Wednesday, June 26, 2019

Borough Council repeals Revolving Loan Fund, citing reversal by bond counsel

In a unanimous vote Tuesday night, Columbia Borough Council repealed Ordinance 897, which created its Commercial Revolving Loan Fund. The ordinance was adopted by Council on March 12, 2018. The program's stated purpose was to provide funding that will encourage the purchase, ownership and renovation of commercial and industrial buildings within Columbia, to create employment for Borough residents, and to encourage new private investment, among other goals. The ordinance provided for a total of $1.5 million for the fund.

At Tuesday's meeting, Council President Kelly Murphy said he had intended for the general obligation fund of 2016 to fund the program, based on the understanding that the program could be funded by bond proceeds. "That's what we were told," Murphy said. The first indication that this could not be done, however, came from the Borough's auditor, Sager & Swisher in its 2017 audit, presented in May 2018. As a result, the Borough's former finance director switched the funding source to the general fund.

Murphy said Council had received guidance from its legal counsel (who authored the ordinance on Council's behalf), from the State Attorney General's Office, and from the bond counsel that it is not illegal to operate such programs. "However, as our bond counsel also reminded us, the second part of the equation deals with whether the funds to capitalize the loan program can be legally taken taken from the general obligation bond proceeds as we intended," Murphy said. Bond counsel subsequently advised that bond proceeds cannot be used for the purposes of the Revolving Loan Fund, a determination that Council is taking as final, according to Murphy.

Murphy suggested that the borough actively investigate the possibility of resurrecting the revolving loan program in the future, possibly with funding through legislative grants or other resources. He also noted that Council is aware of the repeal's effect on the Columbia Home Improvement and Home Loan program (CHIHL), which has been used by 25 new homeowners to date.

During the roll call vote, Councilman Cleon Berntheizel said, "It's unfortunate that the bond counsel in initially starting this program gave the borough a green light, then to come back almost a year and 3/4 . . . two years, with a reversal of that decision." Berntheizel said he hopes for a way to bring the program back, through grants or donations.

At its June 11, 2019 meeting, Council voted to transfer $53,951.10 in unused funds provided to the Community First Fund for the Revolving Loan Fund, to the general fund. There had been $300,000 set aside for the Loan Fund: $250,000 for the one loan currently in play (to Cimarron Investments LLC for Hinkle's Restaurant) and $50,000 for another loan for which the application was withdrawn. Tuesday night, Murphy stated that the loan approved for the Hinkle's property is "legally in place and will continue in force until such time that the loan is paid in full according to the terms of the loan agreement." A line item for $800,000 is still in place.

The loan program was a source of controversy for many Columbia taxpayers, who saw it as a scheme to fund business interests with taxpayer revenue. A lawsuit filed earlier this year by the Columbia Concerned Citizens Association, calling for repeal of Ordinance 897, is currently still active.


anonymous said...

What does the "line item" of 800 thousand dollars mean? Who has this line item?

Anonymous said...

So when and how does the borough get back the money its already loaned?

/2 - al dodson

Joe Lintner said...

The borough is relying on the borrower to pay back the money in accordance with the terms and conditions of the loan (which currently remain undisclosed).

anonymous said...

thank you

Howard Stevens said...

Based on payment made, 70 year's, give or take.

Joe Lintner said...

It's my understanding that this amount was set aside for the loan fund but was not committed to it.