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Corbett seeking to consolidate Pennsylvania's loans to businesses

When Flowers Foods Inc. agreed last month to buy Tasting Baking Co., the Georgia firm didn't just save Tasty from a potentially ugly financial fate. It also bailed out a Pennsylvania state loan fund.

When Flowers Foods Inc. agreed last month to buy Tasting Baking Co., the Georgia firm didn't just save Tasty from a potentially ugly financial fate. It also bailed out a Pennsylvania state loan fund.

Tasty had borrowed $10 million from the state's Rendell-era Machinery and Equipment Loan Fund to help pay for its new bakery at the Navy Yard, which was completed last year. State officials boosted the total to $11 million in January, after Tasty had missed a debt payment to its private-sector banks and was in danger of running out of cash.

The company's troubled state debt, which accounted for 11.6 percent of the equipment fund's loans, spotlights Pennsylvania's sometimes murky role as a business lender through a plethora of programs that have built up like "geologic layers" from governor to governor.

Gov. Corbett, facing a $4 billion budget shortfall, is taking a different approach, at least early in his term.

He wants to consolidate 26 state lending programs that had $901 million in loans outstanding as of Feb. 28 in a bid to cut costs and simplify the process to get aid.

State lending to businesses - intended to attract and keep jobs - is common across the country. New Jersey, for example, had $215 million in loans outstanding on April 30, according to the state's Economic Development Authority.

Corbett introduced his proposal - which would collapse four lending authorities into one - during his budget address in March, but he has yet to send a draft of the necessary legislation to lawmakers.

The "broad-stroke concept" is appealing, Senate Majority Leader Dominic Pileggi (R., Delaware) said, but he wants to know more about what the governor intends. "In programs like this, the details are crucial," Pileggi said.

Legislators are worried the plan would give Corbett the upper hand in doling out economic aid and fail to preserve the goals of the often narrowly aimed loans.

The Second Stage Loan Program, for example, under the Commonwealth Financing Authority, provides "working capital for [two- to seven-year-old] manufacturing, biotech, and technology-oriented companies," according to the Department of Community and Economic Development, which administers the 26 programs.

"The general thrust of [Corbett's proposal] seems to be to remove the statutory limitations," creating a "purely discretionary fund for the governor," Pileggi said.

Wayne D. Fontana, an Allegheny County Democrat and minority chair of the Senate committee that oversees economic development, wondered if the new system would funnel everything through the governor's office, restricting legislators' access to money for their constituents. "That's the fear: Who's going to be in control?" he asked.

Officials at the economic development department provided a written description of the proposal to The Inquirer, asserting that the programs would keep their purposes.

The big difference is that they would be overseen by the new Liberty Financing Authority. It would replace the Commonwealth Financing Authority, the Pennsylvania Industrial Development Authority, the Pennsylvania Minority Business Development Authority, and the Tobacco Settlement Investment Board.

The proposal would allow businesses to use one application instead of having to apply separately for various loans. One 15-member board - with seven members appointed by the executive branch and eight by the legislature - would decide whether to make loans. Now, 48 members of four boards make lending decisions.

The biggest pool of loans - $411 million currently - is owed to the industrial development authority. At the end of March, 31 industrial authority loans equaling 3.9 percent of the portfolio were at least 90 days delinquent.

In the machinery fund, 15 borrowers, accounting for 8.2 percent of the money outstanding, were delinquent. That does not include Tasty Baking's loans, which Flowers will pay off when the purchase deal closes.

An economist said consolidation seemed sensible. "If you have lots of different programs, then the orientation is toward managing the programs" rather than "on the right way for the state to encourage job creation," said Stephen Herzenberg, who heads the Keystone Research Center in Harrisburg and called the current system "geologic layers."

The Inquirer contacted six Philadelphia-area companies that received a total of $5.7 million in state loans in recent years. Only one, CeeLite Technologies L.L.C. in Colmar, responded.

"We were very pleased with the process," which resulted in $1.6 million in state assistance, said Gabrielle Santulli, the company's vice president of marketing. She declined to comment on the governor's proposal.

Banking on the State

Programs through which Pennsylvania lends money

to businesses to create and retain jobs.

Loans outstanding,

Lender in millions*

 Pa. Industrial Development Authority $411.1

Commonwealth Financing Authority 323.5

Machinery and Equipment Loan Fund 95.1

Small Business First 67.7

Pa. Minority Business Development Authority 4.0

Total $901.4

 *As of Feb. 28

SOURCE: Pa. Dept. of Community and Economic Development


The Biggest Lender

The largest state loan program for businesses is run

by the Pennsylvania Industrial Development Authority. Here are its biggest borrowers, as of June 30, 2010. 

Borrower Amount, in millions

 Aker Philadelphia Shipyard $8.42

Ace American Insurance Co. 7.27

LMC Properties

(unit of Lockheed Martin Corp.) 5.60

Children's Hospital of Philadelphia 4.60

Bionol Clearfield L.L.C. 2.25

SOURCE: Pa. Dept. of Community and Economic Development