The reason for the special called meeting between Greensboro and members of the Sit-In Movement Inc. board is both incomprehensible and simple.
The simple reason in layman’s terms is that the city’s collateral on its $1.5 million loan to the Sit-In Movement goes away on August 19, when the tax credits expire.
Tax credits are complex affairs to begin with, and in the case of the International Civil Rights Center & Museum, they are utterly incomprehensible to anyone who is not an attorney familiar with the tax credit laws.
In order for the museum, which is a nonprofit and therefore not eligible for tax credits, to become a for-profit organization that would qualify for tax credits, five limited liability corporations (LLC) were created that are somehow or another related to Sit-In Movement Inc., a nonprofit corporation.
So through legal legerdemain they transformed a nonprofit museum into a for-profit corporation and received $20 million in tax credit funding that allowed the museum to be finished and open for the 50th anniversary of the 1960 sit-ins in February 2010.
The historic tax credits have already expired and the New Market Tax Credits expire on August 19.
City Councilmember Mike Barber, who is an attorney, asked Sit-In Movement board member Doug Harris a long series of questions about how all that would work and how many of the five LLCs would be left when the tax credits expired. Harris said none; only the original nonprofit would be left.
Barber then asked what legal document existed that prevented the Sit-In Movement from selling the museum land, which has an estimated property value of $3.8 million. Harris said that such a document did exist, and Barber said, “Forget every other document I’ve ever asked for, I just want that one document.”
As Harris noted, the museum was in financial difficulty on day one. He said he had to put his house up for collateral on the initial loan to buy the property. Unfortunately, things have never gotten better.
This $1.5 million loan was made to the museum because members of the Sit-In Movement board said that without the money the museum was in danger of defaulting on its tax credit payments. So the city made the loan under a contract that the money would be restricted to making the tax credit payments.
Except that when the first $750,000 of the loan was paid in October 2013, and Denise Roth was city manager, the city had no signed contract. It took months of legal negotiation to figure out a legal method for the city to have collateral that was acceptable to both the city and the tax credit authorities.
Then, in August 2015, when the final loan installment by the city to the Sit-In Movement of $250,000 was due, the City Council had two questions.
One of the requirements was that the museum submit a clean audit. City Councilmember Justin Outling, who is also an attorney, questioned whether the audit could be considered clean, since the museum’s auditor stated that the museum was not sustainable under the current financial arrangement. The museum argued that because the audit followed generally accepted accounting principles it was a clean audit regardless of the opinion of the auditor on its financial state.
But there was an even more difficult incident the City Council had to swallow. The museum had knowingly and willingly violated the terms of the contract with the city and then failed to remedy that breach in the required 30 days.
The funds from the city loan had been placed in a restricted bank account, which was only to be used to make the quarterly payments to the tax credit authorities.
Greensboro City Manager Jim Westmoreland’s signature on checks from that account were required for the checks to be valid. Somehow the bank lost the paperwork stating that Westmoreland was a required signatory on the account but didn’t lose the paperwork that Sit-In Movement board members Skip Alston, Earl Jones and Deena Hayes were signatories on the account, and the museum withdrew $45,000 from the account, which was not used to pay the tax credit bill – the sole purpose for which the money could be used according to the contract.
The museum then wrote a check for $45,000 from another account to replace the $45,000 it removed from the joint city-museum account and then stopped payment on that check.
The museum did make the payment to the tax credit authorities on time with other funds, but never restored the $45,000 to the joint account.
So at that point the city had two valid reasons for not paying the Sit-In Movement the final $250,000 of the loan: There was a question on whether an audit stating the museum was financially unsustainable was a clean audit and the Sit-In Movement had breached the contract and never restored the breach.
The City Council didn’t vote to make the final payment of $250,000, but City Attorney Tom Carruthers told the City Council that unless he was ordered by the City Council to do otherwise, he was going to advise Westmoreland to make the final payment. The City Council did not order him to do otherwise and the museum got its money.
In the current situation, the city, through Westmoreland, had been requesting documentation on the funds the museum had raised for months, to determine how much the museum had raised and how much it owed. Then the city audit department had to go through the documentation and verify that the money the museum was claiming as donations met the criteria.
The audit department sent its report to Westmoreland on June 17 and the payment from the museum for the difference was due on July 1. Just to give some idea of what the city audit department was up against, it received two different amounts from the museum on how much had been raised. Chief Executive Director of the museum John Swaine provided a spreadsheet with the amount of $1,271,669 and the bookkeeper for the museum provided the figure of $1,266,745.
It is worth noting that even including the income on interest as a donation, the museum is not claiming that it raised the $1.5 million in donations that would be required to completely offset the loan.