Republican National Committee Chairman Richard Richards and a business partner have been repeatedly delinquent over the last four years in making payments on about $300,000 in loans guaranteed by the federal government for their Utah health spa.
After Richards failed to make 12 monthly payments on one $110,000 loan, the Small Business Administration, which guaranteed the loans, last May had to pay $96,203 to the Bank of Utah when the bank declared this loan in default, according to SBA records.
Concerning the delinquency, Richards said yesterday in an interview, "The main reason I don't pay it is I don't have the money to pay it."
Last November Richards paid $20,454 to bring the loan current but immediately fell behind again, missing payments of about $1,000 each that were due early in November, December and this month. After he was asked yesterday about this loan delinquency, Richards said he had mailed a check to cover two of the payments.
On a second SBA-guaranteed loan of $181,000 assumed by Richards and his partner in 1978, the partners will be required to pay $37,000 in interest charges because of late payments. The SBA has agreed to give them until this April to resume making payments on that loan.
Richards and his partner have been granted deferrals on at least 21 of the 44 monthly payments since the $181,000 loan was assumed just after Richards purchased the health spa from legal clients.
The spa, called American Health & Sports, is in Roy, Utah, 40 miles north of Salt Lake City. It was bought by Richards and a neighbor, a civil engineer named Lew Wangsgard. Wangsgard said he sold his half-interest in the spa two years ago to Alex Hurtado, who is active in Republican politics.
Richards, who assumed his position as national party chairman a year ago, said yesterday that his involvement with the spa has turned out to be a "bad business decision" that has cost him about $75,000. He said the spa has only begun to turn a profit in the last several months.
Richards said he has not received favored treatment. "I'm a perfectly honest guy," he said, adding that a story on the delinquency might cause him and the Reagan administration some embarrassment.
"I'm not going to be a Dick Allen," he said, referring to former national security affairs adviser Richard V. Allen, who recently resigned after questions were raised about his receiving $1,000 from Japanese journalists who had interviewed Nancy Reagan. "I am not going to sit here three months and embarrass the president."
Richards also said that a disappointed job seeker in Utah, John N. Galanis, recently threatened to disclose Richards' SBA loan problems if Richards did not help him get a federal job. Richards declined to help him and said he suspects Galanis provided this material to The Washington Post.
"I have had this information in my files," Galanis said yesterday. "I had nothing to do with getting it to Washington." Galanis said he discussed the SBA loan problem with Richards but did not ask him for a job.
SBA officials said yesterday they expect Richards eventually to make good on all the payments and they do not expect to lose money in the end. The spa building and the private homes of Richards and his partner are pledged as collateral on the loans and could be taken by the federal government if it looked like the government could never collect.
The SBA said that in these difficult economic times, thousands of businesses are delinquent in paying loans but it tries not to foreclose.
Richards said that the spa and the existing SBA-guaranteed loan for $181,000, at an interest rate of 5 1/2 percent, were in trouble before he bought the business in late 1977. At the time, $17,000 in additional interest had been charged because of late payments, and SBA officials said they were about to foreclose.
"They the SBA have our net worth to collect on . I'm sure that's why they've been more lenient with us to some extent," Richards said, adding that his net worth is about $300,000. He said that at one point he agreed to a payment of $6,000 in return for a series of deferrals.
Referring to C. Dale Randall, acting director of the SBA's Salt Lake City office, Richards said, "I always told Randall I don't want to be given any special privilege because of Richards' position ."
Confirming that, Randall said yesterday, "He's not been able to give it the attention because of his political activity. I suspect he'd be more than happy to pay us off if he had the time."
The chief advantage to Richards and his partner in deferring the payments, particularly on the larger loan, is that the federal government charges interest on the unpaid balance of only about 9 1/2 percent a year. If the partners had to get a bank loan to cover back payments they would have to pay interest of approximately 15 per cent, Richards said.
The administration has made collecting delinquent government loans a top priority in fulfilling the president's campaign promise to reduce government waste.
On April 23, 1981, President Reagan ordered a crackdown against those who owed the government about $25 billion from delinquent loans and back taxes. "We must make it clear that debts owed to the federal government must be repaid," the president said. "It is not right that responsible, honest citizens should suffer because of those who do not honor their obligations . . . ."
Last year, the SBA had to buy back $480 million in bank loans it had guaranteed because of defaults such as Richards'. The SBA is currently foreclosing on business or personal assets to pay off 8,250 loans.
The health spa was started in 1972 by a gym teacher and his son, Lynn and Scott Pitcher. They turned to the SBA, which encourages development of small businesses, and the $181,000 loan was granted. By late 1977, the business was in trouble and the building was about to be condemned.
"I came in when they were really in a mess," Richards said yesterday. The sale price was $425,000 but Richards and his partner had to put up only what he termed "a few thousand dollars."
The cash outlay was low because the initial loan had to be assumed and because they had to obtain the second loan of $110,000 at 9 1/2 percent interest to repair the building and get the spa operating again.
"The SBA wanted some sucker to come in and help them," Richards said. The business year 1978 was all right, he said.
He said that when he took over the business he turned to the SBA for an additional loan because it would result in "a neat package."
Richards said he does not want to close down the business because about 1,000 people who have paid membership fees would lose out.
Richards said there are lots of businesses and private homeowners behind in their mortgages and that it would "be a terrible thing if the banks foreclosed." A group of people he called "vultures" and "opportunists" would then get the properties at foreclosure sales, he said.
The best government policy, Richards said, would be to ride out the unfavorable business cycle with as few foreclosures as possible.
On the broader policy issue of whether the federal government should guarantee such loans, Richards said it "generally ought not to be in this business."
Richards, 49, has twice been the Republican chairman in Utah, most recently in 1975. He worked on the Nixon campaign in 1972 and the Reagan campaign in 1980, when he was the western states coordinator. Previously he had held Republican staff positions including that of political director of the Republican National Committee.