DENVER -- Denver city officials and Seedco Financial Services agreed to part ways two days after the city auditor blasted the economic development firm's performance.

"We are committed to finding future opportunities to promote economic development in our community and stimulate growth in our neighborhoods," Mayor John Hickenlooper said in a statement Thursday.

"Unfortunately, our partnership with Seedco Financial did not yield the results we expected. But we are confident we will develop new economic development strategies and continue to work our way out of this recession," he added.

The city's three-year relationship with Seedco will expire when its current contract expires Dec. 31.

Denver had hoped Seedco would generate jobs in poor communities, acting as the city's largest community development financial lender for nonprofits, small businesses and major developments.

But City Auditor Dennis Gallagher's report shredded Seedco for falling 83 percent short of its goal to create 226 jobs by the end of this year. It had only created 38 jobs.

The city had loaned the firm nearly $6 million in federal funding -- which it was supposed to leverage by attracting private investments to fuel new jobs in communities hammered by the recession.

The nonprofit lender routinely violated its city contract and made a questionable loan to a company knowing it would use the money to pay off tax debts and a commercial lien, he said.

"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 startup rather than the effective and efficient entity they are supposed to be. The city and its citizens deserve better than this."

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.

Critics also questioned whether Denver has a too-cozy relationship with Seedco.

Peter Chapman, a former economic development advisor to Mayor Hickenlooper, left the city to help run Seedco's Colorado operation. He left the firm last summer.

In October, Seedco announced that it had hired another Denver OED manager, Tamela Lee, to be vice president and managing director of its Denver office.

City economic development officials largely agreed with the auditor's findings.

"We are very concerned about the job creation," Jeff Romine, interim director of OED's business and housing services, told 7NEWS Tuesday. "Job-creation hasn't been met at this point."

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

But while OED officials were noting Seedco's success at matching city loan contributions and leveraging investments earlier this week, hopes for the partnership halted Thursday.

"We are committed to working with the city on a smooth transition, and firmly believe the loans we have made have created jobs and community aided development in Denver," said Lesia Bates Moss, Seedco's president. "We continue to make loans around the country that are essential to long-term business growth and stable economic development. Our projects make it possible for people to build roots – enabling entire communities to grow."

Now Denver will look for a new partner.

"Now more than ever, providing access to capital is critical for our business and development community," said André Pettigrew, executive director of the city's Office of Economic Development.

So-called community development financial institutions, like Seedco, "provide an innovative and proven method to leverage scarce community development resources into a much larger pool of funds for a given community," Pettigrew said. "We look forward to bringing in a new organization to advance this financing mechanism for the Denver community."