PROVIDENCE, R.I. (WPRI) – The city plans to write off more than $1.5 million in taxpayer-funded economic development loans to businesses that have failed in recent years, part of its ongoing effort to clean up the troubled Providence Economic Development Partnership (PEDP).
The PEDP board voted unanimously Wednesday to write off 22 loans, clearing $1.57 million in bad debt from its books that dates back to 2008. The city still plans to contact the U.S. Department of Housing and Urban Development (HUD) to ensure it is complying with federal guidelines, according to Don Gralnek, who heads up the city’s redevelopment agency.
“Nothing in life is free and this was federal money at one point,” Gralnek told the board.
The board also voted to ramp up its collection efforts on another $1.8 million in loans, including a $69,000 loan to the former Scoreboard Restaurant on Chalkstone Ave, which hasn’t made a payment to the city since 2006. At least three businesses that owe the city money are still open, and officials said they would seek payment arrangements that would not force the companies to close.
The PEDP functions as an arm of the city’s planning department, providing low-interest federally funded loans to small businesses that have been rejected by traditional lenders. But the program has come under fire from HUD in recent years for a lack of oversight over the loans and a high default rate in its portfolio.
Last August the city repaid HUD $1.92 million to cover a slew of loans and other expenditures HUD ruled never should have been authorized, including $618,000 for dozens of purchases that the PEDP made between 2005 and 2011. The majority of the money PEDP was forced to repay – more than $485,000 – originally went to various marketing, advertising or business development consultants during David Cicilline’s tenure as mayor between 2003 and 2010.
HUD cracked down on the PEDP beginning in 2011, forcing then-Mayor Angel Taveras to make several changes to the way PEDP issued loans. The 15-member PEDP board is now required to approve all loans. Previously, staff members were allowed to sign off on loans of up to $75,000 without approval from the board.
The Elorza administration is still working with HUD to “clean up the outstanding PEDP loan portfolio,” according to Rhonda Siciliano, a spokeswoman for HUD. She said the agency is waiting for the city to “provide documentation to us to determine which of those outstanding PEDP loans met a national objective for job creation.”
“The city will be providing HUD with a plan that will include timelines on how we are going to move forward through this next step of the process to get things back on track,” she said.
Wednesday’s vote marks the second time in three years the city has agreed to write off loans made by the PEDP. In 2012, the board agreed to forgive 29 loans worth $2.1 million. Brett Smiley, the city’s chief operating officer and chairman of the PEDP board, said the Elorza administration wants to “start with a clean slate” when it comes the PEDP’s $16-million loan portfolio.
The largest write-off is for $213,000 for the Heritage Harbor Museum Corporation, a project that secured a $313,000 city loan in 2010 as part of an effort to secure millions of dollars in historic tax credits to build a museum, but the project never came to fruition. In February, the board agreed to accept $100,000 and give up a lien on the property in order to help the proposed $220-million downtown nursing school move forward.
Fourteen of the loans being written off were for businesses funded through the city’s Innovation Investment Program (IIP), which launched in 2011 as a way to provide early-stage financing for start-up companies. The businesses each received $50,000 and the city received an equity stake in those companies. (Six other IIP loan recipients have already been converted to an equity stake for the city and 14 others remain active.)
“The expectation going in was the some of the companies would be successful and some would not be,” Smiley said.