Memo: City has no guarantee of collateral for ICRCM loan

The City of Greensboro has no primary collateral for its $1.5 million loan to the International Civil Rights Center and Museum should the cash-strapped organization default on its top-level debt.

Assistant City Attorney Tom Carruthers drafted a memo to city officials Tuesday, outlining in some of the clearest language to date the financial structure and position of the ICRCM.

The city agreed to loan the museum $1.5 million last fall to prevent default on at least one of five loans against the historic museum in downtown Greensboro. The first half of that money has been released and spent, with some $200,000 going to Carolina Bank to bring that ICRCM loan current.

Caruthers outlined debts to Carolina Bank ($883k), Wells Fargo ($265k) and The Community Foundation ($50k). The Carolina Bank loan is secured against accounts receivable at the ICRCM.

The larger problem for the museum is that it owes $578,000 in tax credits to investors that helped the organization secure $23 million in 2009 to complete construction of the museum, which is at the site of the 1960 sit-ins at Woolworth’s that helped propel the larger Civil Rights movement that resulted in the 1964 Civil Rights Act.

Because of this, two finance entities retain ownership interests in the museum even after the tax credits have been repaid.

“Essentially 20 percent of the ICRCM real estate is owned by these tax credit authorities,” Attorney Carruthers wrote. “The ICRCM believes this 20 percent ownership will transfer to the ICRCM after payment of the tax credit obligations, but the terms of this transfer are not yet established.”

Carruthers wrote that there was nothing in the public record, or revealed in audits by expert city staff, that would indicate a potential for default that would affect ICRCM’s solvency. However, he noted that because the city holds only a second rights lien behind current museum creditors, “the audits cannot provide a guarantee to City Council of the ability of the City to recover its loan proceeds in the event of a default by the ICRCM.”

The tax value of the museum real estate is $3.87 million.

“Default of the tax credit obligations would pose a significant challenge to the ability of the City to protect its loan interests,” Carruthers wrote.

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City forced to ask again for insights into ICRCM financial structure

Administrators of the International Civil Rights Center and Museum fared so poorly today in answering questions posed by Greensboro City Council that the city manager was forced to send a second letter seeking clarification on 10 of 15 financial issues.

Deena Hayes-Greene, chair of the ICRCM board and a member of the Guilford County School Board, answered City Manager Jim Westmoreland’s first letter as required by today’s deadline. At times dismissive, the letter often offers one word answers to requests for detailed insights, or uses non-specific accounting language.

At one point the letter directs city council, which has agreed to loan the ICRCM $1.5 million to sustain operating costs, to explore the US Tax Code for clarity on the museum’s financial operations.

View the ICRCM response here.

View the city’s follow up letter here.

One of the most questioned aspects of the museum’s corporate structure is whether any of its principals are profiting from the museum. They city’s original question number eight asked if development fees were paid to the Museum landlord in 2009 or 2011. The ICRCM response is no, but tracks beyond the scope of the original question to explain that development fees, often lucrative in projects involving historic tax credits, were paid to the original owner of the building, Sit In Movement LLC. “In this instance, however, all development fees paid to Sit In Movement Inc., were put right back into the museum for construction, etc.”

The city asserts in its follow up letter that $4.5 million in development fees “were capitalized as part of the building.”

In the city’s original letter, question number one asks for an explanation of the roles and functions of the various LLCs set up and how cash flows between the various entities. The city asked for a flow chart outlining the relationships. ICRCM responds that the set up was created by “highly specialized accountants and attorneys” and that the city attorney had already reviewed many of their financial documents. The city follow up letter again requests a flow chart (and provides an example) that “outlines the relationship of the multiple LLCs … along with how the monies are transferred between the LLCs.”

The city had originally asked for letters from financial institutions detailing the current status of the tax credits. The ICRCM response was to assert that they are “in complete compliance with all tax credit issues” and to invite the city accountant to verify payments. Today’s city follow up again requests a bank letter and goes on to note that “Internal audit reviewed all provided documentation, which did not include these letters.”

Finally of note is that the city had requested an account summary showing any disbursements of the restricted portion of the city’s initial $750,000 loan to the ICRCM. The museum response was that it had included an “accounting sheet” to the city three weeks ago and that $172,674 remains. The city again today requested a list of all disbursements made using city funds. The city asked that the listing include “payee, amounts, check numbers and dates.”

City requests structural clarity from Civil Rights museum

Staff at the International Civil Rights Center and Museum have until March 11 to answer more than a dozen questions from City Council related to the corporate structure of the entities attached to the struggling organization.

City Manager Jim Westmoreland sent the letter to ICRCM Board Chair Deena Hayes-Greene on Feb. 24, as first reported in the Rhino Times.

The letter seeks clarification on 15 specific issues, highlighted by a request for clarity on the “rationale, function, relationship of the five LLCs.”

“The for profit LLC seems to own the building, does another LLC own the exhibits, etc.?” Westmoreland wrote. “Please provide a summary overview of the LLCs, how monies are transferred between the LLCs, and a graphic which shows how these are connected.”

The letter goes on to request an explanation of how the corporate tangle impacts the tax credits the museum relies on and “implications of defaulting on the debt?”

The letter also states that asset management fees “seem very high.”

“Where does that money go? Please provide documentation showing how this works,” the letter requests.

City Council has a work session scheduled March 13, where this status of financial support to the museum could be discussed. Westmoreland’s letter explains that city council has directed him not to finalize the much talked about loan agreement “until the requested information is received and found to be acceptable by the Council.”