PROVIDENCE, R.I. (WPRI) – Five months after writing off more than $1.5 million in taxpayer-funded economic development loans to businesses that have failed in recent years, the city is gearing up to forgive another $800,000 in uncollectible loans.
The board for the Providence Economic Development Partnership (PEDP) voted Wednesday to write off 14 loans worth about $827,000. Nearly all of the businesses that received loans have closed and at least eight of the owners have filed for bankruptcy, according to a lawyer hired by the city to oversee collections.
The city still needs the U.S. Department of Housing and Urban Development (HUD) to review all of the loans being written off, but the federal agency is not required to approve the loan write-offs. HUD provides the PEDP with federal funds to lend.
“Some of these loans should have been written off years ago,” Don Gralnek, who heads up the city’s redevelopment agency, told the board.
“This won’t be the last group [of loans written off],” Gralnek added.
Wednesday’s vote marked the third time the long-troubled city agency has written off business loans since 2012. All told, the city has forgiven about $4.4 million in loans over the last three years. The PEDP’s active loan portfolio currently has 133 loans worth $15.3 million.
The latest round of write-offs included loans to the Hi-Hat, a shuttered Point Street bar; North Shore Construction; Tina’s Caribbean Restaurant; Intown Laundry; Cuban Revolution; El Jibaro; ARFCO, Inc.; Ada’s Creations Inc.; Lauren Creations; Trinity Mortgage Solutions; Deville’s Inc.; and Palmieri’s Bakery.
Tina’s Caribbean Restaurant and Trinity Mortgage Solutions each had two loans from the PEDP. Tina’s hadn’t made a payment on either loan in at least 2,395 days as of Oct. 23, according to records obtained by WPRI.com.
Another business, El Jibaro, never opened after the PEDP approved a $29,000 loan in 2011, according to a letter members of the board received from Moses Afonso Ryan Ltd. recommending the write-offs earlier this month.
“The basis for our recommendation is because our investigation revealed that the business never opened, the collateral is worthless, and the debtor is living in subsidized housing in Providence, Rhode Island,” attorney Stephen A. Izzi wrote to the board.
None of the letters recommending the loan write-offs to the board included the total amount of each loan. Before voting to approve the write-offs, one board member, Mark Feinstein, said, “I don’t want the first time I see the dollar amount” to be in the news.
A staff member then read off the amounts of each loan before the board voted unanimously to approve the write-offs.
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.
CORRECTION: The original version of this report incorrectly stated that HUD needs to approve loan write-offs.