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Rift between Charleston and a nonprofit hampering city's affordable housing push

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LDC Sign

The sign on the LDC's door reads "Lend, Develop, Create." The nonprofit is locked in a legal fight with the city of Charleston over $22.8 million. Robert Behre/Staff

The city of Charleston hoped to buy and renovate the vacant Henry P. Archer School building on the East Side for affordable housing last year, but the deal fell through when it couldn't make the numbers work.

The city also came across available properties that could be developed for new, affordable housing in West Ashley and other places but had to pass because the money wasn't there.

And a new $20 million affordable housing project by One80 Place already has been scaled back once, from 86 units to 70, but still remains in jeopardy of falling through entirely because the city was able to kick in only $3 million of the $6 million the nonprofit had requested.

Those lost opportunities are the most significant repercussions from the city's dispute with the Charleston LDC, one that's being fought out in circuit court as well as behind the scenes.

At stake is as much as $22.8 million — and how much of that money might be spent inside the city, particularly on affordable housing.

It pits the city's current and former mayor against a lesser known nonprofit board and membership, a group that once appeared to be on the same page as the city but that has gradually drifted apart in recent years, particularly since the $22.8 million arrived in the bank in 2016.

"It's something that certainly ought to get worked out and could easily be worked out," former Charleston Mayor Joe Riley said, "with reasonable minds getting together."

Time will tell if and when that takes place.

'Doing very good things'

A few years after Riley became mayor, he and others helped create a new Charleston-based nonprofit that could receive economic development dollars then flowing freely out of Washington, D.C.

Founded in 1979, the nonprofit gradually expanded to further economic development in the city, as well as to help develop small businesses.

In the early 1980s, the city sought a federal Urban Development Action Grant to help the developers of Charleston Place. The city received $4 million for improvements next to the hotel and retail project in the heart of downtown, and it received another $10 million to loan to the developers as a sort of a second mortgage.

If the luxury hotel succeeded, then under the grant's rules, the project would pay back the loan with interest.

But there was a problem. In South Carolina, cities are not allowed to make such loans. That's why Riley and City Council turned to the LDC.

"We had to find a vehicle that would allow the UDAG loan to be repaid, so that’s why it was run through the LDC," he said.

Minutes from the 1983 City Council meeting show council members had every expectation the repaid money would be the city's; the only debate was over whether the city was charging enough interest on the loan.

And in the years after the loan was made, the main question was whether the hotel should be paying back the loan more quickly, not how any repayments would be spent.

Meanwhile, what began as the Downtown Charleston Local Development Corp. became the Charleston Central Local Development Corp. and then the Charleston Citywide Local Development Corp. Last year, it changed its name again to Charleston LDC, or simply LDC.

The nonprofit also began expanding its boundaries beyond the city to include Berkeley, Charleston, Colleton, Dorchester and Williamsburg counties, and it widened its sources of money. And after years of working out of city offices and having city taxpayers pay the salary of the nonprofit's executive director, Sharon Brennan, the LDC struck out on its own, moving its offices to 2 Race St. and adding staff.

Local Development Corporation

The Local Development Corporation worked out of city offices for years but recently moved to its own building, a former doctor's office, at 2 Race St. Robert Behre/Staff

But its basic mission remained the same: providing loans to small businesses that otherwise might not get the backing they need. Riley wanted the organization's gradual expansion with approval.

"They were doing very good things and oftentimes were a lender of last resort for economic development initiatives," he said.

In 2017, the nonprofit helped create or retain 158 jobs and provided 2,209 people with technical assistance, according to its annual impact report. That year it also closed 35 loans totaling more than $1.3 million.

'Like pulling teeth' 

A few months after the LDC received the $22.8 million from the Charleston Place loan repayment, the executive director appeared before City Council and gave members an overview of the nonprofit.

Charleston Place

The city of Charleston obtained a $14 million Urban Development Action Grant to help build Charleston Place. About $10 million of that was loaned to the developer who repaid it with interest in 2016. A fight has broke out over where the money should go. File/Staff

Brennan's presentation raised no alarm bells, and she outlined the history of the loan and the LDC today.

"The principal objective of the corporation shall be to benefit the community by fostering increased employment opportunities and expansion of business and industry for the citizens of Berkeley, Charleston, Colleton and Dorchester counties," her presentation said, "thereby lessening the burdens of government and combating community deterioration."

But not long after that, city officials began talking with the LDC about using a large chunk of the $22.8 million for affordable housing.

Rick Jerue, who began serving on the LDC board long before Charleston Mayor John Tecklenburg hired him as an executive assistant, was involved and noted the city expected the money would be used for projects in the city.

"We began to compile a list of projects," he said, but it soon became clear that the nonprofit wasn't taking the city's requests as seriously as the city wanted.

Affordable housin

The site of the old Cooper River bridges is one of several areas where the city wants to help build more affordable housing, but a dispute between the city and LDC has limited the amount of money the city has on hand for such work. File/Staff

"We just went through endless negotiations," Jerue said. "For the last three years, we've been trying to get them to some agreement with the city. It's been like pulling teeth."

A statement by LDC said the nonprofit remains committed to resolving this issue outside court.

"Litigation is expensive, and in this instance, where the parties have not yet sat down to try to resolve their issues, wasteful of taxpayer dollars and important lending resources," the statement said. "That being said, the LDC will defend against the city’s claims if necessary." 

'A principle of equity'

A clue to the depth of the falling out lies in the city's legal complaint, which claims the LDC's leaders wanted to expand the nonprofit to "bring personal attention and influence to the executive committee and executive director ... and bolster their personal reputation and careers."

The LDC's statement said that suggestion "is patently false, defamatory, and slanderous."

It's unclear if and when any mediation might begin, but it's clear the money legally could be used for the LDC's economic development work or for the city's efforts on affordable housing or any other public purpose as set by the federal law that created the Urban Development Action Grants. Those include things such as arts programs, housing rehabilitation, infrastructure improvements, public transportation, park construction and maintenance, and even parking programs.

In a recent letter, LDC Chairman Chad Yonce said $10 million of the $22.8 million repayment has been earmarked to be used for affordable housing within the city of Charleston, adding, "The remaining funds will be loaned into our community as the LDC has always done."

"The LDC shares the vision with the city of Charleston," he added. "We only differ in approaches to implementation."

When Riley sold the grant application to City Council in 1983, he noted "the important fact was that the money would be repaid to the city for the city's benefit," according to council minutes.

While he has left office, his successor feels the same way. Earlier this year, the city received $33.39 million in requests for only $20 million available from a voter-approved affordable housing bond issue.

"What the LDC money would enable us to do is address so many of these needs," Jerue said.

Archer School

The vacant Henry P. Archer School on Nassau Street is back on the market after Charleston decided not to buy it. File/Brad Nettles/Staff

"It's basically a principle of equity," said Riley, who joined Tecklenburg and the city in suing the LDC. "If you start a business, you start it and become successful, then the fruit of that success should accrue to you. It’s not as if the city is looking to divert this money to some other non-eligible economic development activity."

Riley said investing in affordable housing "is always important and always needed, even more so now. ... But for the action of the city and but for the UDAG, the money wouldn’t exist.”

Reach Robert Behre at 843-937-5771. Follow him on Twitter @RobertFBehre.

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