Winston-Salem council members wrangle over proposal to exclude media companies from loan program

by Jordan Green @JordanGreenYES

Members of Winston-Salem City Council could not find any justification for denying a small-business loan to The Chronicle, but some questioned whether the financial arrangement might influence the newspaper’s coverage of city government.

Ultimately, council approved a $100,000 loan to The Chronicle, a newspaper founded in 1974 to serve the black community, in a unanimous vote on Jan. 20.

The funds will be used to create three to five sales jobs with an average salary of $30,000, Publisher Ernest H. Pitt told the city in a letter outlining loan request. “We have been on an austerity program for the last five years,” he said. “However, with the improving economy and need for new positions it is necessary for us to have this infusion of new funds to keep up with and be an enhancement to a growing population.”

The addition of an experienced general sales manager and dedicated sales team will help the newspaper increase revenue and enhance its product offering, including expanding a “For Seniors Only!” insert into a glossy magazine, according to a document attached to the city council resolution.

The newspaper anticipates 10-percent revenue growth over the next three years, and would have the same amount of time to begin repayments at 2-percent interest. The newspaper is putting up all of its business assets, including account receivables, as collateral.

Councilman Robert Clark, who chairs the council’s finance committee, said he supported the loan, with reservations.

“We have a loan program in place and if the borrower meets those criteria, we normally make a loan,” he said.

“We don’t do many of them; we’ve done a couple of them since I’ve been sitting up here. So I guess I don’t have so much a problem with the city making the loan as I do an industry that’s commonly referred to as ‘the Fifth Estate’ that I think is part of the checks and balances of our system, that they don’t have some type of ethical standards as far as taking public money.”

Since fiscal year 1985-86, the city of Winston-Salem has approved $6.1 million in loans to 142 businesses, according to information provided by Assistant City Manager Derwick Paige.

Carissa Joines, managing editor and co-owner of the online news daily Camel City Dispatch, responded to Clark’s questions in comments to the council following the vote. (Disclosure: YES! Weekly has collaborated with Camel City Dispatch on news content in the past.)

“There are some ethical standards that some in the press hold themselves to,” she said. “As a media outlet, we at CCD would never request that type of financial relationship with government. As a member of the press and a small business owner I would request that the council consider placing a restriction on future loans offered by the city and that you would exclude those loans from media companies of any kind because I do feel that that’s a conflict of interest.”

Councilman Dan Besse said that from a financial standpoint for the city, the borrower is a good credit risk. He added, “I assume that The Chronicle may face questions of appearance, and I assume they are prepared to respond to those questions of appearance of potential influence.”

A small-business loan does not require a public hearing, and Pitt did not appear before council to discuss the loan. Later, he declined to comment to YES! Weekly.

Besse said that under the terms of the loan there’s no opportunity for the city “to influence the editorial or news reporting policies of The Chronicle.”

Councilman Jeff MacIntosh said he wasn’t so sure.

“If we have to reclaim this loan, it just seems like there’ll be a different approach to it than if this were a non-media company,” he said. “I really think we need to take caution in how we look at that.”

Councilman Derwin Montgomery, who represents the portion of downtown where The Chronicle offices are located, defended the loan.

“I don’t want anyone to paint an ugly picture of what the city provides because I think it’s a great program and it’s provided some great things for individuals across the city,” he said. “I think people have benefited across the entire city from this program.”

Other businesses that have received the loan in the past include the Porch Kitchen & Cantina, Small Batch Beer Co. and Ziggy’s (owned in part by YES! Weekly publisher Charles Womack). The city also approved a $50,000 loan to The Chronicle in 1984 to renovate its building on North Liberty Street in downtown. The Chronicle repaid that loan in full, Assistant City Manager Derwick Paige said.

Chad Nance, editor in chief and co-owner of Camel City Dispatch, said his news organization was motivated to speak out against the loan, in part because it could put them at a competitive disadvantage, but mostly because of the potential conflicts of interest created for both the newspaper and the city.

