L.A. Development Bank Asks for Higher Loan Cap

The federally funded Los Angeles Community Development Bank is asking the City Council to raise its $20-million cap on loans to individual borrowers, months after it exceeded that limit in its largest and most controversial deal to date. The bank is considering loaning additional funds to that borrower, a South Los Angeles dairy.

Many council members learned only Wednesday, in a closed session to discuss potential litigation against the bank, that the limit had been exceeded in loans to Copeland Beverage Group topping $23 million--17% of the bank’s loan portfolio.

“The council was not happy to hear that the cap had been exceeded,” Councilwoman Jackie Goldberg said.

Goldberg said the disclosures Wednesday will likely lead to a full council discussion of the bank’s problems as well as the lending cap.

The bank--the federal government’s largest response to the 1992 riots--was established in 1995 to assist businesses in the city’s most troubled areas and create jobs.

It has been criticized for failing to meet job-creation goals and for its handling of some of its biggest early loans, including the dairy deal.

Two former borrowers have sued the bank, alleging that it interfered inappropriately with their businesses, and a bank report earlier this year indicated that 60% of its portfolio was troubled.

An audit early this year also revealed that the bank considered the Copeland loan to be “severely impaired.” Yet the bank approved additional financing in April so the company could acquire another dairy. Copeland Beverage Group is now seeking more funding to acquire yet another dairy to boost its sales.

Copeland Beverage Group declined to comment Wednesday.

The issue of the lending cap is coming before the City Council a week after the resignation of its chief executive for health reasons, and under the new leadership of Linda Griego, former president of another riot-recovery agency, RLA.

Griego said Wednesday that she has retained an independent consultant familiar with the dairy industry to analyze Copeland’s financial situation and to offer the board guidance about whether to grant the company further support.

“We’re working very quickly on that,” Griego said of the Copeland analysis. “That’s not just for the City Council. That’s for our own good.”

Griego also confirmed Wednesday that the bank board has approved a $21-million loan to Santa Barbara Plaza, a retail development near Baldwin Hills Crenshaw Plaza. Earvin “Magic” Johnson is among the developers on the stalled project.

That loan also would exceed the bank’s $20-million cap. The loan has not yet been finalized, in part because the plaza is outside the area the bank was created to serve. The bank must receive a federal waiver to move forward.

The bank is asking the council for a $26-million cap that could be exceeded on a case-by-case basis, Griego said.

Griego said bank officials informed the city’s Community Development Department of the exceeded limit last spring. The department has now asked the council to decide whether lifting the cap is appropriate.

Much of the bank’s $430 million in federal funding is guaranteed by future city social service funding, and the city plays an oversight role in the institution.

Council members passed a motion Wednesday requesting city staff to suggest “some alternate ways of having the bank and city relate to each other” that would either increase council oversight or diminish it, Senior Assistant City Atty. Julie Downey said.