DENVER -- Denver's auditor is blasting a private firm hired by the city, saying it failed its goals of creating jobs in economically depressed communities.

City Auditor Dennis Gallagher issued a report Tuesday saying the city should consider terminating the three-year contract with Seedco Financial Services. The contract was aimed at helping Denver create jobs by leveraging federal funding for loans to small businesses, nonprofits and major commercial projects in poor communities.

Yet, while Seedco committed to creating 143 jobs through a $3 million loan match with the city and attracting additional bank funding in 2007 and 2008, the city acknowledges only 38 jobs were generated during that time.

For 2009, Seedco committed to generating 83 jobs through community loans, but the auditor said no jobs had materialized as of Sept. 2.

That means Seedco has fallen 83 percent short of its goal to create 226 jobs by the end of this year.

"This is just unacceptable," Gallagher said in a statement. "It seems to me that three years into their relationship with the city, they perform as if they were a start-up rather than the effective and efficient entity they are supposed to be.

"The city and its citizens deserve better than this," Gallagher added.

The auditor harshly noted that hiring Seedco, which beat out three competitors for the contract, was touted as a way to improve and enhance the city's job-creation and economic developments.

"Based on Seedco's three-year track record, that has certainly not been the case," Gallagher said. "In 2008, for instance, (the city Office of Economic Development) made 47 loans for $18.1 million while Seedco only made six loans for $950,000. I'll take OED's performance, thank you."

In a painful twist, while OED staffers are being lauded for outperforming Seedco, 29 agency workers are targeted for layoffs as the city tightens its belt.

The city's economic development officials largely agreed with the auditor's findings that Seedco is failing to comply with several provisions of its contract.

"We are very concerned about the job creation," said Jeff Romine, interim director of OED's business and housing services. "Job-creation hasn't been met at this point."

He said the nation's weak economy has hampered Seedco's economic development work.

Romine said he will update a City Council committee on Seedco's lack of progress next Tuesday. The firm's current contract expires at the end of this year.

Yet, Romine stressed that, under the federal Department of Housing and Urban Development rules, Seedco has 24 months after issuing a community development loan to meet job goals. For example, for its last loan issued in late 2008, Seedco has until November 2010 to deliver on jobs.

"So, Seedco still has time to hit those goals," Romine said.

The firm also met two of three "performance" goals in 2007-2008, including more than meeting the city's loan match and sufficiently leveraging federal funding to boost community loans.

In 2007-2008, for example, the city contributed $1.95 million for community loans and Seedco exceeded the match with $3.05 million, Romine said.

"They went far beyond the match, more than we expected from them in the original contract," he said.

The auditor, however, noted that Seedco's delay in repaying a $146,846 loan from 2007-2008 to the city has tied up $500,000 OED could be using to help boost a struggling Denver economy.

The money "might as well have been stuffed in the mattress," Gallagher said.

The auditor also questioned a $275,000 Seedco loan to a local company that wasn't used for economic development. The loan agreement clearly stated the company would use the money to pay off its Internal Revenue Service debt, property taxes owed Denver, and a judgment lien from an investment company.

Romine said Seedco used it own money for that loan, not federal funding. While the city's review of federal rules indicated the loan was OK, OED agreed with the auditor that the city should confirm with HUD that the loan was proper.