Columbia officials will end a controversial loan program meant to spur development in the borough.
Borough council voted Tuesday night to start the process of repealing the ordinance that authorized the economic development revolving loan fund.
The program drew the ire of borough residents who said it was the reason for a 21.2% tax increase that took effect at the beginning of the year.
A lawsuit filed in March by a borough citizens’ group claims the loan program violates Article IX of the state Constitution, which states that municipalities are not authorized to “appropriate money for, or to loan its credit to, any corporation, association, institution or individual.”
The suit also alleges that by structuring the loans as a mortgage, the borough is violating the state law that governs how a borough may invest its funds.
The program was to be funded initially with part of the proceeds from general obligation bonds the borough issued in 2016. However, in May 2018 the borough’s auditors told the borough it could not use the bond proceeds in that manner.
At that point, the borough’s then-finance director, Georgianna Schreck, switched the funding source to the general fund, which is supported by taxes, fines and fees collected by the borough, council President Kelly Murphy said at Tuesday’s meeting, reading from a statement.
Murphy argued the fund was legal. However, he said, the borough’s attorneys, who originally approved the loan program, had decided upon further review that the auditors were correct in saying bond funds could not be used in that manner.
“It was never intended for this to be funded by anything other than the general obligation bond fund,” Murphy said. “It was never intended to come from the general fund resources, which are used to pay our bills every day.”
Murphy said the final determination regarding the use of the bond proceeds was received about a week ago. Without the ability to fund the program with the bond proceeds, “council should take the necessary steps to void Ordinance 897 and the revolving loan fund,” he said.
Council followed that recommendation with a unanimous 7-0 vote to have the solicitor draft the measure to kill the program.
“It is unfortunate that bond counsel, when we actually started the program gave us a green light, then came back with a reversal of that decision,” said council member Cleon Berntheizel, who is the council’s lead for community development matters.
The only loan dispersed under the program was for $250,000 to a company owned by Columbia businessman Don Murphy. The loan was used in Don Murphy’s purchase and renovation of the former Hinkle’s Pharmacy and Restaurant at Third and Locust streets, keeping the eatery portion of the 125-year-old business open.
That loan “is legally in place and will continue until the loan is paid in full according to the terms of the loan,” Kelly said. The balance of the loan fund will be returned to the general fund.
Lawsuit still active
Borough officials did not discuss how ending the loan program might impact the 21.2% tax hike. The lawsuit seeks to roll back the increase.
Officials have insisted the tax increase was necessary regardless of the loan fund.
Sarah L. Doyle, the York attorney representing the citizens’ group, said Wednesday that it’s too soon to say what impact the move to abolish the loan program might have on the group’s lawsuit.
“We are awaiting confirmation the ordinance has been repealed properly, through the correct legal process, before making any decisions regarding the litigation,” Doyle said.