The council voted 4-3 to give a $221,000 loan to the Marietta Redevelopment Corp. that will be used for interest payments helping the tax-exempt nonprofit formed by the city avoid default on a $4.2 million loan.
There was another split vote in November, with Mayor Steve Tumlin casting a rare tie-breaker that sent the city to the negotiating table with Bank of North Georgia.
The bank holds the loan made to the city’s redevelopment arm to purchase about 8 acres of vacant lots and properties off Powder Springs Street across from the Hilton Marietta Conference Center.
On Wednesday, Council members Grif Chalfant, Jim King, Johnny Sinclair and Andy Morris voted in favor of spending the cash. Council members Anthony Coleman, Annette Lewis and Philip Goldstein were against it.
Bank of North Georgia asked Marietta to guarantee $225,000, which equals 18 months of interest payments on the loan.
After months of talk, the bank agreed to spread out the payments over 36 months. The MRC will pay the first 19 months with the city paying the remainder, which is now $221,000.
Chalfant, who has been the city’s liaison to the redevelopment board, has said the city hopes the MRC will sell the properties and get the city off the hook.
In 2006, the city gave $2.1 million to the MRC to secure the original bank loan.
The MRC is up to date on its payments but still owes nearly $4 million on the loan — plus $13,000 in monthly interest payments — which is more than the property is worth on the open market.
The MRC will meet at 8 a.m. today at First Landmark Bank, 307 N. Marietta Pkwy., to approve its final part of the deal.
Can Marietta get its cash back?
There was concern among some council members that if the city chose to turn its back on the MRC, the bank would foreclose on the corporation’s properties eliminating any chance the city had to see a return on its $2.1 million investment.
But that chance is already slim, Lewis argued at Wednesday’s meeting.
“I think my main problem with this is we have $1.3 million worth of the property and for the city to receive any money it has invested one way or the other … would mean that they would have to sell the existing property for over $6 million,” Lewis said.
Coleman also said there was little chance the city would recoup its money.
Goldstein contended the MRC’s real estate assets only amount to $1.5 million, much less than the $4 million loan it holds, and the property is “upside down.”
“Basically the issue is that the MRC is already upside down on the loan by about $2.5 million, the city has already put about ($2.1 million), and the MRC is not likely to see that money again,” Goldstein said.
Goldstein doesn’t think the 36 months left of loan payments will make a difference in the city’s investment.
“I hate to say it. The property is upside down. In most instances the bank would have gone ahead and foreclosed and sold it into the market. …Very candidly, from the standpoint I come from, that’s probably the best course of action,” said Goldstein, a commercial property owner and landlord.
Independent group or arm of city?
The MRC is a separate legal entity from the city of Marietta, Goldstein said, and the council doesn’t have the obligation to bail it out.
Yet Sinclair disagrees.
“I think some people are going to criticize you and say you can’t completely wash your hands of this,” Sinclair said.
The city paid the salary of a full-time director for the agency until he took a position as the city manager of East Point in November 2012. That position wasn’t filled, but the work of the MRC has largely been put on the city’s development manager and another full-time employee who is dedicated mostly to the corporation.
“Yes, the city has paid the director’s salary, but they have also done the work of the city,” Goldstein said, arguing that the city has no responsibility for backing the MRC’s loan.
Morris criticized Goldstein for voting for the creation of the MRC, paying its director and making the original $2.1 million loan, but now believing the city has no responsibility to the group.
Morris also said the city’s website gives the impression that the MRC is a redevelopment agency that carries out the work of the city, but Goldstein said that’s not what the group does and that’s a false impression.
The website touts the MRC as the “redevelopment agency of the city of Marietta” which serves “at the pleasure of City Council.” MRC board members are appointed by the City Council, and it’s staffed by the city’s development department.
“If there’s something that says we’re standing behind the MRC … that is not the action of the council to say that we would stand behind and guarantee the actions of the MRC … just because we’re supportive of some entity doesn’t mean we take on their obligations,” Goldstein said.