The Greensboro City Council effectively forgave its $1.5 million loan to the International Civil Rights Center and Museum (ICRCM) on Tuesday, August 16.
Effectively, because what the City Council actually did was extend the time period for which the museum could raise matching funds.
The city had agreed to forgive $1 of the $1.5 million loan for each $1 the civil rights museum raised between September 2013 and July 1, 2015. There was some dispute about how much the museum had actually raised, but it appears the museum still owes about $800,000, and the first installment on paying the money back was due July 1, 2016.
What the City Council did on Tuesday was extend the time that the museum had to raise matching funds to February 2018. If, in February 2018, the museum still has not raised the $1.5 million in matching funds, it’s a safe bet that the remainder of the loan will be forgiven or the time will be extended to 2020 or 2050.
The bottom line is that, despite the fact that the museum violated the terms of the loan contract during the process, and then failed to by any stretch of the imagination raise the $1.5 million in matching funds, the City Council is never going to collect one dime of the so-called loan from the museum.
Voting in favor of forgiving the loan were Mayor Nancy Vaughan and Councilmembers Jamal Fox, Sharon Hightower, Nancy Hoffmann and Yvonne Johnson. Voting against forgiving the loan were Councilmembers Marikay Abuzuaiter, Mike Barber, Justin Outling and Tony Wilkins.
As Abuzuaiter said repeatedly when the contract for the loan was being discussed, the council was told that the museum would have no problem in raising the $1.5 million in the allotted time. She said, “This council has bent over backwards to try and support this museum.”
Abuzuaiter noted that part of the discussion in making the loan was to create a better flow of information from the museum, but that the museum had not kept the council informed of its progress and had not informed the council that it was having difficulty raising the $1.5 million in matching funds.
Abuzuaiter also noted that the 990 forms that nonprofits are required to file with the Internal Revenue Services every year were incorrect. She said the reports stated that the museum had no conservation easement when it does, and that the museum spent less than $15,000 on fundraising a year.
Eventually, during questioning by councilmembers, museum board member and legal counsel Doug Harris admitted that those were mistakes and attributed them to “sloppiness.” He said he would make sure the next set of 990s was accurate.
Barber said, “The vast majority of people who go through that museum are students. They are not cash paying customers.”
He noted that once the tax credits are paid off on Friday, August 19, the museum will be owned by a single entity, Sit-In Movement Inc. He said that at that time the museum building could be sold, with the proceeds from the sale would have to go to another nonprofit, such as the newly formed International Civil Rights Center & Museum Legal Defense and Education Fund Inc. Barber said that nonprofit could then use the proceeds of the sale he estimated at between $2 million and $3 million to hire a director, pay consultants or do anything a nonprofit can legally do.
During the meeting, Barber asked for restrictive covenants on the museum building to ensure that it would always remain a museum.
Harris responded that the restrictions were already in place. Barber said that none of the legal documents Harris had provided restricted the use of the Woolworth building to a museum. City Attorney Tom Carruthers concurred with Barber.
Harris said he did not agree, but he did not provide any documents that would restrict the use of the Woolworth building to a museum. Instead, in a letter to the City Council he noted that when a nonprofit is dissolved, any funds have to be given to the government or another nonprofit, which is the scenario Barber was talking about.
It is possible that the building could be sold, Sit-In Movement Inc. dissolved and the profit from the sale could go to another nonprofit that could, for example, then hire board-member-for-life Earl Jones as a director and Harris as the legal counsel. According to the documents provided to the City Council by Sit-In Movement Inc., that is legally possible.
The presentation by the museum at the August 16 meeting was the usual bluster and accusations, but even the museum representatives couldn’t get their stories straight.
Harris told the City Council that museum CEO John Swaine had a plan to make the museum sustainable. When asked about his plan, Swaine said, “No museum in the country is sustainable.” He said he didn’t have such a plan.
Wilkins asked Harris if he wanted to retract his statement and Harris said no, that Swaine did have a plan even though Swaine said he did not.
Harris also said that the museum was paying down its loans from Carolina Bank and the Community Foundation of Greater Greensboro. However, the audits provided to the city show that no payments on the loans have been made. Carolina Bank did forgive $100,000 of the $600,000 loan, so the amount owed has been reduced.
Harris, in his letter, noted that the museum still owed property taxes. The taxes were due on Jan. 1, 2016. So in the eight months since the property taxes became due, the museum has not had the money necessary to pay its property taxes.
Barber said, “This museum in its current state can never make it. It has no chance.” Barber’s statement is backed up by the statement of the museum’s own auditor who, in his comments, said the museum was not a financially sustainable operation.
Hoffmann said, “This has not been run appropriately as a business. You have a flawed business model and you have had one from the beginning.” She noted that the museum had never met the number of visitors projected, and she said, “You never will.” She added that the City Council needed some assurances that the museum would continue to function as a museum.
Harris said that the museum would be in a much better financial situation because after the tax credits were paid off the museum would no longer have to pay $240,000 a quarter to service the tax credits.
The purpose of the $1.5 million loan from the city was to make the tax credit payments. The money was in a restricted account that could only be used to make the tax credit payments.
Once the museum, by some unknown means, managed to get $45,000 out of the restricted account to pay other bills, but that violated the terms of the agreement with the city and should not have been allowed by the bank.
So the museum has not been making the $240,000 a quarter payment; the city funds have been making those payments. Having paid off the tax credits with the now forgiven loan from the city will be a wash as far as the museum’s financial situation is concerned.
Outling asked for a fundraising plan. He noted that the museum historically lacked public confidence. He asked, “What’s the strategy for being successful?”
He didn’t get one except that the museum, which is down to four full-time employees, is going to try to continue to cut expenses and raise funds.
Outling also said that a restrictive covenant guaranteeing that the Woolworth building would always be a museum would be valuable.
Jones, one of the founders of the museum, was even more full of bluster than usual. He also disagreed with Swaine and said, “We do have a sustainability plan and we think it will work.”
Jones said, “The ICRCM is one of the most successful nonprofits in the city.”
He said that when the tax credits are paid off, “We will acquire $26 million of free money.” It is hard to see how money that cost the museum $240,000 a quarter for approximately seven years was free money.
Jones added about the civil rights museum: “It is the number one economic engine of the downtown revitalization. It has been a raging success.”
This raging success came to the City Council in 2013 and said that without an immediate loan of $1.5 million there was a good chance the museum would go bankrupt. Museum board members told the City Council they couldn’t make their tax credit payments without financial help from the city.
It is also notable that Swaine and Jones disagreed about which of the six or seven corporate entities involved in the museum owned it. Swaine said that Sit-In Movement Inc. did not own the museum. When Jones was asked who owned the building, he said, “Sit-in Movement Inc.”
So the International Civil Rights Center and Museum lives to fight another day. But with no plan to become a sustainable operation, it is only a matter of time before the museum is once again before the City Council asking for more money. And if past behavior is any indication of future actions, the City Council will provide it.