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.