You wanted to know the Department of Economic and Community Development's (DECD) policy for making grants and forgiving loans and if it allows DECD to forgive loans made to business borrowers who achieve their job creation goals. You also wanted to how many loans DECD has forgiven since FYs 1994-01 and the names of the companies involved.

GRANT POLICY

DECD's policy for granting funds depends on the program. DECD can make grants under the Urban Act program, which funds a wide range for physical development projects in state-designated distressed municipalities, urban centers, and public investment communities. The grants can go only to municipalities or nonprofit organizations (CGS § 4-66c). DECD classifies these grants in its annual report as "financial assistance for community and infrastructure projects. "

DECD can make grants, loans, and other types of financial assistance to municipalities, businesses, and nonprofit organizations under the Manufacturing Assistance Act (CGS § 32-222 (i)). These eligible developers can generally use the funds to acquire and prepare sites, develop facilities, and purchase machinery and equipment.

As a matter of practice, DECD stopped making grants to businesses that applied after 1995, but it honored grant commitments it initially approved but did not actually award before that date. This is one of the reasons why some businesses show up as having received grants after 1995 in DECD's annual report. DECD negotiated with these businesses to convert the grants into loans, and in four cases succeeded, Deputy Commissioner Rita Zingari stated.

DECD still makes grants to businesses for cleaning up and preparing sites in urban areas. In some cases, it makes these grants in combination with loans for developing the facility or purchasing machinery. DECD classifies these grants in its annual report as financial assistance for community and infrastructure projects.

LOAN FORGIVENESS

Policy

DECD forgives loans based on narrow, unwritten criteria. It forgives loans to encourage borrowers to (1) stay in Connecticut when other states try to lure them away, (2) relocate to economically distressed urban areas, and (3) exceed their job creation goals.

With respect to the latter, DECD determines the amount to be forgiven based on the number of extra jobs the borrower created. This policy is stipulated in the loan agreement. DECD relies on an independent auditor it hires to verify the actual number of jobs each borrower created. DECD does not advertise its loan forgiveness policy, but relies on field staff to identify the situations described above, Zingari explained.

Loans Forgiven

Of the 182 loans DECD made since FY 1994-95, it forgave 11. Zingari said these included a "forgivable loan" made to Warburg, Dillon, and Reed (formerly Swiss Bank) in lieu of corporate business tax credits for developing a new facility and meeting employment targets. DECD did this under PA 00-170, which authorizes Manufacturing Assistance Act funding specifically for this company.

Zingari stated that four "loans" were actually grants made by the previous administration that were changed to forgivable loans when the borrowers met their job creation goals or other conditions. (We asked the DECD for a description of those conditions and will revise this memo when we receive it. )

DECD will not disclose the names of these or the other six borrowers whose loans were forgiven since FY 1994-95 because doing so would publicly identify them as having experienced financial difficulty, Zingari stated. The Freedom of Information Act exempts this type of information from public disclosure, she explained. CGS § 32-244 (a) treats information concerning an individual's financial condition as a trade secret, which CGS § 1-210 (b) (5) excludes from disclosure.

DECD's decision not to disclose the borrowers names suggests another criterion for forgiving loans besides the ones mention above. We have specifically asked DECD if financial difficulty is a condition for forgiving a loan and will revise this memo accordingly when we receive its reply.

JR: ts