RI gov proposes guaranteeing to small firms

PROVIDENCE, R.I. - Gov. Don Carcieri is considering using state resources to guarantee bank loans to small businesses in Rhode Island that are struggling to get credit for day-to-day needs amid the ongoing meltdown on Wall Street.

Carcieri said Thursday that his administration is negotiating with several banks to implement the lending program for small businesses, a critical part of the economy in a state where 87 percent of employers have 10 or fewer workers.

The lending program is one of two short-term responses that Carcieri said he may propose to mitigate the state's worst financial downturn since a recession in the early 1990s. Rhode Island's economy began slipping more than a year ago, and its descent accelerated amid the financial meltdown and credit crisis on Wall Street. The state posted an 8.8 percent unemployment rate in September, the worst in the nation.

Companies with less than 100 employees suffered the vast majority of job losses.

"Right now, most of the jobs losses are small businesses," Carcieri said. "And one of the themes that I've heard in talking to a lot of the small businesses is that their credit facilities are being withdrawn, in some cases, by banks."

Rather than lending state money directly to businesses, Carcieri said he is debating whether the state should guarantee portions of loans that banks make to small firms. The state government would repay the banks for the guaranteed portion of the loan even if the lender defaults.

State governments across the country are considering other ways to stimulate lending. A quasi-public development authority in Connecticut is guaranteeing $100 million in bank loans to businesses and manufacturers. New Jersey Gov. Jon Corzine has proposed using state money to buy certificates of deposit at community banks so they have money to lend.

Carcieri's proposal would likely require approval from lawmakers in the Democratic-dominated General Assembly, which convenes in January. The Republican governor said the loan program and other proposals could be rolled into a cost-cutting budget bill that he wants addressed early in the coming year.

A spokesman for House Speaker William Murphy, a Democrat, could not immediately comment on whether Murphy supports the lending proposal.

Rhode Island's ongoing budget crisis will limit any state-funded relief programs. The state began its fiscal year in July with a $37 million deficit. The slumping economy has driven tax collections $24 million beneath projections, according to a tally Thursday by budget officials in the legislature.

"We're relatively limited," Carcieri said. "And I'm not in the business of saying that the state should be in the lending business, OK, that's what banks are there for. But there may be things we can do working together."

Carcieri spoke about the lending proposal Thursday afternoon after attending a summit on the state economy with business, political and union leaders.

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