PROVIDENCE, R.I. (WPRI) – When all is said and done, a years-long federal review of Providence’s troubled taxpayer-funded small business loan program will have cost the city $3.2 million.
City taxpayers must put $1.4 million into the Providence Business Loan Fund to cover five loans that were funded with federal money but did not follow federal guidelines, according to a report issued last week by the U.S. Department of Housing and Urban Development (HUD). PBLF is the new name for the city-run agency formerly known as the Providence Economic Development Partnership.
The city was previously forced to repay HUD $1.8 million to cover a slew of loans and other expenditures the federal agency ruled never should have been authorized. Once the city finalizes its reimbursement plan HUD’s review of the loan program will be complete, more than five years after it began.
“The city has made tremendous progress in resolving these very difficult and longstanding concerns,” Robert D. Shumeyko, a regional director at HUD, wrote to the city in a letter dated March 13.
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The PBLF functions as an arm of the city’s planning department, providing low-interest taxpayer-funded loans to small businesses that have been rejected by traditional lenders. It came under fire in 2012 after HUD found a lack of oversight over the program, though it has continued to make new loans since then.
The majority of HUD’s findings — which included “inadequate grantee oversight and contractual controls,” a failure to “demonstrate compliance with national objective and performance goals,” and inaccurate reporting of “financial and program information” to the federal agency — have been corrected by the city.
But four loans issued between 2002 and 2007 “did not meet a national objective and based on review of the underwriting, did not provide reasonable expectation that the business would be able to repay the loan or create the numbers of jobs needed to meet a national objective,” according to the report.
The loans included: $341,660 to Ada’s Creation in 2002; $100,000 to Touch of Class in 2006; $35,000 to OSP Security in 2007; and $50,000 to Ti Adora, also in 2007.
HUD said another loan, $931,000 to the Olneyville Housing Corporation for a development at the Paragon Mills, must be reimbursed using non-federal funds because the city did not have authority to use federal funds on the project.
Tom Hoagland, the director of the PBLF, told Target 12 HUD was most interested in the underwriting of loans, but he acknowledged some of the loans given by the agency years ago didn’t come with a lot of justification for why they were be awarded.
“Some of that was not particularly well documented,” he said.
After a long career in the banking industry, Hoagland was among the individuals hired by former Mayor Angel Taveras to clean up the loan program. That work has continued under Mayor Jorge Elorza, who changed the name of the program and revamped its board of directors. The PBLF has also written off more than $3 million in loans its attorneys have deemed uncollectable since 2015.
The cleanup isn’t over yet. As of November 2016, the city’s loan portfolio included 85 recipients who owed $11.6 million. Twenty-two recipients were at least 200 days behind on payments, according to a review by Target 12.
But Hoagland said he sees room for the PBLF to fill “some gaps in the market” for small businesses, particularly for restaurants or businesses seeking small-dollar loans. The loan program has helped fund dozens of restaurants over the last 20 years.
“There a market, but in the past, I think the agency did some venture capital lending,” Hoagland said. “They lent to startups. The lent to people who may have not had the background or experience.”