Secretary of Agriculture John R. Block has shelved, pending an investigation, $342 million in gasohol-plant loan guarantees that were hurriedly approved by Carter administration officials at the end of the fiscal year last September.
Block said at a news conference Wednesday that the department's inspector general, Thomas F. McBride, raised serious questions about the adequacy of the rushed review process. The secretary ordered the halt Tuesday after getting a preliminary audit report on the 15 loans from McBride, who was fired, along with all other departmental IGs, when the Reagan administration took charge last week.
In the review of the loan guarantee process, McBride's auditors found:
Thirteen of the loans, totaling $218 million, were improperly obligated from fiscal 1980 funds. The money was obligated on Sept. 26, before reviews on 11 of the projects had been completed, but required notification wasn't sent out until after the new fiscal year started.
Loan review officers felt the applications had been "pre-approved" by superiors who chose the 15 from a list sent to the national office of the Farmers Home Administration in early September. There were reviewed in one day; the saverage review took six days, compared with the usual three or four weeks.
Feasibility studies of technical requirements for the proposed plants were cursory, and loan review officers didn't have the time or expertise to judge them carefully.
Banks considered the projects "high risk," and wouldn't agree to finance construction without 90 percent federal loan guarantees in all but one of the proposals.
When the 15 loan-guarantee approvals were announced by then-secretary Bob Bergland Oct. 10, he hailed them as a big step toward President Carter's goal of producing 500 million gallons of alcohol and methane fuel by the end of 1981. Until that day, Farmers Home's business and industrial loan program had approved only $36 million worth of gasohol loan guarantees.
James E. Thornton, who reviewed the loan processing as associate administrator of Farmers Home, said yesterday that the normal procedures were rushed at the end of the fiscal year. But he defended the 15 projects as sound, and attacked McBride's auditors for doing what he called "most unscholarly and unprofesional work. We need someone to police the IGs."
Both Thornton and David Salazar, who participated in the loan review as special assistant to the assistant secretary for rural development, said there was no outside pressure from the White House or members of Congress to approve the loans just before the election. "The idea was ours," Salazar said. "We'd been trying since January to make alternate-fuel loans. But B&I [Farmers Home business and industrial loans] weren't moving earlier of the high interest rates."
He noted that the loan guarantees don't go into effect until the plants are completed and operating to the department's satification. "We've only had a 1 1/2 percent loss rate on our loans," he said. "I think that's a pretty good investment in rural America.
The largest loan guarantee in the group was for $67 million to Tiger Tail Distillery Inc. of Dyersburg, Tenn., which is in Rep. Ed Jones' district. Democrat Jones chairs the House Agriculture subcommittee that reviews the Farmers Home Administration budget. An aide to Jones said Jones helped the Tiger Tail backers get a hearing at the department.
Doug Wilkerson, secretary and attorney for Tiger Tail, said in a telephone interview that the firm hopes to receive final approval its construction loan next week. "We're just as proud as we can be of this project, and we want everyone else to be proud too." He said he didn't think Block's action would hurt the project's chances.
"We had to put up $23 million in equity ourselves," he said. "The federal government doesn't have any risk at all if that plant is built and pumps out apple juice instead of alcohol."