The Greensboro City Council has scheduled a meeting for 3 p.m. on Monday, August 1 in the Council Chambers to deal with Sit-In Movement Inc. loan of $1.5 million, which, according to the contract, the Sit-In Movement was supposed to start paying back on June 30 if it had not raised sufficient funds to offset the first loan payment of $750,000.
According to the agreement, the city will forgive $1 of the loan for every $1 the International Civil Rights Center and Museum raised outside its normal course of business.
The idea behind that language on the loan was that the sit-in museum, in order to be financially viable, needed to do some additional fundraising and this was supposed to provide some incentive.
It gave the museum a good fundraising pitch. People like to see their money matched when they make donations. To be able and go out and tell people that for every dollar donated to the museum, the City of Greensboro would in effect donate a matching dollar is a strong sales pitch.
However, the museum didn’t raise the $1.5 million that it needed to get the debt erased entirely. The sit-in museum claims it raised about $1.3 million and the city auditors found that only $612,000 should be considered as per the terms of the contract.
The city auditors disallowed a $100,000 donation from Carolina Bank in the form of reducing the amount of principal owed to the bank because there was no documentation. The museum has since provided a letter from Carolina Bank, so that discrepancy should be taken care of in the museum’s favor, raising the amount the city accepts to $712,000, but still leaving a lot of room between the two.
The city auditors went over the moneys that the museum claimed it raised outside its course of business and the city and the museum have some disagreements about how the terms of the contract should be applied.
The big fly in the ointment is not whether or not the $11,000 put in the donation box at the museum counts as in the “normal course of business” or not, or whether chairs for an event where the rental agency waived the charge is a donation that counts. The big question is whether the $456,000 the museum made on investing the money in its accounts is considered outside the normal course of business.
Doug Harris, who is on the museum board of directors and also does legal work for the museum, in a letter to the city, stated that the museum is not in the business of investing money, therefore the interest income is outside the normal course of business and should be counted as a donation.
This was clearly not the intent of the contract forgiving a dollar for each additional dollar raised, at least not the city’s intent. Whether Harris is correct from a legal standpoint or not is, as he says, not something for the accountants to decide.
The truth of the matter is that the Greensboro City Council is most likely going to eventually forgive the loan to Sit-In Movement Inc. The City Council backed itself into a corner when it forgave the loan of $1.2 million to the Nussbaum Center for Entrepreneurship and it can’t turn around and say that the sit-in museum has to repay a similar loan made under similar circumstances.
Politics in Greensboro is extremely racial. The Nussbaum Center is a predominately white organization, the sit-in museum is predominantly black. Former City Councilmember and sit-in museum co-founder Earl Jones has previously stated that the loan to the sit-in museum should be forgiven just like the one for the Nussbaum Center. Besides, what is the argument against forgiving the loan? That the City Council likes the Nussbaum Center more than the museum, or that it causes less trouble?
Once the City Council sets a precedent like forgiving a large loan to a nonprofit, it is difficult to go back.
At the time the loan to the sit-in museum was made, some of those involved said that the museum would never repay the loan. It would have been a huge help to the City Council, if the museum had actually gone out and raised $1.5 million from Sept. 3, 2013 to July 1, 2015, but that didn’t happen; or at least it didn’t happen according to the city.
The city has several reasons for forgiving the loan.
One is that the city is rolling in money. The last year for which audit figures are available, 2014-2015, the city took in $15 million more in revenue than was budgeted.
The city, as it should, always underestimates revenue and overestimates expenses, but $15 million is a lot of underestimating; it represents over 6 cents on the property tax rate.
Where did the money go? It went here and there. It was spread out amongst the departments and fund balances. The economy is improving and the city is receiving more revenue from new taxes and revenue sources provided by the state. The city has so much money in its water and sewer fund that it is using some of it to repave streets.
So the city doesn’t need the money from the sit-in museum and the sit-in museum desperately needs the money. According to its own audit, the Sit-In Museum is not a financially sustainable operation.
Most likely the City Council will find away to credit the museum with enough donations to get past the first payment, which was due on June 30, and will leave the other amounts to deal with later.
Or the City Council could decide to take the bull by the horns and declare that the sit-in museum substantially met its fund raising goals as outlined in the contract with the city and the remainder of the loan will be forgiven.
The second option would be much cleaner, but this City Council has shown a propensity for dragging out issues for as long as possible.
The smart money is betting that the museum doesn’t repay a penny of the loan, however the details are worked out.