Council to consider ICRCM loan extension
The City of Greensboro is seeking two options that guaranteecollateral against an $800,000 balance due from a loan made to theInternational Civil Rights Center and Museum in exchange for giving the museummore time to offset the balance through additional fundraising.
City Council agreed to loan the museum $1.5 million in 2013so that payments on a complex federal tax credit program would not be missed.The New Market Tax Credit (NMTC) helped the museum finance millions of dollarsin construction. The ICRCM memorializes the Feb. 1, 1960 Woolworth’s lunch counter sit in. Fourstudents from NC A&T State University took a stand for equal rights andlaunched what became the Civil Rights Movement.
Local leaders Skip Alston and Earl Jones, both prominentelected officials in recent decades, spearheaded the drive to create the museum.But personality conflicts and what critics label as “poor management” have saddledthe ICRCM with fragile finances. The NMTC, passed in 2000 and signed byPresident Clinton, allowed wealthy investors to realize significant tax offsetif they invested in funds created to spur investment in low-income areas thatmight otherwise not have access to needed capital.
The program required the ICRCM to make payments back intothe corporate matrix for seven years. That period unwinds on Aug. 17 and thetax credit structure falls away, leaving one entity, Sit In Movement Inc., in possessionof the museum.
The city structured its loan as “forgivable” and included aclause that allowed the museum to offset its balance dollar for dollar throughnew fundraising efforts. The initial contract stipulated July 1, 2015 as thefundraising period’s end. City accountants determined the museum raised about$700,000 in new money by the deadline, leaving a loan balance of $800,000.
ICRCM board members and two city council members have askedstaff to extend to offset period until Feb. 2018. A $200,000 grant receivedfrom the Z. Smith Reynolds Foundation in Aug. 2015, for instance, could offsetlarge chunks of the outstanding balance.
But trust is thin between the two sides, and ugly publiccomments keep the racial nature of the dispute in the news and in unfilteredcomment threads. The divisive public rhetoric obscures what looks like goodnews for the museum’s often difficult financial position.
In order to safeguard the city’s interest on its loan, legalstaff inserted a clause into the 2013 loan contract that gave the city rightsto a unique option within the NMTC structure. Called a “put and call option”the vehicle allows the beneficiary of the tax credit, in this case the museumin the form of working capital, to receive an additional boost once the creditstructure is completed.
Under NMTC rules, the investor normally receives back hiscapital plus significant return in the form of a reduced tax liability in eachof seven years. When the NMTC period is done, that original investment is lefton the books. The put and call allows the investor to give, or the beneficiaryto request, that initial sum to the beneficiary. This increases the businessentity’s working capital and improves their ability to secure traditional bankloans.
The 2013 contract allows the city to obtain the rights tothis put and call option. By keeping this option open, the city would replacethe NMTC entity, with an option to foreclose on the museum property if theydefault on the city loan payments.
I spoke with City Attorney Tom Carruthers briefly Thursdayafternoon and he compared the transaction to a traditional mortgage scenario.The put and call option comes with a required $1,000 fee.
“By spending the $1,000 you assume the position of thecreditor,” he said. “It’s almost like buying your note from Wells Fargo. Theyloan you (money to buy a house) and seven years later you buy the note back.What we are buying, we step into the shoes of the NMTC entity, which wouldeventually allow us to foreclose on the building —” if the city loan is notrepaid.
Carruthers prepared a memo for a special meeting last week thatwould extend the offset period for the ICRCM loan to Feb. 2018. Councildeclined to consider it at that time, but it will be on the city council agendafor Aug. 16.
The city attorney is required to follow the specifics of thecontract as it exists. Under those rules, the museum owed the city $10,981 onJune 30, and since it was not paid, is in default on the entire loan balance of$799,148.
The resolution for council extends the offset period to Feb.2018 if the put and call rights are secured and the ICRCM executes a deed oftrust giving the city rights to museum property if the loan defaults.