A Gardiner committee is recommending the city get rid of its revolving loan program, which has provided hundreds of thousands of dollars in loans to local businesses, and use the money instead for a new economic development financing program of some kind.

The revolving loan program, created with a $475,000 federal loan and $276,500 from the city in 2003, provides loans to small businesses that can’t secure financing from traditional financial institutions. The program’s money is replenished as businesses pay back the loans.

At least 16 businesses have received loans through the city’s program, but the city has written off parts of four of those loans totaling around $110,000 after the businesses went under, according to records provided by the city.

Most recently, the city wrote off $5,000 of a $40,000 loan awarded in 2012 to Alex Parker’s Steakhouse, which closed last November, and is seeking to recover the additional $20,692 owed.

The default of that loan helped the city realize the risk of the program, said Patrick Wright, economic and community development coordinator for Gardiner, but prior to that the city had been looking to change how the program was administered. He said the city recognized that the money in the program wasn’t being used to its full potential, and that the city was “in danger of putting the taxpayer more on the hook.”

The program doesn’t use city money other than for some administrative costs, but if more new loans default, the city may have to use additional money to cover a deficit, Wright said.

The city is projected to have $204,000 in seven outstanding loans and $63,000 in cash balance in the fund at the end of June. The fund also has an additional $284,000 available to lend from the original U.S. Department of Agriculture Rural Development loan that established the program.

The Kennebec Valley Council of Governments, a regional municipal services organization, administers the program on behalf of the city. The city began looking into finding a new administrator last year because the city’s costs increased after leaving the organization.

Besides considering an end to the program, the city’s Economic and Community Development Committee considered three other options: to keep running the program as is, to bring all administrative duties in-house and to assign the outstanding debt, cash balance and portfolio to KVCOG, which runs its own revolving loan program.

Other than the town of Lisbon, Gardiner is the only municipality in the state that runs its own USDA revolving loan program, according to Wright. If the city ends its revolving loan program, it would have to pay off the remaining $284,000 from the federal loan or transfer it to some other entity, Wright said. The downside of ending the program is the city would no longer have that money available to loan out, he said.

What would take the place of the city’s USDA revolving loan program wasn’t part of the committee’s recommendation, but the committee, which voted Monday, has considered the idea of the city operating its own revolving loan program for commercial and mixed-use building owners, not businesses, Wright said. Funds could be available for making infrastructure improvements, including life safety and energy efficiency upgrades and flood mitigation efforts.

The fund would only have $63,000 in cash balance available starting next fiscal year, but with the assumption businesses with outstanding loans continue to pay them off, the fund is projected to climb to $158,000 by fiscal year 2019.

City councilors are expected to review the committee’s recommendation for the program at their meeting Wednesday next week, according to City Manager Scott Morelli.

Besides the Alex Parker’s Steakhouse loan, the only loan awarded by the town in recent years was a $50,000 loan in July 2014 to The Stone Turret, a bed and breakfast that opened last year.

The city agreed to forgive $15,000 of the Alex Parker’s Steakhouse loan in exchange for the city selling restaurant equipment and supplies for $10,000. Morelli said the city is attempting to serve the owner of the restaurant, Peter Powers, with a complaint for demand for repayment in Kennebec County District Court but has been unsuccessful so far.

Paul Koenig — 621-5663

[email protected]

Twitter: @paul_koenig

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