its loan agreement with Calumet Distribution.
The business argued the zone wasn't entitled to company equipment or inventory because the zone had failed to file necessary documents asserting as much with the county and state, court records show.
A federal bankruptcy judge agreed, ruling in June 2005 the zone was not entitled to anything owed by Calumet Distribution.
Still, zone and Calumet Distribution officers remained cordial and reached a settlement in September 2006. Calumet Distribution officials currently are repaying 10 percent of the original $500,000 loan.
Armed with frustrated zeal, Upshaw advised his board in January, "We're not letting delinquencies linger. We're hitting 2011 a lot different than before."