Cicilline & Gemma have Ties to Controversial Providence Loan Fund

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Monday, July 23, 2012

Dan McGowan, GoLocalProv News Editor

A business co-owned by Democratic Congressional candidate Anthony Gemma received a $242,600 loan through what is now known as the Providence Economic Development Partnership (PEDP), GoLocalProv has learned.

Gemma and his three brothers receieved the loan in 2000 (just over 2 years before Congressman David Cicilline became Mayor of Providence) and was eventually paid off in full, but like many of the businesses that received funding during Cicilline’s eight-year tenure in City Hall, the Castle Cinema struggled to remain profitable and was closed by 2004.

The PEDP came under fire last week when the Department of Housing and Urban Development (HUD) issued a scathing report citing the city for not exercising “adequate oversight” over the taxpayer-backed loan fund. HUD found that over a ten-year period that included all of Cicilline’s time as Mayor of Providence, the fund had an “approximately 60 percent” default rate and several loans were given to businesses that may not have been eligible to receive federal funds.

Last October, GoLocalProv first reported that more than a quarter of all PEDP loans were at least 90 days past due and were likely to leave the city stuck for more than $3 million. In June, the PEDP board of directors, chaired by Mayor Angel Taveras (and previously Cicilline), voted to write off 29 loans that cost the city $2,171,125.66 once interest and penalties were figured in to the mix.

Over the weekend, Gemma ripped Cicilline for accepting campaign contributions from several loan recipients during his time as Mayor and again when he ran for Congress two years ago. Some of the contributors were among those who had their loans written off last month.

“I would expect loan recipients to focus on paying back their loans and growing their businesses, not sending money in to David Cicilline,” Gemma said. “Sadly, this news doesn’t surprise me. It appears to be just another case of David putting himself first at the expense of Providence taxpayers.”

No-Interest Loan, Tax Break

But records show Gemma himself got a sweet deal on the terms of his loan for the purchase and renovation of the Castle Cinema in 2000. Gemma and his brothers received a no-interest loan (most loans range from 3 percent to 12 percent) for $242,600 and were required to pay it back in 120 months.

The loan was part of the more than $1 million the Gemma family sunk into the movie theater, which had been a landmark in the city since 1925. According to a 2002 story in the Providence Journal, “the new proprietors gambled that they could save the old theater by turning it into the Castle Cinema and Café, offering full meals to diners who sit in seats made for Lincoln Town Cars and watch a movie. The theater also hosts live performances and the café serves diners who are not going to a movie or a performance.”

In addition to the loan, the City Council in 2002 also approved a tax treaty for the Castle Cinema that was expected to save the Gemmas $113,597 over a decade. The deal was supposed to create jobs for city residents.

By 2004, the Cinema had again fallen on hard times. An Associated Press article from the time citied an e-mail that said, “co-owner Larry Gemma is seeking assistance from the theater community and the office of Providence Mayor David Cicilline” to help keep the theater solvent. The article also quoted former Councilman Cliff Wood, who said the Gemma family was $1.8 million “in the hole” on the project.

The Cinema closed for good in 2004. In 2008, the Gemma family donated it to the Rhode Island Society for the Prevention of Cruelty to Animals (RISPCA). In both 2008 and 2009, the Providence Preservation Society labeled it one of the city’s ten most endangered properties.

Cicilline Campaign: Political Opportunism

On Sunday Gemma spokesman Alex Morash defended the loan, noting that it was paid off and that the family had to put up collateral to receive any funds.

“For the Gemma family to receive the loan, they had to sign personal guarantees, and they had to put up collateral,” he said. “As for payment, all payments were made and the loan was paid in full with interest. In regards to the theater, the property was returned to the Gemma family's possession and they chose to donate the property to the RISPCA.”

But Cicilline campaign manager Eric Hyers fired back at the Gemma campaign for taking a shot at a program that he directly benefited from.

“We've come to expect this sort of political opportunism and hypocrisy from Mr. Gemma,” Hyers said. “Much like in 2010 when he attacked the Jobs Now program while GEM plumbing was actually benefiting from that program, now he is attacking the PEDP program when he took a $250,000 loan from the city and then ran a theater into the ground. These desperate attacks are what you see from candidates who have nothing positive to offer.”

Doherty: Government Should Get Out of the Way

Nonetheless, HUD’s report painted a picture of an agency that gave out loans to businesses that often failed to create jobs and wasted nearly $1.5 million on federal funds internally.

“Seventeen of 52 loans which provided $2,990,000.00 in CDBG funds did not create or retain any jobs for low and moderate income people,” the report states. “Of the files reviewed, documentation of job creation or retention were either lacking or missing. As a result, these loans were used to benefit businesses without demonstrating that they also provided the intended benefits to low and moderate income people.”

On Sunday, the campaign for Republican Congressional candidate Brendan Doherty also took the PEDP to task, citing it as an example of government getting in the way of business.

“The PEDP scandal is simply the latest example of the dangers of government being in the business of business,” said Doherty campaign manager Ian Prior. “Brendan has consistently stated that the best economic policy is one where our elected leaders create an environment for business to thrive, rather than creating more government programs that distort the market and invite waste, fraud, corruption and leave the taxpayers on the hook when the program fails.”
 

Dan McGowan can be reached at dmcgowan@golocalprov.com. Follow him on Twitter: @danmcgowan

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