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A Hummel Report Investigation

Risky Business

This week: The results of a six-month Hummel Report investigation into a taxpayer-funded business loan program run by the city of Providence. The program had a default rate so high under the Cicilline administration that federal officials overseeing the lending initiative have stepped in, wanting to know why. Jim Hummel discovers loans going to the politically-connected and some who never should have gotten the money to begin with.

To see a list of all loans made since 1995 click here (PEDP List of Borrowers)

To see of list of current loans and their payment status as of Oct. 3rd click here (PEDP Aging Report 10.3.11)

To see additional portions of Jim's interview with Thomas Deller click here.

To see additional portions of Jim's interview with Judith Reilly, click here.

SCRIPT

PROVIDENCE - It opened three years ago with the promise of two dozen new jobs - and a $100,000 loan from the city of Providence. Today Stanley's Famous Hamburgers on Richmond Street is closed, a year behind on its payments.

Two blocks over, the Heritage Harbor Museum remains a concept, even though the city made a $313,000 loan to the developers. They haven't made a payment in a year and a half.

Stanley's and Heritage Harbor are not alone. A six-month Hummel Report investigation shows that only 31 percent of the borrowers are current on $18 million worth of taxpayer-funded loans given out by the city over the past decade. The default rate is so high, it has caught the attention of the federal agencies that provide the money for the loan program, administered by the Providence Economic Development Partnership, a non-profit wing of the Planning Department.

Deller: ``The purpose is, is to be that lender of last resort - to take that risk that banks won't take to create jobs and businesses.''

Thomas Deller,  the city's Director of Planning, oversees the program, which goes back to the 1970s.The mission: to create jobs and grow businesses that have a hard time getting traditional financing. During a wide-ranging interview he kept coming back to one word: Risk.

Deller says the tough economy - and not the city's handling of the program - is the primary culprit.

But we analyzed all of the loans going back to 1995 - the earliest information the city could provide - and found the default rate soared during the eight years David Cicilline was mayor.

In an internal memo obtained by the Hummel Report, one federal official described the rate in 2009 as ``astounding.''

Our analysis shows there were 97 loans made during the Cicilline years: 58 percent are either delinquent or in default, 20 percent are current, 14 percent have been paid off; and the rest have either been written off or the payments have been put on hold.

By contrast from 1995 to September 2002 under the administration of former mayor Vincent Cianci: the city gave out 204 loans; 75 percent were paid off, 13 percent written off, 8 percent delinquent or in default and 4 percent are still current on payments.

Deller: ``There have been some loans that you sit down now and look at them now and say `Why did anyone ever think this made sense?' because you look at some of the details of what's happened - we probably shouldn't have done this loan.''

Nearly a third of loans during the Cicilline years went to restaurants and some nightclubs. Most  of them didn't make it.

Vincent's Kitchen on Chalkstone Avenue is now a Mexican Restaurant, leaving taxpayers on the hook for $11,000.

Mamie Ellen's on Broad Street has been turned into a party store, and still owes $18,600.

Ada's Creations just up the street,  is five years behind on a $313,000 loan.

Reilly: ``I just wanted to see how the revolving fund was doing: how many loans were out there how many jobs were created, were the loans being paid back,  were they losing the money?''

West End resident Judith Reilly - who has a master's in business administration - began asking questions about the program nearly two years ago. Joshua Teverow, the lawyer representing the city, told her the list of borrowers receiving taxpayer-funded loans was confidential information.

Reilly: ``And I wanted to see who the loans were being made to. I thought that was something important because I think anyone who lives in Providence knows that we kind of have a longstanding cronyism issue.''

Reilly filed  a complaint with the Attorney General's office, which ruled the city did,  in fact, have to give her information about the loans. But what she received was often incomplete and required repeated followup.

In fact, Reilly became the topic of discussion at several meetings of the board of  directors that gives out the loans, at one point being depicted as someone who had a quote: vendetta against Cicilline. The board even considered changing its bylaws to exclude from the public the information she was seeking.

Hummel: ``Let's look at the smell test here. It's tax money, you're a city official - it's a volunteer board that's handing out tax money. How in the world could you ever make the argument we're not any under obligation to disclose the information.''

Deller: ``And I understand that. And we did reveal who got the loans. There's a whole number of pieces...''