“One of our purposes is also that when even The Chronicle can be disparaged it looks bad for all of us,” he said. “It looks bad for the [Winston- Salem] Journal because people can blanket assume anything. The other thing is it puts council members in a very awkward position. They could refuse it and then they would be worried that Ernie would run columns against them. If it doesn’t go well, then they have to be the ones to pull the plug. Or does the city now own a newspaper? Think about it: The Chronicle is and does have a legacy that’s important politically and to our history. What happens if the people who have to end that are the city council, and the city council has to kill The Chronicle or sell it? There’s a whole lot of decisions, and none of them are good ones.”

Phillip Carter, an African-American community leader who ran unsuccessfully for city council in the East Ward last year, told YES! Weekly that he believes the loan compromises The Chronicle’s editorial independence.

“It put them in line to be branded with the old adage that ‘you cannot slap the hand that feeds you,’” he said. “I wouldn’t want that appearance. I hope they bring forward investigative reporting like some of our other media outlets to show that they can slap the hand that feeds them. I’ve never seen anything investigative that they’ve done. It looks bad from the giver to the receiver. Both of them should have protected their sense of appearance and integrity.”

Camel City Dispatch’s proposal to amend the loan program to exclude media companies met mixed responses from council members.

Councilwoman Denise D. Adams said media companies, like any other small business, should remain eligible, and dismissed the notion that a newspaper’s coverage might be swayed by its financial relationship with the city.

“I’ve never known The Chronicle to be nice to us when we’ve made decisions that they’ve disagreed with,” she said.

And she suggested the distinction between a media company with a platform to amplify its opinions and a restaurant that might default on its loan is largely moot.

“That’s democracy,” she said.

“Whether it’s a media company or a restaurant owner, they have the right to criticize us. That’s America.”

Councilman James Taylor Jr. said he supported the loan to The Chronicle because the company met the criteria for the loan. But he called the Camel City Dispatch’s proposal an “excellent suggestion,” adding, “I think people want to get the news, and they want to get it unadulterated and not influenced by government.”

Taylor said, “I would be happy to lead the charge of removing media companies from receiving the loan in the future.”

Clark said after the vote that the council should consider revising its policy. He said he believes the loan creates more of conflict for the borrower than the creditor.

“They have to serve two masters,” he said. “What are they going to do next month if something we do they disagree with? They’re in the dilemma: Do they run an editorial criticizing city council, which is also their major creditor?” Clark acknowledged that the arrangement complicates the council members’ decision making.

“If I voted against it last night — which I didn’t — my fear is they might editorialize against me,” he said. “If the loan were foreclosed on, they might use the power of the press to criticize the city council.”

Clark said other revisions to the loan program might be in order, considering that the loans are given to businesses located in what the city considers “economically distressed areas,” including not only impoverished neighborhoods on the east side but also downtown, which has experienced a remarkable resurgence in the past 15 years.

“At what point does downtown cease to be an economically distressed area and loan to a restaurant there is a detriment to a restaurant on Hanes Mall Road?” Clark said. “I’m going to contradict myself now: If you look at the big picture, we have spent a lot of money on downtown, and we’ve gotten a good return. We have kick-started something that has led to immense improvements. We can’t have a blighted downtown and expect anyone to want to move here.”

Besse said he is reluctant to consider changes to the loan program that would exclude media companies.

“I haven’t really had time to make a thorough evaluation of the impacts,” he said. “I think that the lines on what constitutes media have gotten sufficiently complex now, given the number of alternate tools being used to reach the public with news and newsrelated information that they could have unintended consequences on limiting who could apply. It could raise questions about how many further steps we need to go to eliminate loans to major investors in news entities or to eliminate loans to stockholders of media corporations. You’d raise a series of cascading questions that I don’t know if we’re prepared to deal with.”

He added, “What’s the function of the exclusion? Is it to eliminate the possibility of impartiality in media coverage of government? Is it to eliminate government influence on media?

Those are pretty ambitious goals. Is this the right tool for the job?” But when asked whether a city loan to a media outlet placed city officials in a compromised position, Besse’s responses indicated he was less than certain.

If the city were forced to declare the loan in default, would council members have reason to fear that the borrower would use its platform as a newspaper to editorialize against them?

“I kind of assume they would,” Besse said.

Would fear of editorial criticism influence the city’s decision as to whether to enforce the terms of the loan contract?

“It shouldn’t,” Besse said. “Note that shouldn’t.” !