Columbia City Council members Wednesday voted unanimously to take a nearly $700,000 loss so the city could close out its books for the 2009 budget year and complete the audit.
The city loaned the Eau Claire Development Corp. $1.1 million to develop the North Main Plaza. But the plaza has struggled to attract and keep tenants since it began leasing space in 2003, and did not make enough money for the development corporation to pay off the loan.
The development corporation is independent legally, but financially is part of the city - causing some concern on council about it and its future.
"The development corporations (the city has four) have the ability to make these decisions, but we are held financially responsible," Councilwoman Belinda Gergel said. "That's the part that troubles me."
But others on council considered the money an investment in an area of the city that has been ignored by developers.
"Of course things are slow in North Columbia - that's why we built the building to try to get things moving and invest in a community," Mayor Bob Coble said. "We've done that in the (Congaree) Vista probably 10 times as much, and now we are seeing a return."
State law requires S.C. local governments to have an independent auditor review their finances every year. At one point in recent years, the city's finances were so tangled that it was two years behind on its audits.
That meant council members had to make budget decisions without knowing how much money the city had, which led to consecutive years of multi-million-dollar budget deficits.
Council in 2009 paid an outside accounting team $1.5 million to straighten out the city's finances and put the city back on schedule with its audits.
But the unpaid loans from the Eau Claire Development Corp. were delaying the 2009 audit at a time when council members are about to begin discussing next year's budget - a scenario council members were desperate to avoid.
The $1.1 million loan was a combination of federal money and city tax dollars. It included:
- A $426,349 grant from the department of Housing and Urban Development
- A $477,169 loan from the department of Housing and Urban Development
- $200,000 from the city's general fund and water and sewer fund
Columbia did not have to pay back the federal grant money. However, the city did have to pay back the $477,000 loan from its general fund, which pays for basic services like police and fire protection and public works.
This is not the first time the Eau Claire Development Corp. has defaulted on a loan. The Columbia Empowerment Zone Inc., another city entity, also forgave the development corporation a $1.5 million loan it used to purchase the North Main Plaza in 2008 for $1.3 million.
"What we're hearing is that $2.6 million has been forgiven and the shopping center was purchased for an additional $1.3 million, and I have this awful feeling that cash flow is not going to support the valuation of that," Councilman Kirkman Finlay said. "We're going to look up and be in the hole $3 million."
Finlay wants to dissolve the Eau Claire Development Corp. and "salvage what we can" of its remaining properties - mainly 35 lots scattered throughout some north Columbia neighborhoods.
"I don't see how we can continue to pump money there," Finlay said.
But Finlay withdrew his proposal after some intense opposition from Councilman Sam Davis, whose district includes the Eau Claire community.
"We have to allow the corporation to move forward the way it should be," he said.
Council members instead asked staff members to compile a summary of the development corporation's finances so council can decide what to do next.
Senior assistant city manager Allison Baker said the city is going to have to "seriously consider" closing the corporation.