GARDINER — City councilors moved forward Wednesday night in ending the city’s small-business revolving loan program and directing a city committee to investigate other economic development uses for the program’s funds.

The council, at its Wednesday meeting, unanimously supported the city Economic Development Committee’s recommendation to pay off the roughly $283,000 remaining on the $475,000 federal loan the city received from the U.S. Department of Agriculture Rural Development in 2003 to create the program. Paying off the loan is projected to leave the city about $63,000 in cash by the start of next fiscal year in July, along with seven outstanding loans provided to local businesses totaling $204,000.

The program, created with the input of $276,500 from the city, provides loans to businesses that can’t secure financing from traditional financial institutions. Gardiner is one of only two municipalities in the state with its own USDA revolving loan program, according to the city. The program’s funds increase as the businesses pay back the loans.

The committee recommended using the cash balance and the future payments from the businesses for some new type of economic development financing program. The fund is projected to climb to $158,000 by fiscal year 2019 if the businesses continue paying off their loans.

Other than a loan issued to a bed-and-breakfast last year, the seven businesses with the outstanding loans all have years of good history paying off their loans, according to the recommendation from Economic and Community Development Coordinator Patrick Wright.

However, a business that failed last year demonstrated the risk of the program, Wright said. The city wrote off $5,000 of that $40,000 loan, awarded in 2012 to Alex Parker’s Steakhouse, which closed last November.

Since the program’s creation in 2003, the city has written off parts of four loans totaling around $110,000.

Alex Parker’s Steakhouse still owes $20,692 to the city, but Wright said it’s unlikely the city will recover that.

Although the program doesn’t use city money other than for some administrative costs, Wright told councilors the program could put taxpayers at risk if the city provides businesses new loans that default.

Since 2003, the program has provided hundreds of thousands of dollars in loans to at least 16 Gardiner businesses and organizations, including Isamax Snacks, Black Diamond Consultants and the Johnson Hall Performing Arts Center.

The Kennebec Valley Council of Governments, a regional municipal services organization, administers the program on the city’s behalf and has its own revolving loan program for businesses in the region. The city began looking into finding a new administrator last year because the city’s costs increased after it left the organization. The city now pays more to administer the program than it receives in loan payments from the businesses, Wright said.

At their Wednesday night meeting, councilors also were scheduled to discuss next year’s proposed municipal budget. City Manager Scott Morelli presented councilors with a proposed budget April 15 that would increase property taxes by 3.4 percent.

Paul Koenig — 621-5663

pkoenig@centralmaine.com

Twitter: @paul_koenig