insights (2006-48)

Larry Martin to the Rescue

Although he’s perched on a hot seat, Larry Martin is clearly the right person in the right place at the right time to bring order out of the chaos that has enveloped the workings of the city’s Empowerment Zone Program.

When Martin assumed his post as the city’s finance director and deputy to the mayor in September, Empowerment Zone oversight wasn’t even within his purview. That soon changed, however, as evidence of disarray mounted between the city’s separate Department of Community Development and the hybrid Partnership for Neighborhood Improvement that had been vested with responsibility for governing allocation of $25 million in federal EZ funds.

Mayor Bill Haslam placed embattled director of community development Renee Kesler under Martin. Since Kesler’s subsequent resignation, Haslam is looking primarily to Martin to prescribe solutions to the host of issues that need to be resolved.

While Martin is still in the process of sorting them all out, he seems preeminently qualified for the task. As Knoxville’s most prominent banker of the two decades (during which he headed First Tennessee Bank locally and then had statewide responsibilities), he brings a mastery of lending to bear on how to conduct an EZ small business loan program that’s been plagued with problems.

As a civic leader who’s chaired everything from the Chamber of Commerce to a United Way campaign to PNI itself, he has relationships that reach out to all sectors of the community. Indeed, he was instrumental in PNI’s foundation in the late 1980s as a way to harmonize relations between inner city neighborhoods and banks that were being accused of red-lining in their lending.

It’s a rarity for someone to step down from the pinnacle of the business world to take a municipal administrative post. But as Martin explains it, he opted to retire from First Tennessee last spring at age 59, because his statewide responsibilities were requiring him to be away from Knoxville a lot more than he’d like.  “I had no other plans at the time except to continue to be active in the community, and I wasn’t in a rush to take another job,” he recalls.

Then Haslam called in June to see if he’d be interested in succeeding Chris Kinney as finance director. Kinney had served notice of his intention to return to the investment banking world from whence he came after two plus years of distinguished city service. “I have enormous respect for Bill Haslam, and getting involved in the city appealed to me because it has an element of community service and played on my strengths including knowledge of the community and relationship building,” Martin says.

Getting disparate groups around the table at PNI had been a prime example of the latter. But the structure of its board proved somewhat unwieldy. Half its members were neighborhood representatives selected by a Council of Involved Neighborhoods, and the other half was chosen by a self-perpetuating group of business leaders. Divergence often led to disputation and frustration when it came to agreeing on a course of action. Nonetheless, when the city sought designation for what was originally intended to be $100 million in Empowerment Zone funding in the late 1990s it made PNI the program’s governing body (though all allocations of funds were also subject to approval by City Council).

Shortly after taking office in 2001, the Bush administration cut off EZ funding, leaving the city with about $25 million already in hand. All but $500,000 of that total has been allocated, mostly for revitalization grants to neighborhoods such as Five Points, Mechanicsville, Lonsdale, and Vestel—but not without a lot of dispute.

The one pool of funds intended to have an ongoing life was a $4 million allocation for a small-business loan program aimed at fostering new enterprises and job creation throughout the zone. After experiencing high default rates on initial loans, PNI contracted with another entity, Economic Ventures, Inc., to manage the loan program. Yet another entity, the Tennessee Small Business Development Center, was supposed to provide monitoring and technical assistance to prospective borrowers. However, EVI proved much more stringent in its lending standards—much to the consternation of loan applicants and their principal counselor and champion at the Developmental Center, Deborah Porter.

On her watch, Kesler tried to foster a merger between PNI and EVI and also induced PNI to hire Porter in an effort to consolidate the lending and counseling functions. However, EVI rejected the merger and elected to shut down instead, leaving PNI responsible for managing some $750,000 in outstanding loans, plus making any new ones—and with very limited resources to do so.

Meanwhile, PNI’s contract with the city for reimbursement of its administrative expenses was perplexingly allowed to lapse in April, but with assurances that PNI would be made whole upon agreement on a new contract that included provision for city assumption of PNI’s governance role. That new contract finally made its way to City Council last week, and a $139,000 reimbursement of funds that it had mostly diverted from a separate HUD grant to cover its expenses in the meantime.

Martin is clear that the city needs to assume control over what’s left of the EZ program. He’s also clear the loan program can and should be successful on a larger scale, citing the success of similar programs in other cities. But he’s still assessing what PNI’s future role should be.

“I’ve been clear since I’ve been here that the city is looking at different options, and the truth of the matter is that we may cancel this with PNI and go in a different direction,” Martin says. But he’s insistent that PNI needs $52,000 on an interim basis (through the end of January) to maintain the loan program under a separate contract on which City Council postponed action. “What we’re trying to do is a soft landing or smooth transition. But if we don’t approve that contract, then Day One is right now, and transferring the program to someone else on that kind of short notice would be problematic at best,” he warns.

Most Council members are rightfully frustrated by the program’s many shortcomings and prone to make PNI a whipping boy. But they will do well to head Martin’s admonition and allow him time to get the program in sound footing.