Providence owes HUD $618K for improper expenses

PROVIDENCE, R.I. (WPRI) – Rhode Island’s capital city will repay the U.S. Department of Housing and Urban Development more than $600,000 that was improperly spent by a troubled taxpayer-backed loan program, WPRI.com has learned.

Providence has agreed to reimburse HUD $618,000 for dozens of purchases – including a limo ride, two parking tickets and a gift for a sick employee – made between 2005 and 2011 by the Providence Economic Development Partnership, a quasi-public agency that oversees the city’s small business loan program.

The six-figure repayment agreement was revealed in data obtained by WPRI.com through a federal Freedom of Information Act request for public records.

The PEDP, which functions as a wing of the city’s planning department, provides loans to small businesses that have been rejected by traditional lenders. The agency came under fire in 2012 when HUD discovered that approximately 60% of PEDP’s loans were in default.

“We have worked closely with HUD for more than a year to improve transparency and strengthen the practices and procedures of the Providence Economic Development Partnership,” Mayor Angel Taveras told WPRI.com. “I thank HUD’s Office of Community Planning Development for their commitment to Providence, and appreciate their acknowledgment of our strong effort to bring the agency’s activities into compliance. These efforts will enable the PEDP to play an active role in creating jobs and supporting economic development in our capital city.”

The PEDP’s $15.6 million loan portfolio is funded in part by HUD’s Community Development Block Grant (CDBG) program.

Last July, HUD issued a scathing report that criticized Providence officials for a lack of “adequate oversight” over PEDP and began requiring the agency to get federal permission before approving new loans.

The HUD report also found $1.5 million in questionable administrative costs charged by PEDP. HUD reduced the amount owed by PEDP to $618,000 after an exhaustive review of the agency, according to a letter obtained by WPRI.com.

Providence has already repaid $90,000 and has until early June to explain how it plans to reimburse HUD for the rest of the money. The funds can be repaid with non-federal funds or the city can request a voluntary grant reduction from HUD.

The majority of the money PEDP has to repay – more than $485,000 – originally went to various marketing, advertising or business development consultants between 2005 and 2011.

Records show the agency paid the Providence Black Repertory Company – an arts organization that also defaulted on a PEDP loan and is now out of business – $45,000 for marketing and an employee’s salary.

PEDP also incurred thousands of dollars in smaller expenses, including a $1,789 consulting fee for a planning board retreat; $60 for two parking tickets; $36.91 for a gift for a sick employee; $210 for a breakfast; and $768 for a limo ride during Sound Session, the city’s annual summer music festival.

Only three of the improper expenses – worth a combined $34,000 – came after current Mayor Angel Taveras took office, with the rest dating to his predecessor David Cicilline’s tenure.

Taveras, who heads up the 15-member PEDP board of directors, has also changed the agency’s bylaws to require board approval before any loan is issued. Previously staff members had been allowed to sign off on loans of up to $75,000 without board approval; a separate seven-member loan committee approved all other loans.

“PEDP has received a lot of attention over the last two years,” City Council President Michael Solomon told WPRI.com. “In conjunction with the administration’s changes to the board’s lending authority, I believe more oversight and reporting are needed.”

Solomon said the city’s “financial crisis” in 2011 led the council to require the city to file quarterly financial reports. He called the reports an “effective way to monitor progress and keep taxpayers up-to-date.”

Councilman David Salvatore has proposed an ordinance that would require the city’s planning director to make similar reports to the council. Salvatore also wants to require council approval before the PEDP writes off any loans or converts them ino grants. Last May, the PEDP wrote off 29 delinquent loans worth more than $2 million, leaving the city on the hook to pay them.

“Sunlight is always the best disinfectant,” said Salvatore, who is also chairman of the council’s Committee on Ways and Means. “The best way to ensure that public funds are being used effectively is to have information about those funds open and readily available.”

Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

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