City Officials Withheld Information About Controversial Loan Fund

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Monday, August 13, 2012

Dan McGowan, GoLocalProv News Editor

In May 2006, Donald Eversley, then the head of the Providence Economic Development Partnership (PEDP), was asked to brief the City Council Finance Committee on the status of the quasi-public agency he was overseeing.

In the meeting, Eversley explained the purpose of the program, discussed strategies for making loans available to business owners and provided a list of 17 loans worth nearly $4.5 million the agency had signed off on in the previous 13 months.

Of those 17 recipients, nine would default without ever making a dent in their tab and three would face questions from the Department of Housing & Urban Development (HUD) about whether they were even eligible to receive city loans in the first place.

And there was nothing the City Council could do about it.

That’s because, as Council members were informed prior to that May meeting, the agency was not required to provide loan default records or other information related to loans being doled out on the city’s behalf. The PEDP was a separate body, Councilors were told, with its own board that counted the Mayor as its chairman.

“It just didn’t sit well,” said former Councilman John Lombardi, now a State Representative candidate on Federal Hill. “I probably wrote two or three letters asking for investigation. If I recall, I believe I even sent the city solicitor a letter asking why we weren’t privy to more information.”

Political Patronage

The PEDP’s primary objective is to be last-resort lender for businesses that were turned away by at least two traditional lenders. The funds for the program are awarded to the city through the Community Development Block Grant (CDBG) and the agency’s 15-member board votes on every loan.

But more than six years after that meeting, the city has been left to pick up the pieces for an agency that watched its loan recipients rack up an “approximately 60 percent” default rate between July 2001 and June 2011. Critics have called it a slush fund for former Mayor and now Congressman David Cicilline

“It always seemed pretty clear that this was political patronage,” Lombardi said. “Oversight is always good, but they always ran away from us. They always turned it into a personal vendetta: It was ‘he’s doing this because he doesn’t like so and so’ situations.”

Last month, HUD issued a 19-page report that took the city to task for lacking “adequate oversight” over the agency over a ten-year period. The report noted that the agency kept poor records, improperly spent more than $1.5 million of CDBG money and failed to prove that at least 17 loan recipients created a single job with the funds.

As of last October, 25 percent of all loans handed out by the agency were at least 90 days past due, according to information provided by PEDP lawyer Joshua Teverow. In June, the PEDP’s board voted to write off 29 loans, which cost the city more than $2 million when the balances, interest and penalties were figured in.

It was the first time the PEDP had written off a loan since 2008.

Loan Program Was Not Transparent

According to Councilman Kevin Jackson, who served as chairman of the Finance Committee during that May 2006 meeting, the Council should have been entitled to receive more information about the agency years ago.

“I’m glad someone went back through the records to see that we were asking questions,” Jackson said. “But other than passing a non-binding resolution which didn’t have to be followed, what else can we do?”

The Council members weren’t the only ones asking questions about the PEDP and the millions of dollars it was dishing out. Former internal auditor and now city treasurer James Lombardi claims he began requesting information on the loan program as far back as 2006, but the PEDP stated that “the information was confidential and not public." Lombardi said he was concerned that loans were being offered without any Council oversight.

"The information on the loan program was not transparent and was not available to my office,” Lombardi said Sunday.

In an April 2007 Finance Committee meeting, Thomas Deller, then the city’s director Department of Planning and Development, again informed members of the Council that the PEDP did not have to release certain information about loans to the public.

In that meeting, committee vice chairman Terry Hassett asked to see a “spread of how many outstanding loans there are, what is available, what kind of equity is in the fund for future loans and that kind of thing.”

Deller’s response: “I think there are some confidentiality issues that we had with the [Urban Renewal, Redevelopment and Planning Committee]. We will give you the information if we are allowed to supply.”

Records show that of the 32 loans offered between 2006 and 2007, 22 recipients either defaulted or now have their loan being questioned by HUD.

Through it all, the Council remained in the dark.

“The Council should have more oversight than we had,” Jackson said.

 

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

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