REFORMING PEDP: Ending Special Influence & Expanding Access

In this time of serious economic challenge, the Providence Economic Development Partnership Program (PEDP) remains a missed opportunity. At times riddled with cronyism and inefficient business practices, PEDP has squandered its ability to strengthen Providences economy by supporting the growth of Providence businesses and industries. The Providence Economic Development Partnership is designed to be the economic development policy-making body of the City of Providence. One of its core functions is to make loans to local businesses to stimulate their growth and the health of the local economy. PEDPs loan making, over time, has swung from two extremes. Too often it has been highly political and not made decisions based on solid business plans of the applicants. At other times it has been so cautious to avoid being criticized for playing politics that too few loans get made and this critical source of capital for our businesses sits on the sidelines. The bottom line is that the PEDP, as it is currently structured, is not fulfilling its mission, and business as usual simply isnt working for Providences business community. After years of tax increases and budget cuts, the only way forward for Providence is through economic growth. We need a robust and effective city loan program to provide needed capital to help our businesses grow and create good-paying jobs for our residents. That requires a new and different approach. Thats why I am proposing to revitalize the PEDP by allowing the business and community leaders who sit on its board of directors to use their expertise to shape our citys economic policies while moving its revolving loan functions into a new independent loan program. This will take the politics out of city loan decisions, ensuring that the city gets the most bang for our economic development loan buck. This new approach is based in large measure on a successful strategy used in Seattle, Washington. Since 1997, a neutral body called Community Capital Development (CCD) has offered loans, as well as technical assistance and training programs, to local small businesses based not on political connections but on best business practices. This approach has helped grow the Seattle economy and the same principles can work in Providence.

Problems with the Current System

The current PEDP system has two significant failures: 1) Too often, PEDP loans are given to politically connected people. Having PEDP entirely under the purview of City Hall creates opportunities for this program to be used in a way that disproportionately benefits City Council Members and friends of the Mayor rather than the economic development of our citys economy. This is not to imply outright corruption in the process, but rather an example of politics as usual where those who have access to power gain while those on the outside are shut out. City Hall still remains a place where you need to know a guy in order to get something done, and PEDP is a shining example of this breakdown in fairness. Everybody should have an equal opportunity to gain access to PEDP loans regardless of their personal connections to City Hall. I recently spoke with Robin Squibb, the owner of Granny Squibbs Iced Tea, who told me about her attempt to get a PEDP loan. The process began in October 2012, when she applied for a $50,000 loan. It wasnt until five months later in March 2013 that she was finally given the opportunity to formally request a loan and present her request to the board. Her loan was approved in June 2013, but at the same time, HUD froze the program. She was unable to receive her loan and was left in the dark as to its status. Robin had to keep reaching out to people she knew in order to try to find out what was happening. The loan was finally granted in early 2014, 15 months later. This experience is too common in the City of Providence poor communication and a timeline that doesnt work for business. Those who go to great lengths to apply through the proper channels regularly have to reach out to people in the know just to move the process along. 2) Too often, PEDP loans are not paid back to the city. Those who serve on the PEDP loan board are political appointees, and while they are often well-respected local leaders, few possess banking or loan underwriting experience. Instead of being asked to advise on broad economic policy, they are asked to rubber stamp staff recommendations on loans. This mismatch of expertise and expectation is the foundation of PEDPs inefficient business practices.

In 2012, the PEDP board voted to write off 29 taxpayer-backed loans, costing the city over $2.1 million. Of those loans, 22 (76%) were over 1,000 days past due. Last October, it was reported that, of the 136 current PEDP loans with a combined value of $16.5 million, over one third are more than 121 days past due. In December, the PEDP determined that the city must come up with over $1.3 million to cover loans and grants issued by the agency dating back to 2006. These loans are intended to be an investment in the city, not a gift to city businesses. No city, and especially Providence, can afford to dole out millions of dollars and never get repaid. In addition, by choosing poor investments, there is an opportunity cost and businesses that should be fueling our economy are left behind. This unfortunate trend endangers our citys economic well-being and trust in the efficiency of government

The Solution
At its core, the Providence Economic Development Partnership Program ought to be about investing in our citys businesses, which in turn will help the city grow and prosper, and this is too important a purpose to be swept up in the cloud of politics. My solution is to take the politics out of the issue. As Mayor, I will work with the business and financial community to establish a fair, impartial way to turn the Partnerships loan-making decisions over to knowledgeable, independent practitioners who are in the business of evaluating and loaning funds to worthy, growing business ventures and ensuring that the loans are repaid in a timely manner that allows those loan funds to be used to support other businesses as well. It is possible that this new revolving loan function would be staffed within the existing Partnership program, or it could be outsourced to a vendor with the right experience, skills, capacity and understanding to manage these revolving loans within parameters established by my office and the experienced business leaders who sit on the Partnership Board of Directors. The key difference is that, while I will be accountable for the output of this revolving loan fund as Mayor, I will not be directing how or with whom it chooses to make its loans. By taking the politics out of these loan award decisions, we will refocus the Providence Economic Development Partnership on its true mission helping to set the economic development direction of the City of Providence and making fiscally responsible loans that provide businesses and key industries with jobcreating and growth potential with the capital they need to thrive.

This new approach to the Partnership has several key advantages: 1) It allows for qualified underwriters to manage the loaning process. By putting the process in the hands of an independent program managed by experienced loan officers who are focused on business growth as opposed to patronage and are guided by the citys economic development plan, we will bring a new level of professionalism and efficiency to the process. 2) It protects the citys economy from unpaid debts. Professionalizing the operation will ensure that businesses are held accountable for their loan repayments. Those who miss their payments will not be granted leniency merely because of their personal relationships with those who granted them the loan. Extensions and modifications, like allowing interest-only payments, would be decided based upon what is the best investment for the city and not who the borrower is. 3) It ensures equal access to loans. With an independent entity and qualified financial professionals free of political interference running the revolving loan program, the criteria for receiving a loan will be based on qualifications rather than relationships. Although many minority- and women-owned businesses call Providence home, people of color and small businesses without political influence receive a disproportionately small share of government loans. Handing this program over to experienced loan professionals ensures that the most qualified applicants receive loans, regardless of whether or not they happen to know a guy. 4) It allows the business and civic leaders who sit on the Providence Economic Development Partnership Board of Directors to do what they do best: advise and guide the citys economic development strategy. The Partnerships Board of Directors should not be serving to rubber stamp loan decisions. The city would be far better served leveraging the experience, business acumen, and leadership of these individuals to set economic development policy and direction. 5) It would include expanded offerings for businesses. With better underwriting, there will be lower default rates. Using capital more efficiently frees up funds to allow PEDP to expand its offerings. The loan system should not only focus on large and midsize loans but also on microloans accompanied by training and technical assistance, another strategy employed by the CCD in Seattle.