Hummel: ``After an awful lot of work by somebody having to file...You didn't come forward voluntarily and do that. If she hadn't filed (the  public records  complaint) you guys never would have come forward and said: here's the information.''

Deller: ``We were told under a certain federal loan requirement, I don't know  what the federal program is called, certain information was confidential because it was loan information, that was the basis under which we were operating. That was the basis under which I was operating and that I was being told by my attorney that was confidential.''

We found some interesting connections when we dug deeper into the loans.

The Providence Black Repertory Company defaulted on a $400,000 loan before being taken over by another company last year. The president of the board was Michael Van Leesten, who contributed $1,000 to Cicilline's campaign three different times when he was mayor.

In 2009 Van Leesten's consulting company received a $20,000 loan that he was nine months behind on -  until last week. Van Leesten tells the Hummel Report he wrote a check for $3,700 to become current.

The city also gave a $125,000 loan to Everyman bar and restaurant off Valley Street. It has since gone out of business. The city apparently didn't know - or didn't care - that the owner Leah Reynolds, had defaulted on a $60,000 city loan she had taken out for the former Custom House Tavern on Weybosset Street in late 2002.

Under the Cicilline administration two loans also went to the Spanish newspaper Providence en Espanol for a total of $90,000. Cicilline relied heavily on the Hispanic community in his race for mayor - and was endorsed both times by the paper. The paper's publisher tells the Hummel Report he has been critical of Cicilline at times and there was no connection between coverage and the loans.

Deller: ``We wanted to keep Providence en Espanol in business - they're still in business.

We've had issues off and on but they're still there.''

Hummel: ``But they not current on their payments.''

Deller: ``They're not current on their payments at this point.''

The publisher called the day after our inquiry, saying he was writing a check to the city for $4,000 to get current on his loan.

Reilly says the city is also playing games with the numbers to make the default rate look better than is, not writing off loans that have been delinquent for years.

Reilly: ``In accounting generally at a certain point if you realize that an asset is impaired, if you realize this loan is not likely to be paid back you would need to write it down or write it off.

Hummel: ``And what are they doing?''

Reilly: ``They haven't written loans off in a very long time.''

Reilly says the city also has allowed 10 businesses - with loans ranging from $3,500 to $677,000 - to put their payments on hold while still classified as current.

Reilly: ``I don't think a bank would let me just stop paying my mortgage, for instance.''

Hummel: ``That's the equivalent what they've done.  They've said: okay, you have a mortgage, you have a payment with us but the payment plan is going to be pretty generous because we're not really making you pay it right now.''

Reilly: ``Right, so we don't have to say you're delinquent or defaulted and we don't have to report you as delinquent or defaulted to the federal authorities.''

The federal agencies handing out the money are beginning to take notice.

Hummel: ``There are triggers, are there not, Mr. Deller, with the federal government.  They look at over 15 percent (default).

Deller: ``EDA looks over 15 percent. HUD looks over it differently.''

Hummel: ``But in effect,  if they're higher delinquencies, they want to know what you're doing with their money.''

Deller: ``And they want to know why, yes.''

Hummel: ``And so the skeptic might look at that and say, `Well you know what, they're not really being...some of these have been turned into grants, some are getting written off, some are being put into abeyance where they may have a couple of payments over the course of time, when in effect you really don't have much confidence you're ever going to get  that money back.

Deller: ``From  those? No.''

Hummel: ``And so maybe the accounting is less than forthright? ''

Deller: ``We  are in the process of revising and redoing all of our accounting  relative to these loans.''

Jim Bennett, the city's new Economic Development Director, is already making  changes. This week, he replaces Deller as  the point man for the loan program.

Bennett: ``The mayor is actually going to be coming to every meeting, which I think is a change. He will be there, taking leadership. I'm going in as the executive director, which means, along with our new fiscal officer that I'll  be overseeing  every loan.''

As for past problems with getting information?

Bennett: ``We have nothing to hide. And that's why on my business card the cell phone is on the back, the mayor gives his cell phone  out. They have access and  they call us, and as you know, I will take the meetings and I will talk to anybody who, certainly someone who wants to create commerce, but anyone who has an issue with the city moving forward.''

In Providence, Jim Hummel, for The Hummel Report.

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