City councilors consider debt forgiveness for golf club

Libby City Councilors weighed March 31 partially forgiving a long-outstanding loan given to Cabinet View Golf Club for construction of the course’s back nine.

The loan dates back to 2004, when the club agreed to pay the money back using dollars from the construction and sale of nearby property. In the years since, the organization has struggled to either arrange development or find a buyer. And a spat over the cost of expanding the city’s water and sewer lines to the area soured relations at one point.

Speaking on behalf of the club, board member George Mercer surprised city councilors last month with news that the organization was nearing a potential sale of the property. Were the deal finalized, the club would be willing to repay $878,875 of the original roughly $1.54 million loan.

But that would require city councilors to agree to forgive $662,125 of debt nearly two decades after it offered the loan. Club officials say the debt would need to be partially forgiven before the sale could commence, hence the March 31 special meeting of Libby City Council.

According to Mercer, who answered city councilor’s questions on behalf of the organization on March 31, the club would realize a net profit of about $1.75 million for the land sale — the list price is $3 million — before repayment of any portion of the loan. A few city councilors raised objections.

“My concern with the whole forgiveness of this debt is that a loss did not occur here,” said City Councilor Hugh Taylor. “If the loan was being repaid, the country club would still walk away with over $200,000.”

Mercer confirmed the assessment.

“So the city should take a $600,000 loss so the country club can make $800,000?” Taylor asked.

Mercer countered by saying the money was never the city’s to begin with. The dollars came from an $8 million pot Libby received from the federal government slated for local economic development. A portion of funds went out as grants to local groups while other organizations took out loans.

“At the end of the day, nobody can say those were city funds designed specifically, directly for the city. Those were community driven funds,” Mercer replied. “We can’t help but ask … can you guys basically accept forgiveness?”

The club’s case for forgiveness is multipronged. Mercer leaned heavily on the origins of the money, but the group also presented city councilors with a packet outlining other arguments. In it, club leadership pointed to future tax revenue from the development, water and sewer hookup fees, monthly utility fees and a windfall of new housing.

The document also notes the club is a nonprofit and the course a boon to the city’s economy. Tournaments raise money for local organizations and scholarships, and tourists who visit the course spend money on other amenities within city limits.

The document also notes that without forgiveness, the land deal is dead on arrival.

“As for future economic development, I would like to argue: Have we not provided that for the whole community?” Mercer said.

City Councilor Rob Dufficy noted that the repaid debt could be used for other projects in Libby. He wondered if the golf club could agree to the city forgiving a reduce amount, like $300,000.

Mercer said he would not comment on behalf of the club’s board. But he warned city council against making any adjustment to the deal presented by his organization.

“I can only caution you guys to be very careful about a counter offer and the size it would or would not be,” he said.

Dufficy noted that the city council had a fiduciary responsibility and needed to look out for taxpayers. Mercer bluntly dismissed the concern.

“Yeah, we definitely need to look out for federal money,” Mercer replied.

City Councilor Gary Beach stressed that were city council to grant forgiveness, he would expect the developer to hire locally for construction.

But to the question of forgiveness, Beach acknowledged the city’s poor handling of the golf club loan as well as the other loans and grants doled out from the original $8 million. The money came from the federal government with no guidance or strings attached, he said. Most of the money loaned out has never returned to city coffers.

“The root cause of this was that the city had no experience in being a lending agency and in essence was competing with established lending agencies,” Beach said in a prepared statement.

While he would prefer to see the money repaid in full, that did not seem a likely outcome. A partial recoup of the original funds struck him as the best solution.

“Choosing to forgive a partial amount could have the desired effect of economic development sought years ago by all those involved,” he said. “The proposed additional housing and construction could spur the local economy [and] contractors.”

City Councilor Kristin Smith said that while she was pleased with the news of possible repayment, she worried about the precedent set by debt forgiveness. She expressed concern that a developer could take the project in a different direction. The land is zoned commercial, she said.

“… [In] the spirit of the original agreement, I think it’s important that it’s in writing somewhere that we’re assured — guaranteed — that the development is residential,” Smith said. “We don’t want to see storage units up there or high rise hotels or things like that.”

Mercer told city council that the prospective buyer focuses only on residential development. Like the city, the club wants to see homes erected on the land.

While the club has not revealed the name of the potential buyer, Mercer again stressed that the individual would be familiar to city councilors and considered a local.

Mayor Brent Teske indicated city council would take up partial forgiveness at its April 5 meeting. He urged members to discuss the proposal with their constituents.

City Councilor Brian Zimmerman suggested his colleagues consider the loan as a grant. Most of the money from the original $8 million never returned to City Hall, he said. If you took the $1.54 million as a grant, it could be seen as a success story.

“I look at it as economic development, because of what that money is going to do and where it’s going to go and what it’s going to do for the community down the road,” Zimmerman said.