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Former Director: PEDP Used ‘Smoke & Mirrors’ When Reporting to HUD

Monday, October 01, 2012

 

The Providence Economic Development Partnership (PEDP) intentionally kept severely delinquent taxpayer-funded loans on the books so it wouldn’t have to repay the Department of Housing and Urban Development (HUD) based on its extraordinarily high default rate, the agency’s former executive director told board members during a meeting last year.

In a recording of a March 2011 meeting obtained through a public records request, Thom Deller, who resigned from his post as the city’s Planning Director earlier this year, admitted to board members that the agency had been reporting a “smoke and mirrors” default rate to HUD, which provides the majority of funding to the PEDP.

“One of the reasons our collection is high or our default rate is low is that we will keep loans on the books even when they’re not paying just because we don’t want to, there’s some implications if we start defaulting loans,” Deller said. “We get above a certain amount of money, the city is supposed to reimburse the program for that amount of cash.”

Deller, who now works for the city of Hartford, said reporting an artificial default rate to HUD allowed the agency to attempt to recoup money through collections rather than simply writing off the loan.

“So we talk about our default rate as being very low, below the national average, so that keeps us in a state that we don’t have to pay back,” he said. “But there are a lot of loans that aren’t active, that aren’t being paid on right now.”

He wasn’t kidding.

Earlier this year, the PEDP board voted to write off 29 loans worth more than $2.1 million when interest and penalties were figured in. Of those loans, 12 businesses made three or less payments to the PEDP before defaulting and seven never repaid a dollar.

The majority of the recipients have been out of business for several years and many of the loans were on the books despite being over 1,000 days behind on payments by the time they were written off. One recipient, Danal Inc., was 4,799 days behind on a $60,600 loan when the PEDP finally threw the towel in.

That loan even caught the attention of HUD.

In a scathing report that cited the city for lacking “adequate oversight” over the PEDP between 2002 and 2011, HUD singled the loan to Danal Inc. because it had collected a net amount of $543 from the company while spending $7,903 on legal fees.

“The city has spent an unreasonable amount of legal fees in pursuit of these collections with very little to show for its effort,” the report stated.

HUD Spokeswoman: Comments are “Concerning”

Collection rates are one of the issues HUD looks at when it determines whether the city needs to pay back certain loans, according to spokeswoman Rhonda Siciliano. She said HUD reviews loans that have defaulted on a case-by-case basis to determine whether or not the city had proper underwriting standards in place, proper collateralization, documentation to show that the loan met the objectives of the program and whether or not the city exercised due diligence in trying to recoup the loss.

While HUD is still working with the city to determine whether it needs to pay back any of the loans, the report noted that 17 loan recipients did not create a single job for low or moderate income people and also questioned why 12 nonprofit organizations received over $3 million in loans between 2002 and 2011.

Asked specifically about Deller’s comments during the March 2011 board meeting, Siciliano said, “I would refer you to Mr. Deller to clarify the intent of his statement.”

“I will say that it is concerning and shows that there were problems with the city’s program which we have cited in our monitoring report and continue to work closely with the city to address,” she said.

he also pointed out that the “city has been very responsive to HUD in working through these issues and we are pleased with the actions that the city has taken to date to correct the deficiencies.”

Spokesman Defends David Cicilline

The ten-year period HUD continues to review spans several administrations (the end of Buddy Cianci’s tenure, the brief time John Lombardi served as Mayor and the beginning of Mayor Angel Taveras’ time in office), but mostly focuses on the eight years Congressman David Cicilline was in office.

In 2004, Cicilline revamped the PEDP to create a loan committee that reviewed every loan and made himself chairman of the board. But critics claim he used the PEDP as a “slush fund,” and in one instance, a $103,000 loan was given to a former campaign volunteer. That loan was only repaid thanks to a legal technicality.

Cicilline has refused multiple requests to sit down for an interview regarding the PEDP, but campaign manager Eric Hyers defended the agency’s practices while the Congressman was Mayor.

"David Cicilline worked hard to reform the loan program when he was Mayor,” Hyers said last week. “He reconstituted the loan committee and created a panel of local bankers and loan experts, who vetted and approved every loan. Again, by definition, this is a program for very high-risk loans, and to qualify for a loan, a business had to be turned down from two other banks."

 

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

 

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