In December 2009, Mayor Stephen Reed’s last full month in office, one thing was certain about Harrisburg’s revolving loan fund program: it was no longer making money that could be loaned to other prospective, job-creating businesses.
Instead, it has cost taxpayers nearly $1 million. No loans have been made since Reed left office. And the cost to taxpayers could even increase.
That December, the Reed administration reported writing off $963,000 in loans in which the borrowers were unable to make payments, filed for bankruptcy or simply went out of business, according to documents and city officials.
Moreover, the Reed administration showed little effort at making sure loans were repaid. “There was not a proactive approach to collecting delinquent loans,” said Jack Robinson, head of the city’s Department of Building and Housing Development, the agency Mayor Linda Thompson has charged with recovering the remaining loans.
Questions remain as to how these loans were made, what financial documentation and collateral was required, and what specific policy the Reed administration adopted and followed in determining who received loans.
Officials have found little documentation to answer these questions, but what they have found since assuming the program indicates a disregard for adhering to standard banking procedures and due diligence in properly determining whether to grant a loan.
“I would typify the approach taken by the prior administration as unprofessional,” said Robinson, who worked in the state Department of Economic and Community Development before joining the city two years ago.
The Thompson administration is trying to collect the remaining outstanding loans from the revolving loan program. There is about $3.6 million from that program; $53,500 from a federal Community Development Block Grant; and $426,629 from the state’s Enterprise Community program, all of which were administered by Reed’s office.
Periodically, the Thompson administration releases to the media an updated list of loan recipients, what they owe and what they’ve paid. It’s public shaming of sorts that has brought in significant delinquent payments. The last such report was in May.
“Hundreds of thousands of dollars that would not otherwise have been collected,” said Robert Philbin, the city’s spokesman.
Yet, of the $3.6 million outstanding from the revolving loan fund, there is $900,000 in past due payments, Robinson said. Some loans appear to have no chance of getting repaid, though Robinson said the city is trying to work out payment plans with all its loan recipients.
One business, Sugar Mama’s, a restaurant on 29th Street that has been closed a couple of years, was one of the last recipients of a loan under Reed, receiving $175,000 in November 2009, a month before Reed reported writing off nearly $1 million in loans. To date, according to city records, no payment has been made by Sugar Mama’s.
Among loans the Reed administration wrote off was FDA Packaging Inc., which received a $250,000 loan in March 2001. Located Uptown, the company paid back $141,568, but, after becoming Atlantic Coast Packaging in 2006, filed for bankruptcy in 2008. The $158,501 it still owed was written off in 2009.
FDA Packaging no longer exists and where its packaging operations once stood, 2715 N. 7th St., is an empty lot slated to become a solar field for energy generation.
The loan program’s purpose was to provide businesses with capital to grow, but recipients also had to create jobs. These criteria were stated in documents submitted as part a 1992 lawsuit filed by 13 city residents against Reed for taking $7 million from the sale of the city’s water system to create a special projects revolving loan program in 1991.
Unlike what has been described as the unprofessional administering of the program by the end of his 28 years in office, Reed was running a tight ship in 1991, according to the court documents – memos, directives and executive orders.
For example, a mayoral memo outlining the program’s criteria stated: “One (1) job must be created for every $50,000 borrowed from the SPRLP … All SPRLP loans must be fully secured/collateralized.”
Reed lost the lawsuit. The court ruled, among other things, that he had no authority to create the special projects revolving loan fund. Yet, Reed continued to operate the program, and, though it appears he initially ran it responsibly, adherence to standards seemed to slip over subsequent years.
Controller and former city councilman Dan Miller had been appointed to a board overseeing the revolving loan fund in the late 1990s.
“This board was to determine whether the businesses were worthy of receiving a loan,” Miller said. “They had me come to one or two meetings and then we never met.”
Miller assumed no loans were being made because they board never met, but then he would read in the paper of a business getting a loan. “Apparently loans were being made, but not appropriately,” he said.
Wendi Taylor, one of the Harrisburg 13 that took Reed to court, examined the businesses getting loans in the early ‘90s. “There were so many of them that weren’t credit worthy,” she said. Moreover, Taylor said, the Reed administration “didn’t seem to care about getting the money back.”
One more recent loan recipient, Island Grill LP, borrowed $100,000 in July 2005, which was to go toward a more than $2 million project to build City Island Grill restaurant on the south end of City Island. It was never built and Island Grill never made a payment. In 2009, the Reed administration wrote off the loan.
