Investigation: $2.8 Million Still Past Due on PEDP Loans
Wednesday, October 16, 2013
The Providence Economic Development Partnership (PEDP), which came under a federal investigation following a series of GoLocalProv reports, is still facing $2.8 million in loans past due according to documents secured by GoLocalProv through an access to public records request.
According to documents provided by the city to GoLocal, of 136 current loans with a total principle balance of $16.5 million, more than one-third -- 48 in total -- are more than 121 days past due.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe PEDP had voted to write off $2.1 million on loan debt in June 2012, but financial problems continue to persist as the city -- and its federal oversight agency -- determine how to proceed.
See Timeline of PEDP Controversies BELOW
And at least one leading business expert in the state is doubtful that the city will see much, if any of that money. "Providence would be lucky if they recouped $200,000 of the $2.8 million," said Edward Mazze, Distinguished Professor of Business at URI
"The program should be eliminated. The personnel to find good borrowers, to underwrite the loans, monitor the loans, take corrective action quickly and make loan collections does not exist," said Mazze. "The best oversight is to bring in individuals with banking experience who understand how small businesses operate. Keep political people away from this process."
Loan Program Evaluation Continues
PEDP, which has come under close scrutiny locally as well as nationally for both questionable and delinquent loans, was placed under HUD oversight last fall, as loan fundings comes in part from Community Development Block Grants, and PEDP voted earlier this year to change its by-laws for greater oversight of the loan-granting process.
"Much of the past due monies are from loans where borrowers have gone bankrupt, or are in bankruptcy and/or do not have the funds to pay down the loans. I suspect many of these loans were poorly underwritten and the borrowers, once the funds were distributed, had no cash flow to pay the borrowed amounts back," said Mazze of the beleaguered program. "This is not unusual when loans are given to politically connected individuals/businesses with less than good business records."
Mazze thought that the city should be out of the business of micro-lending -- altogether.
"Providence's Economic Development Office should direct small businesses needing financing to banks and other finance service firms that have experience in dealing in this market. There are a number of financial institutions that work with the SBA on SBA lending programs," said Mazze. "There are a number of federal agencies that provide grants to small businesses. As we have learned. city and state government are not banks for businesses of any size. Leave lending to the private sector. They understand the risks."
Potential for Future of PEDP?
Providence City Councilman Luis Aponte thought that the embattled program could possibly be restructured in order to be successful.
Aponte touched upon the nature of PEDP programs -- and collections. "While some loan programs were always intended to be converted to grants, others were never intended to become write-offs, which is what the City Council is in the process of looking at," he said.
"There are some transactions -- the lead program, for instance, if you get a loan, it's understood by parties that it becomes a grant, closing costs -- it's understood that it becomes a grant," said Aponte.
"The ones the council is seeking to review are the ones that were never intended to become grants," said Aponte. "My understanding though is that some of those [outstanding loans] out there, some of that may be uncollectible debt.
Still, Aponte thought that the program could be structured in a way that could ultimately be effective.
"I think it's a good program, but it could be better targeted to particular sectors," said Aponte. "It doesn't seem to me that a lot of analysis as to where the lending was going."
In addition, moving forward, Aponte thought that the city should be working in tandem with the private sector to provide small business support.
"The other part that's been talked about but not pursued -- on all those loans, PEDP is their only skin in the game," said Aponte. "One of the objectives should be that the PEDP dollars not be the only dollars, but find matching dollars in local banks, that would allow for the program to be more robust."
Related Slideshow: PEDP Timeline
The Providence Economic Development Partnership (PEDP) came under fire -- and a federal investigation -- after more than a dozen GoLocalProv stories uncovered millions of dollars in delinquent loans, unauthorized agency spending and questionable deals
Below is a timeline of GoLocal PEDP stories going back to October 2011 when GoLocal first reported that more than a quarter of the taxpayer-funded loans issued through the program were at least 90 days past due.
October 24, 2011
October 25, 2011
October 26, 2011
October 28, 2011
December 8, 2011
March 7, 2012
June 26, 2012
July 19. 2012
August 10, 2012
August 13, 2012
August 14, 2012
August 15, 2012
August 27, 2012
August 30, 2012
September 4, 2012
September 10, 2012
September 18, 2012
October 1, 2012
October 20, 2012
November 13, 2012
