Troubled agency faces foreclosure on 2 Chattanooga properties

Troubled agency faces foreclosure on 2 Chattanooga properties

July 17th, 2011 by Cliff Hightower in News

Multiple vacant lots are photographed Wednesday in the 400 block of MLK Blvd., leading up to the former Renewal Barber Shop at 423 MLK Blvd., seen in the background.

Photo by John Rawlston/Times Free Press.

A TIMELINE


• July 1999: The Chattanooga African-American Chamber of Commerce is established.

• 2006: Chamber spends $200,000 of a $545,000 U.S. Department of Housing and Urban Development grant on land acquisition for a Business Solutions Center.

• 2007: Chamber changes its name to Tennessee Multicultural Chamber of Commerce; the Chamber spends $106,400 of a $500,000 HUD grant on planning and project development for a Business Solutions Center.

• October 2008: Chamber receives a $579,000 loan from Chattanooga Community Development Financial Institution to help acquire property for the Business Solutions Center.

• July 2011: City audit review highlights questionable financial practices, extravagant salaries and travel expenses and possible misappropriation of funding for tracts of land acquired for the Business Solutions Center.

Troubles keep mounting for the Tennessee Multicultural Chamber of Commerce.

The institution that lent the agency $579,000 in 2008 to buy two properties on East M.L. King Boulevard is considering foreclosing after the Chamber paid only interest on the loans for 33 months and now has missed its last two payments, its CEO said Friday.

"Right now, we feel very insecure," said David Johnson, president of the nonprofit Chattanooga Community Development Financial Institution. "It makes us feel this loan will not be repaid."

The Multicultural Chamber's executive director, Sherrie Gilchrist, could not be reached for comment Friday.

Questions have swirled around the Chamber since publication of a June 19 Chattanooga Times Free Press article detailing discrepancies in the agency's budget requests to the city and the county.

Concerns came to a head last week with a city audit review that alleged financial mismanagement at the Chamber and disclosed salaries and travel expenses that were far above those of other area nonprofit organizations. The review also found that the Chamber paid more for the properties than they were worth.

The City Council has asked for answers to 18 questions and an audit before it considers appropriating $75,000 to the organization. A pending inquiry by the U.S. Department of Housing and Urban Development over the Chamber's use of federal money underscored the seriousness of the situation.

Yet with her reputation on the line and the agency's future potentially at stake, Gilchrist never appeared before the City Council or County Commission to address their concerns. She did meet with Mayor Ron Littlefield but left with questions still unanswered, according to the mayor's office.

By week's end, some council members were still expressing support for the Chamber's goal of helping minority-owned businesses get a leg up - but doubts persisted about its capacity to get the job done, and, perhaps, its viability.

"What I'm hearing is that we believe in the mission," said Council Chairwoman Pam Ladd. "It sounds like it may not be feasible with the current program."

LOAN DETAILS

The Chattanooga Community Development Financial Institution, a nonprofit organization set up to make loans to small business in urban neighborhoods, lent $579,000 to the Chamber in October 2008.

According to the city review, $507,000 was spent to buy two properties along M.L. King Boulevard that were valued at just $211,000. There is no record of what the rest of the money was spent on.

The properties were to help house a new Business Solutions Center that never has been built.

Johnson, who joined CCDFI two months after the loan was granted, said Friday he had no indication why the board decided to lend more money than the property was worth. Gilchrist, who was a board member of CCDFI at the time of the loan, did attend the meeting where it was approved but recused herself from voting, board minutes reflect.

He also said the financial institution was supposed to be given $250,000 from a grant the Chamber expected to receive soon after the loan was granted. That would have halved the amount owed.

But he said that grant money wasn't forthcoming. Instead, the Chamber paid 8.5 percent interest on the loan for 33 months and stopped making those interest-only payments two months ago, he said.

The Chamber's loan was supposed to be repaid in 24 months, Johnson said. But at the end of that period, the Chamber asked for an extension and was granted another year. That extension will expire around October and the Chamber cannot renew the loan, he said.

Johnson acknowledged that no appraisal was conducted on the two M.L. King properties for which the loan was issued. He said it is board discretion not to do appraisals, but he said in this instance board members felt it was not needed because of the anticipated grant money.

He said it was a bad loan that did not get repaid. He said paying only interest on the loan makes it problematic.

"The can ended up getting kicked down the road," he said.

Johnson said the financial institution started shoring up its loan reserves months ago in anticipation the Chamber would go into default.

"We thought there was a good chance this loan would become nonperforming," Johnson said.

The CCDFI receives its funding from a variety of major banks, as well as some private sources. The financial institution is chartered by the U.S. Treasury, so banks that do business with it and other community development financial institutions receive federal tax and investment credits, Johnson said.

Since those banks lend the money, CCDFI in turn has to pay them back.

Despite problems with this loan, the organization has made all its payments and is on sound footing, Johnson said.

Johnson, who also is president of Chattanooga Neighborhood Enterprise, emphasized that the loan in no way reflected on that organization. CNE is a separate entity, a nonprofit housing organization dedicated to providing Chattanoogans the chance to live in decent, affordable housing, according to its website. Johnson said CNE, too, is on sound financial footing.

WHAT IS THE FUTURE?

Several council members said last week that changes need to be made regarding the Chamber.

"They need to be accountable," said Councilman Russell Gilbert. "And if they need to rearrange their organization, they need to rearrange their organization."

Several council members said they wanted to see the Chamber first try to fix the problem from within. They agreed that helping minority-owned businesses is something that needs to continue. But they held their own opinions on how to do it.

Councilman Peter Murphy said he believes the Chamber should be given a chance.

"If you have a car that's broken, it's usually cheaper [to fix it] than buying a brand new car," he said.

Ladd said there could be other possibilities. She said the Greater Chattanooga Chamber of Commerce or a like-minded entity or maybe even the Urban League could take over the duties.

Officials with the Chamber of Commerce and the Urban League said Friday no one has reached out to them. Warren Logan, CEO and president of the Urban League, said if such a proposal was made "we would just have to evaluate it."

J.Ed. Marston, spokesman for the Greater Chamber of Commerce, said any such decision would have to be arrived at by the two bodies.

Councilman Andraé McGary said he could see three options for the Multicultural Chamber as far as city money: fund it, defund it or fund it with stipulations. He said he could see setting aside the $75,000 within the city budget and providing the money once all questions are answered.

He said he supports the Chamber, but believes other options may need to be considered.

"I don't know if they are the entity to be funded," he said. "If not, we'll find some other entity to do it."