The city of Charleston and its current and former mayors are fighting a local nonprofit over $22.8 million it received when Belmond Charleston Place paid off a 1984 debt.
The city filed suit against the Charleston Citywide Local Development Corp. on Thursday, almost two years after the nonprofit received its largest infusion by far — a pot of money city officials hope to use for affordable housing and economic development within the city.
The nonprofit's board has shared little or none of that with Charleston so far, so the city filed its complaint in Charleston County Circuit Court.
"You always want to avoid lawsuits if you can," Mayor John Tecklenburg said, "but I just feel like they took us to a place where we had no choice but to stand up for our city’s rights and the use of these funds for the purposes the grant was originally intended for."
The city relied on the LDC’s limited mission when it selected the corporation as a conduit for the funds, according to the lawsuit. But it alleges that once the LDC executive director and executive committee realized the transformational impact of the $22.8 million, they developed a plan to keep the funds and separate from the city.
The city alleges the nonprofit instead wants to expand into business loans across the state. Contacted Thursday, the corporation referred questions to its attorney Beth Richardson.
“We were very surprised and disappointed to learn that the city has decided to file this,” she said Thursday. “The LDC remains open to resolving any legitimate issues the city may have outside of litigation but is fully prepared to defend itself in a court of law if necessary.”
Tecklenburg and former Mayor Joe Riley, who are members of the corporation, are among the plaintiffs.
As Charleston Place, a 434-room hotel and retail complex, was being built in the 1980s, the U.S. Department of Housing and Urban Development gave the city a $14 million Urban Development Action Grant.
The city used about $4 million of that on public improvements, such as sidewalk work and parking, while $10 million was loaned to the project’s developer — via the Local Development Corp. — for up to 45 years.
When the $10 million was repaid along with $12.8 million in interest two years ago, Sharon Brennan, executive director of Charleston LDC, said, “It’s definitely a different day for the LDC. ... We see it as an opportunity to take on a larger economic development opportunities than we have in the past.”
The corporation is run by a 14-member board. It borrows money from several sources, including some federal agencies, and makes loans to local businesses to foster economic development, eliminate blight and preserve Charleston’s identity.
According to its 2016 tax return, it had $944,632 in revenues and $906,353 in expenses, with $27.9 million in reserves.
In a 2016 interview, Brennan said while the LDC serves Berkeley, Charleston, Colleton and Dorchester counties, the $22.8 million would be used only within the city limits.
“The city as a whole will benefit from these funds being deployed for revitalization and redevelopment,” she said at the time. “As we see the need, we’re trying to address those needs.”
But Tecklenburg said the city was not successful recently in seeking the original $10 million amount to use toward affordable housing projects under way. "They were insisted in getting a large fee in addition to the funds we agreed they would be able to keep,” he said. “Then they withdrew the offer altogether.”
In the lawsuit, Riley and Tecklenburg also claim the corporation's former executive director and executive committee sought to eliminate the membership because the members knew the history of the $22.8 million and wanted that money returned to the city.
The lawsuit also alleges the corporation hasn't followed the state Freedom of Information Act, even though it has received public money.
The hotel’s loan was not due until the property achieved a certain measure of financial success. Before it was repaid, the large balance had become a political hot potato in local political circles. Some City Council members questioned why the hotel had not turned a profit and begun to pay down the loan.
Others defended Charleston Place, noting the $75 million hotel, retail and conference complex should get a lion's share of the credit for the economic rejuvenation along King and Meeting streets.
The timing of the 2016 loan payoff could have been influenced by the April 2015 passing of Al Taubman — the shopping center magnate and philanthropist whose support was crucial in getting Charleston Place built.