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City Council, September 9

Costly settlement on annexation issue
HCF takes City off the hook for School loan. Was its action appropriate?
Marc Knapp

Two issues dominated last night's meeting of City Council. The first was the settlement with the St. Andrews Public Service District in relation to the reimbursement of property taxes. The second was the loan of $734,000 to the College of Building Arts. Members of the public had a lot to say in regard to the latter, both for and against. But Council again voted for the loan at its second reading with three Council members, Mitchell, Lewis and Mallard dissenting.

Commitment was proscribed by State Law
The City's CFO, Steve Bedard, was questioned by Council members on the deal made with the St. Andrews PSD. Mr. Bedard said the City recognized it had a financial commitment when it annexed properties served by the PSB. The commitment was proscribed by state law. It was designed to ensure that PSB districts did not fall in a hole honoring commitments such as financing of equipment used to serve its customers. The City had set aside $269,000, and applied an interest rate of 6% to the principal amount for payment to the PSD. However, the final amount of any settlement was not defined in law but left to negotiation between the parties.

In the final settlement, City agreed to pay the PSD, for the 7 years from the time of annexation, the tax it would have collected from the properties if they remained in the PSD. However, the City would tax the annexed properties at the City rate and provide the services. To cover the City’s obligation under the agreement, it would make an immediate payment to the PSD of $302,000 and a payment each year representing the amount the PSD would receive if its tax rate were applied to the properties. According to the Post and Courier, the difference between the amount received from taxes on the property, and the payment to be made to the PSD, was $38,000 a year.

City hoped for a 6 year payback period
There were 3 members of the negotiating group, one each representing the City and the PSD, and one representing the County. The County Rep was to ensure that the result was fair. Mr. Bedard said that the City was shooting for a 6 year limit to payments and the PSD 9 years. The compromise was 7 years.

Council members White and Alexander seemed to show the most concern about the obligation imposed on the City and questioned as to whether there were ways around the obligation. They got no satisfaction.

“Not a perfect deal”
Mr. Bedard that it was unlikely the City could have done much better. And if it had attempted to secure better terms, there was the threat of litigation. He also acknowledged that the PSD had made a large lease/purchase agreement for equipment that extended for 9 years and this was a motivating factor in seeking a 9 year payment period.

“It was not a perfect deal but was the best under the circumstances” he said.

Council needs to think twice about future annexations
With a 7 year annual obligation to the PSD to make up the difference in tax rates, citizens may question the Mayor’s policy of encouraging property annexation west of the Ashley. Ultimately, the annexations will extend the boundaries of the City and swell its tax base, but there will be a net loss in the short term. Not only will there be the reimbursement to the PSD over the 7 year period, it will also need to pay the cost of providing the service to the properties annexed. We hope Council members will look more critically at future annexations and reflect on the true cost to tax payers.

HCF takes risk out of City’s loan to College of Building Arts

It was a major wrinkle to the second reading of the ordinance that would allow the City to lend $734,000 to the College of Building Arts. Council approved the loan at its last meeting in August. But the bill was amended for the second reading. The College now has to provide an escrow of $850,000 from which the City could draw on if the College defaulted on its loan.

The amendment raised some eyebrows. Where was the school going to raise $850,000? And if it had access to the cash, why did it need a loan from the City? The answers were ultimately given by the Mayor. Historic Charleston Foundation was stepping up to the plate.

How did the amendment come about?
We are not sure how the amendment came about. Certainly there were many, including Charlestonwatch, who criticized the City for making the loan. Did the Mayor react to this criticism or was it prompted by the actions of Council member White? Council member Alexander referred to Council member White’s role but the latter privately said that his role was modest. However, Council member White is a banker and clearly has experience in dealing with loans and collateral. He has also shown concern about City expenditures and it would be in character to try to eliminate or reduce the City’s liability.

Whatever! The City is off the hook. HCF agreed to buy back the property for $850,000, the amount that the School of Building Arts paid for the property, and to lease the property back to the school. The cash would provide the escrow.

We wonder at the HCF’s action
We applaud Council member White and other members of Council for taking the steps of eliminating the City's risk. But we do wonder about the HCF. How many preservation groups would have stepped forward to take over the McLeod Plantation if the property had been had offered in a deal similar to that now enjoyed by the College of Building Arts - effectively no cash down, an annual lease payment and the opportunity to purchase when the entity had the funds? The Friends of McLeod would have seized the opportunity. At the time of the sale of the plantation to the School of Building Arts, HCF stated there was no other viable buyer. This was probably true. But there would have been many groups willing to take on the property under the terms now enjoyed by the College. And 4 years would not have elapsed without the beginning of restoration.

Is the role of financier to a School appropriate?
And is it an appropriate role for the HCF to finance a school such as the College of Building Arts. It could argue that as its primary role is preservation, it should support a school that produces artisans. The argument has merit. But there must have been a better way than the route it has chosen.

We have often questioned the independence of the Board. Its members are appointed by the board and there is more than a sprinkling of the Mayor’s supporters. They have again shown the direction of their loyalty.

Friends of McLeod speak against the loan
Predictably, a number of people commented on the proposed loan in Citizens Participation. There was a fair representation of Friends of McLeod. They noted the aspirations of the College of Building Arts and acknowledged the good that it could do. At the same time, they said the McLeod Plantation was not the right place for the College. It had another two sites – at North Charleston and the Old City Jail. One speaker noted the College already had a mortgage of $2.25 million on the Old City Jail and the new loan would take the total liability of the College to $3 million. How could the School service these loans and restore McLeod, let alone finance day to day operations?

And again, a comparison to the Charleston School of Law was not appropriate. Both colleges may have started at the same time and both supported by the City. But the School of Law has been accredited and has a strong flow of students, and is financially viable. The College of Building Arts has not been successful, is still not accredited and this year will only have half a dozen or so graduating students.

College students and staff support it
There were a roughly equal number of speakers supporting the loan, all of which were connected with the College - members of the faculty, staff or students. They spoke of the need for such a college. It was unique in America. They thought it could play a strong role in the restoration of Charleston. The Dean of the School brought along some iron work made at the College. It duly impressed Council members. The Dean noted that with the retirement of Philip Simmons, no forge operated in Charleston. The President of the College also stated that the loan from the City was needed to ensure the College acquires accreditation. Without this, students could not obtain federal funding for tuition. And without this funding, the college could not attract sufficient students to achieve its financial objectives