For the second time in two years, the city is dipping into a fund usually reserved for poor neighborhoods to bail out the owners of an Inner Harbor hotel and restaurant who have failed to repay a federal loan.
The Baltimore Development Corp., the city's development arm, plans to use federal Community Development Block Grant funds to repay a delinquent $1.9 million loan plus interest on behalf of Harrison's Pier V, according to city records.
The city previously dipped into the block grant funds more than a year ago -- repaying the federal government $303,145 when the hotel owners failed to make payments.
According to the terms of the loan, the city agreed to use the block grant funds to repay the U.S. Department of Housing and Urban Development if Harrison's failed to make payments.
"We would prefer not to repay the loan out of current block grant money, but we have to," said Michael Seipp, executive vice president of the Baltimore Development Corp.
The latest bailout of Harrison's is yet another financial setback for the city which heavily financed the nautical-theme hotel and restaurant in 1989. At the time, Baltimore officials called Harrison's "an important project to the city."
But in the last three years, the owners have failed to pay their $6.6 million city guaranteed mortgage, $1.2 million in delinquent property taxes or $5 million in federal loans. They also owe the city $27,550 for installing water meters in 1990, according to city records.
Earlier this week, Mayor Kurt L. Schmoke said Harrison's is an important asset to the Inner Harbor, despite the financial losses.
"Harrison's was a deal that predated this administration," he said. "But in looking at development activity [nearby], we concluded early on that we should do all we can to save Harrison's."
Noting that Harrison's business should pick up after completion of the Christopher Columbus Center next door, Mr. Schmoke said it is logical to keep Harrison's open.
"The big problem is the debt structure. So if there is some way we can restructure that and allow the institution to flourish, we felt it is in our best interest to do that," he said.
The $20 million hotel and restaurant opened in June 1989 just east of the National Aquarium. It is a joint venture of the Harrison Family Organization, headed by Eastern Shore entrepreneur Buddy Harrison and James I. Humphrey Jr., a Silver Spring developer.
Mr. Harrison, reached at his Tilghman Island restaurant on the Eastern Shore, said the hotel-restaurant's problems began with the recession.
"I guess the debt structure was an 80s deal and the flow of customers hasn't been what we needed to meet the debt structure. It's a recessionary problem," he said.
He said the waterfront restaurant, however, "had a real good summer," perhaps because a pedestrian bridge was moved closer to the restaurant to attract customers walking from Harborplace.
When asked why the increase in business did not prompt him to make loan or tax payments, he said, "I'm not the point man on that."
He referred a reporter to business partner Richard McGee, who did not return the reporter's call.
Although the owners have made some payments on the HUD 108 loan during the last year, city records show the owners missed a $81,240 payment on July 22.
In addition to the federal loan, the city is liable for the $6.6 million it guaranteed on Harrison's first mortgage, which is in default.