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Council to Consider Plan for Development Bank Loans

March 26, 2001

The Los Angeles City Council is expected to consider a plan Tuesday that would allow the beleaguered Los Angeles Community Development Bank to make $4 million in new loans this year--a compromise that keeps the institution alive and minimizes risk to the city. The bank draws on federal funds, but they are guaranteed by the city's future community development block grants, so if the bank fails the city would pay the price. The bank--created after the 1992 riots--was initially funded with $430 million to make loans in distressed neighborhoods to businesses turned down by conventional lenders. But early mistakes have haunted the fund, which suffered massive loan losses and is fighting litigation by borrowers who allege mismanagement. The city must approve the bank's budget every year. The bank had sought a much larger allocation for 2001. But city officials balked. The $4-million compromise was approved by the council's Community and Economic Development Committee last week.

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