L.A. Council OKs $4-Million Development Bank Loan Plan

The Los Angeles City Council approved a plan Tuesday that allows the beleaguered Los Angeles Community Development Bank to make $4 million in new loans this year--a compromise that keeps the institution alive while minimizing risk to the city.

Before granting the money, council members blasted the bank for squandering the opportunity to channel $430 million in federal funds into depressed areas. But they held out hope that current management can turn it around.

“This was a noble experiment that I think at this stage of the game has failed miserably,” Councilman Hal Bernson said of the bank’s previous woes. “Obviously I would like to see this thing salvaged if we can.”

Chief Legislative Analyst Ronald Deaton told the council that the bank has made “substantial improvements in the way they conduct business.”

“We believe there is an opportunity for them to begin in the future to be a productive part of the overall city program,” Deaton said. “They have demonstrated the ability to make changes and better manage the resources they have left. . . . We should give the bank the opportunity--with these changes--to proceed and try to build the objectives they have had from the beginning.”

The bank had sought a much larger allocation for 2001 to increase its portfolio, which is generating so little income that the bank is losing $1 million a year. But city officials balked. Still, the lower amount allows the bank to reactivate its lending--pared back to almost nothing last year as a result of budget problems. It also will enable the city to see whether bank management, brought in early last year to rescue the failing institution, can rebuild it in a lasting way.

The city could have chosen to shutter the bank altogether or take it over, but such a move would probably have placed it directly in the line of liability. The current plan--which continues the city’s arm’s-length relationship with the bank--gives the institution some time to resolve its legal problems.

One lawsuit--filed by a failed dairy processing plant that cost the bank more than $20 million in losses--was settled quietly last month for a confidential sum. Another $10-million judgment against the bank is under appeal, and two other lawsuits are pending.