Tuesday, August 16, by a 5-to-4 vote, the City Council agreed to give Sit-In Movement Inc. over two-and-a-half additional years to raise matching funds for the $1.5 million loan the city made to the museum with the first payment from the city of $750,000 in October 2013.
The vote by the City Council effectively forgave the entire loan.
If the museum doesn’t raise the necessary funds by February 2018, the City Council would have little reason not to extend the deadline again.
The City Council was playing politics and didn’t outright forgive the loan, but it not so subtly made certain the museum would never pay the city back a dime.
The city had agreed to forgive one dollar of the loan for each dollar the museum raised outside its normal day-to-day activity. The old deadline for raising money was July 1, 2015. The new deadline for raising matching funds is February 2018.
The finances of the museum are in shambles, according to the information turned over to the City Council as part of the loan agreement. The management of the museum, according to that information, is a recipe for disaster.
Almost everything about the loan from the beginning has been questionable. In the beginning, the city refused to consider loaning the $1.5 million to the museum unless former Guilford County Commissioner Skip Alston, who had been chairman of the Sit-In board since its inception, stepped down, and former Greensboro City Councilmember and former NC state Rep. Earl Jones also stepped aside to bring new leadership to the board.
The Sit-In board pulled a bait and switch to get the loan. Alston stepped down as chairman and the city was told that George Clopton, at the time a corporate vice president of Ralph Lauren and a highly successful and respected businessman from High Point, had been elected chairman.
It was only after the city handed over the first check for $750,000 that the city was informed that Guilford County Board of Education member and Alston’s political protégé Deena Hayes had actually been elected chairman and Clopton was simply the interim chairman until Hayes could take over. No explanation was ever given of why Hayes was elected if she wasn’t ready to serve or why Clopton was paraded around as chairman when he wasn’t.
So that was one issue: The City Council was deceived about who the actual chairman of the Sit-In board was. It’s unlikely the loan would have been approved if the City Council had known that Hayes was chairman because what the City Council was asking for was new leadership, not surrogate leadership.
If any evidence was needed that the Sit-In board was being run by the same old crowd it came at the two City Council meetings this month to make a decision on the loan. At the first meeting, Doug Harris, an original member of the Sit-In board and the board’s legal counsel, was the only representative of Sit-In Inc. who attended. Harris was combative as usual and got in a loud argument with City Councilmember Mike Barber, who is also an attorney.
At the second meeting Harris was joined by Jones and the CEO of the International Civil Rights Center and Museum (ICRCM), John Swaine. Jones said about the civil rights museum: “It is the number one economic engine of the downtown revitalization. It has been a raging success.”
It’s difficult to comprehend that statement when you consider that the reason Jones was standing before the City Council was that in the fall of 2013 the museum demanded $1.5 million from the city so that it could stay in business, and there was talk of bankruptcy if the city didn’t provide the money. Making the $1.5 million a loan was the city’s idea; the museum would have preferred a grant, which in the end is what it received since none of the $1.5 million loan will be paid back.
So despite the city’s demand that new leadership be brought in, it wasn’t.
Then there is the first $750,000 payment from the city to the Sit-In Movement made in October 2013. What the City Council discovered in February 2014 was that the city had given the check to the ICRCM, which was cashed by Sit-In Movement Inc. without the city having a contract or collateral for the loan. Without a contract, it really was a gift. Sit-In Movement Inc. could spend the money however it wanted and was under no contractual obligation to pay it back. Former City Attorney Mujeeb Shah-Khan was forced to resign when the City Council discovered he had insisted that the ICRCM be paid before the contract was signed, over the objections of the city finance director.
The agreement had always been that the ICRCM would use the loan only to make payments for the tax credits. But with no contract in place, Sit-In Movement Inc. used the money to pay all kinds of expenses as well as make tax credit payments.
According to the spreadsheet provided to the city on how the first $750,000 was spent, the museum used over $333,000 to pay bills in July 2013. How you pay bills in July with money received in October is one of those accounting mysteries that comes with doing business with the museum. Only $186,000 was used to make the tax credit payments. According to the spreadsheet, $20,000 was used to pay a marketing coordinator, $100,000 used to pay Carolina Bank, and $212,000 for operational support, whatever that entails.
So the loan from the city didn’t get off on the right foot. When it was discovered that the city had no contract and no collateral for the loan, the city asked some questions of the museum. One was the relationship between the five corporations that own and operate the museum. One reason the city was so interested in the confusing corporate structure is that the city required some collateral for the loan, and without being able to determine who owned the museum it seemed impossible to establish collateral. Eventually, the city attorney’s office came up with collateral that the legal experts said would be acceptable. The tax credits made the whole thing even more confusing, plus the fact that the museum had to be owned by a for-profit company in order to qualify for tax credits, but Sit-In Movement Inc. is a registered nonprofit and the Sit-In Movement Inc. board runs everything.
