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Kiawah homeowners association returns $1M loan after backlash from Rep. Joe Cunningham

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Election 2018 House South Carolina (copy) (copy)

U.S. Rep. Joe Cunningham called on a housing association on Kiawah Island to return a $1 million emergency loan from the federal government. File/Mic Smith/AP

A wealthy homeowners association on Kiawah Island decided to return a $1 million federal loan intended to help businesses and nonprofits after U.S. Rep. Joe Cunningham called on the group to refund the money Thursday. 

Cunningham, the first-term Democrat who represents South Carolina's 1st District, said it was inappropriate for the Kiawah Island Community Association to take the loan while small businesses throughout the country struggle to obtain the same emergency financing amid the coronavirus pandemic. 

"I am incredibly disappointed that Kiawah Island Community Association took advantage of a program that was designed to offer a lifeline to struggling small businesses," said Cunningham, who represents the island's residents. 

"When Congress approved spending billions of dollars of taxpayer money to help small businesses and their workers survive this crisis, it wasn’t meant for giant corporations with deep pockets or wealthy community associations with millions of dollars in reserve funds," he added. 

Several hours after Cunningham publicly reprimanded the group, the association's board voted to send the loan back to the federal government. 

The loan is part of the Small Business Administration's Paycheck Protection Program, which passed as part of Congress's $2.2 trillion economic relief package in March. The program was so sought after that lawmakers were forced to pump even more money into the program in mid-April. 

The new loans are in hot demand right now because they can be completely forgiven by the federal government if groups use the cash to maintain staffing levels during the public health crisis. It essentially becomes free money. 

"As a community we will survive without the Payroll Protection Loan," Diana Mezzanotte, the association's chairwoman, wrote in an email to the group's members. "Therefore, today the board voted to return the loan because we understand that our sacrifices will be significantly less than small business owners who are struggling to survive."

The Post and Courier reported on the community association's acceptance of the federal loan earlier this week. The newspaper also noted that the group had more than $13.6 million in its bank accounts at the end of last year, and had full access to a $2.5 million low-interest line of credit.

At that time, Jimmy Bailey, the association's chief operating officer, declined to answer a question about whether the group would return the $1 million loan. 

In her email Thursday, Mezzanotte said she and the other board members had been waiting to discuss what to do with the loan at a special board meeting, and that they planned to fill in the other members of the homeowners association after that point. 

"We made a mistake in thinking we had time to discuss this on May 1 and then share our decision with the community at our public May 4 board meeting," she said. "We sincerely apologize. We also regret the negative attention this has brought to Kiawah Island."

Mezzanotte explained why the group, which operates as a nonprofit, applied for the loan in the first place.

The homeowners association, she said, expects to see its revenues from gate fees and property transfers decline this year. And the $8.1 million in reserve funds the association held in its bank accounts, she said, is already intended to go towards maintenance and infrastructure projects.

"These funds are not used for ordinary operating expenses and any spending from those reserves will have to be repaid in the future," she wrote. "In essence, taking from the reserves is simply not addressing the problem and just passes the problem to future boards."

Even so, Cunningham questioned whether the association really needed the money to cover its payroll, rent and utility bills as the loan was intended.

"Every week, I talk to countless Lowcountry small business owners who desperately need relief and have not yet been able to receive it, folks like the Lowdown Oven and Bar on James Island or Church Mouse Thrift Shop on Hilton Head," Cunningham said.

I’m glad to see Kiawah Island Community Association do the right thing and return the $1 million PPP loan they received," he added. "We must now get this money into the hands of the Lowcountry small businesses and workers who desperately need relief." 

Homeowners on the resort island earned an average income of $143,750 per year, according to the most recent census estimates.

Former governor and U.S. Ambassador Nikki Haley purchased a 5,774-square-foot home on the island for $2.4 million last year. Haley resigned from the Boeing Co. board in March over the aircraft maker seeking a federal bailout amid the pandemic.

The association is far from the first group publicly pressured to return money from the new emergency loan program. 

Ruth's Chris Steak House, a large publicly-traded company, and the Los Angeles Lakers, the professional basketball franchise, have already returned their multi-million loans in the face of public outrage and pressure from federal officials. So too did a wealthy homeowners association in Florida, which was initially approved for a $2 million loan. 

With so many controversies springing up with the loans in recent weeks, U.S. Treasury Secretary Steven Mnuchin has emphasized that companies and groups that accepted the emergency loans should not have access to other financing options. 

In the first round of funding, about 23,000 South Carolina applicants were approved for the paycheck protection loans. The loans averaged around $165,000 each, which shows the association's funding was a rather large disbursement. 

Still, it remains unclear who else the federally-backed loans are going to. The federal government has yet to publicly release a list of all of the businesses, nonprofits and other groups that tapped into the emergency funding. 

The Washington Post reportedly asked the SBA to provide the newspaper with the names of all of the recipients under the Freedom of Information Act. But the federal agency closed that request without handing over the information. 

Cunningham's office said he believes the public has a right to know the name of each recipient and how much money they received.  

"He supports this information being released by the Treasury Department and SBA so that Lowcountry taxpayers can have a full accounting of how this money has been distributed," Rebecca Drago, Cunningham's spokeswoman, said. 

It's unclear when that accounting will take place. 

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Reach Andrew Brown at 843-708-1830 or follow him on Twitter @andy_ed_brown.

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