TRIBUNE FILE PHOTO - State Treasurer (and Portland candidate for mayor) Ted Wheeler wants the state to end its faltering small-scale energy loan program.SALEM — State Treasurer Ted Wheeler wants the state to shut down its small-scale energy loan program.

Wheeler, a Portland mayoral candidate, sent a letter to Gov. Kate Brown Thursday morning, Jan. 7, calling on the governor to stop the Oregon Department of Energy from issuing any new small scale loans because the loan fund has a $20 million deficit and will require a taxpayer bailout.

The program was supposed to be self-sustaining, but loan defaults and delinquent payments have left it without enough money to cover its costs.

The bailout will likely begin in 2019 and could cost taxpayers at least $15.3 million, according the Treasury. The cost could increase if more loans go into default.

“As a result, to cover loan payments, money will be allocated away from vital public services such as education, public safety and human services programs,” the Oregon State Treasury wrote in a press release.

The governor’s office did not respond to a request for comment Thursday morning.

Wheeler asked Brown to suspend the loan program so the state can review it and issue recommendations to the Legislature on how to proceed.

Loans written off

The state created the small scale energy loan program in 1981 to provide low-interest loans to governments and businesses. The program’s problems are not new and despite its name, the loans were not what many people would consider small.

Wheeler pointed to the default several years ago of an $18 million loan to an ethanol plant in Clatskanie, which went bankrupt, as an example of why the program now requires a bailout. Other large loans have since gone into default and been written off as non-collectible, “which has further deteriorated (the program’s) balance sheet and reserve balances,” Wheeler wrote in the letter to Brown.

The State Debt Policy Advisory Commission, which includes members of the Oregon House and Senate, repeatedly raised concerns about the loan defaults including last year, when the commission warned in a report that payments by loan recipients might not cover debt. Wheeler said in his letter to Brown that he asked former Gov. John Kitzhaber three years ago for money to offset losses from defaults in the program.

“In 2012, after a review of projected loan payments versus debt service requirements, I recommended to Governor Kitzhaber that the program’s depleted loan-loss reserve be replenished to safeguard the State against future potential defaults,” Wheeler wrote. “Instead, the program continued without augmented reserves.”

Wheeler, who is an ex-officio member of the commission, will formally present recommendations on the energy loan program at the commission’s scheduled Jan. 19 meeting.

Criminal investigation

The Treasurer’s Office sent the letter to the governor a week before the first scheduled meeting of a new legislative committee which will consider whether to overhaul or eliminate the Department of Energy, following years of news reports about problems at the agency. The governor also announced in December that she planned to pursue a review of the agency.

The Oregon Department of Justice has an ongoing criminal investigation into the energy agency’s handling of tax credits. In September, a top administrator at the Department of Energy who was brought in to run the loan program and other renewable energy and efficiency incentives resigned.

Wheeler wrote that the Department of Energy has committed to “tightened loan underwriting standards and pursued delinquent borrowers,” but those actions would not affect the need for a bailout of existing bad loans.

Hillary Borrud is a reporter with the Pamplin Media Group/EO Media Group Capital Bureau in Salem.

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