One of the conditions of the loan was that the mayor and city manager be appointed to the Sit-In Movement board. Since the appointment of Mayor Nancy Vaughan and City Manager Jim Westmoreland, the Sit-In Movement board has established the policy of taking up all printed material handed out at the meetings from the board members at the end of the meeting. Conversations with Vaughan and Westmoreland reveal that they are told little about the operation or financial status of the museum at board meetings.
Even after the contract was signed, the problems with the loan didn’t go away. Last summer the City Council discovered that despite the fact that the loan from the city was placed in a restricted account and could only be accessed with a signature from Westmoreland and a Sit-In Inc. board member and then could, according to the contract, be used solely to make the tax credit payments, the museum somehow managed to cash a check for $45,000 on the restricted account to pay other bills.
Bank of America said that it lost the signature card for Westmoreland and the bank wasn’t aware that to spend money from the account took two signatures, one from the city and one from the museum.
The museum did not put $45,000 back in the restricted account as it should have according to the terms of the contract. Instead the museum used money from another account to make the tax credit payment. Museum officials argued that since the tax credit payment was made on time that no harm was done.
City Councilmember Justin Outling, who is an attorney with Brooks Pierce, was particularly disturbed by the fact that the museum had breached the terms of the contract and had never returned the missing money to the account.
The whole affair is just another example of the desperate financial straits the museum is in. One would hope that if money were available from any other source that the museum would not pull a fast one and improperly remove money from a restricted account. The bank may have lost the paperwork on the account, but the museum officials knew that the account was restricted, required two signatures and could only be used to make the tax credit payments.
But the city accepted the no harm, no foul argument of the museum. It also accepted the museum audit, which was required as a condition of the loan as a clean audit despite the fact that the auditor stated in his comments that the museum was not a financially sustainable operation.
So the city accepted the audit stating the museum was not financially sustainable as a clean audit and ignored the fact that the museum had violated the terms of the contract by taking $45,000 from the restricted account without the permission or knowledge of the city and paid the final $250,000 installment of the loan last fall.
One might expect that with all the problems with the loan the museum would be forthcoming with the amount it had received in donations to offset the loan before the first payment was due. But the first payment was due on July 1 and the City Council found itself discussing the donations in August because the information received from the museum had not been received in time for the city auditors to approve the donations.
Just another example of the shape of the museum’s financials when the city received the information about how much the museum was claiming to have raised in donations, it received two different figures from the museum staff.
Also, the museum claimed it should be able to count the gross amount raised by fundraising events, not the net. But what would be unbelievable from any other organization is that the museum claimed the interest it received on tax credit money of over $456,000 as a donation.
Even if the museum were allowed to include the interest payments as a donation it still didn’t reach the $1.5 million.
As City Councilmember Marikay Abuzuaiter said at the City Council meeting last week, the city was assured that it would be no problem at all for the museum to raise $1.5 million in donations in the 21 month time period.
The museum lists seven staff members on its website but Swaine told the City Council that the museum currently has four full-time employees. No marketing coordinator, fundraiser or any position like that is listed on the staff.
When the loan negotiations were underway, the city requested that the museum change its policy on visitors to allow unguided tours, making the museum more visitor friendly and hopefully increasing traffic through the museum. The museum has complied on paper. But by charging more, a self-guided tour is discouraged. According to the two-page brochure available at the museum, a self- guided tour is $15 for those 6 years old or older. For $15 you don’t get to view the entire museum but can view the lunch counter and the “Battleground II Exhibition.” The Battleground II exhibition is not listed on the website nor is there any explanation of what this is on the brochure.
For a guided tour, the cost for adults is $12, for seniors and students $10, children 6 to 12 are $8 and children under 5 are free.
It seems the system is set to discourage people from going on a self-guided tour, mainly because they aren’t allowed to do it. They can walk in and see the lunch counter for $15 or wait for a guided tour and pay less to see the full museum.
Barber has repeatedly said that after the tax credits expire, and they expired on August 19, the museum building, which is worth $3.8 million, could be sold and the money from that sale transferred to another nonprofit. Harris said this was not possible and promised to provide Barber with documentation proving that the museum could not be sold. Harris provided some documents but there was nothing in them that said the museum could not be sold.
The idea of selling the museum building sounds farfetched, but not when you consider the accountant said the museum was financially unsustainable and it doesn’t appear the Sit-In Movement board, which runs the museum, has any plans to change the way it does business.
Of course, the museum can always come back to the City Council and ask for more money. Since Vaughan, and Councilmembers Yvonne Johnson, Nancy Hoffmann, Jamal Fox and Sharon Hightower, despite all the problems, voted to forgive the loan, it would make sense for them to vote to give the museum more money so it could keep its doors open.