AP
$1 million mistake benefited indebted school
By JOHN O'CONNOR
THE ASSOCIATED PRESS
Published Wednesday, April 16, 2008
A private school was on shaky financial ground even before state officials gave it a $1 million grant to help it move after a fire, raising more questions about why the Loop Lab School got the money.
Loop Lab School had $243 in cash and a $32,000 debt at the start of 2006, just six days before it lost the space it was renting when fire destroyed Pilgrim Baptist Church, according to a financial report the school filed with the state and reviewed by The Associated Press.
The school had been losing money for several years, the school's accountant told the AP Tuesday.
Founded in 1983 in Chicago's Loop to serve the children of downtown workers, the school was forced to move to the church several years ago. The new location hurt enrollment and cut revenue, said Timothy Watson, a certified public accountant who prepared the report.
Gov. Rod Blagojevich has acknowledged a "bureaucratic mistake" in sending the $1 million grant to Loop Lab. He originally promised it to help rebuild Loop Lab's landlord, a historic, century-old church, shortly after it burned on Jan. 6, 2006.
The Department of Commerce and Economic Opportunity, which wrote the check, and Attorney General Lisa Madigan are investigating how the mistake occurred. Officials will say little about the botched effort.
The school used the money to buy a Loop business condo, hoping to return the enterprise to financial stability, said Watson, who has completed the school's financial reports dating to 2003.
Watson said the school was forced to move from its original location several years ago, but he didn't know why. It leased space at Pilgrim Baptist, about five miles south of the Loop but suffered at the site.
"Location is key. The idea is for people who work in the Loop to have a place for their children," Watson said. "Just being at Pilgrim had a significant effect on the ability to generate tuition."
School administrator Chandra Gill has not returned repeated calls for comment from The Associated Press.
DCEO spokeswoman Marcelyn Love did not comment on whether the agency scrutinizes potential grant recipients' economic viability.
But a survey Loop Lab filled out to get the grant does not mention finances, and a document submitted to DCEO before it got the grant shows the school had assets of $105,000 at the end of 2003, $77,000 a year later, but just $243 at the end of 2005.
The grant and a $305,000 loan allowed the school to purchase the condo to start over. But it has not reopened.
Nonetheless, the financial document filed with Madigan's office shows Loop Lab had $68,000 in expenses in 2006 and, despite contributions of $58,000, ended the year $37,710 in the red.
The expenses include $26,000 in salaries and $20,000 in rent, just slightly less than the $26,200 it paid a year earlier, despite using the space for less than a week in 2006 before being burned out. Watson said he didn't know details of the other finances.
The return shows Loop Lab claimed $113,000 in property lost in the fire, including $44,800 in furniture and $68,800 in computer equipment. It doesn't mention insurance coverage.
Loop Lab received the grant despite not disclosing that a state agency had punished it for sexual harassment of a staff member. And Gill got a hastily arranged pardon for an unrelated 2003 felony conviction from Blagojevich, who has issued fewer than 70 out of 1,600 pardon requests in five years in office. Gill was represented by a lawyer brought in at the request of the Rev. Jesse Jackson.
The updated tax form concedes for the first time a member of its staff was charged with a felony, the earlier omission of which could allow the state to seek reimbursement of the money.
Loop Lab's declining revenue contributed to its inability to pay payroll taxes, Watson said, leading to an Internal Revenue Service lien for $29,000. And the state withheld $953 in unpaid taxes when it issued the grant.
Loop Lab is a not-for-profit corporation, which doesn't pay taxes but is required to file a tax-like return with Madigan's office. After the mistaken grant was discovered, Madigan's staff found the school's 2006 form was insufficient and ordered that it be updated.
Its report for 2007 is not due until this summer.
The school bought the condo from a business associate of Antoin "Tony" Rezko, a Blagojevich fundraiser and friend currently on trial in federal court in Chicago for fraud.
The grant came from DCEO, headed by Jack Lavin, a former Rezko employee.