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The loan management procedures used by the Department of Housing and Urban Development (HUD) and the Economic Development Administration (EDA) to monitor the repayment of loans provided to the Rend Lake Conservancy District of Illinois for construction of a water system and treatment facility were reviewed. The project was financed by two series of revenue bonds, and subsequent overruns in construction costs required additional funds. HUD and EDA, contrary to their procedures, did not take timely action to forestall default when adverse trends were identified and when their loans to the district became delinquent. HUD took an inordinate amount of time to work out a solution for the repayment of delinquent interest. As of February 1978, EDA had not approved a plan for the repayment of delinquent interest. Public facility loans made to the district were not managed adequately by either HUD or EDA. Although the public facility loan program has been replaced, loan management will still be necessary for some time. To ensure that the government's interest is protected and that similar situations are avoided, the Secretaries of HUD and Commerce should emphasize to their field offices the importance of: (1) timely monitoring of projects to forestall adverse trends; (2) taking timely action to forestall defaults; and (3) and working out alternatives to correct delinquencies. The Secretary of Commerce should either approve the current repayment proposal submitted by the district or direct EDA to work out an acceptable plan as soon as is practical.

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