GALVESTON — The Federal Emergency Management Agency has informed the city that it will forgive a $5 million loan made to Galveston after Hurricane Ike.
The cancellation means that the city will not have to pay back the principal or accrued interest from the Community Disaster Loan it received in 2009.
The loan was given in the city to help ease a cash flow crisis caused by the hurricane.
Payments were scheduled to begin five years after the loan was awarded on Feb. 13, 2009, and came with a 1.75 percent interest rate.
‘Quite a relief’
Most federal money is given in the form of reimbursements after a city has already spent money out of its own budget.
“It is quite a relief not to have pay this loan back,” city Finance Director Beth Free said.
The finance office anticipated FEMA’s decision, which will have no effect on next year’s proposed budget, Free said.
If the loan had not been forgiven, the city would have to pay back the $5 million, plus another $356,952 in interest, she said.
Asking for forgiveness
The city applied to FEMA’s loan forgiveness program in November 2012 and reported that the city had operated at a $19.3 million deficit in the three years immediately following the storm.
By running deficits higher than the total amount given in the loan, the city qualified for the forgiveness program.
The decision comes six months after Congress approved a change in FEMA’s loan forgiveness formula, making it easier for cities hit by a major disaster to be forgiven.
The loan provision was part of a $982 billion spending bill signed by President Barack Obama in March.
Park board still waiting
The Galveston Island Park Board of Trustees, which received about $4.6 million in Community Disaster Loans, also has applied to FEMA’s loan forgiveness program.
The park board applied to the program in June 2012 but has not received word about whether its loans will be forgiven.