Howard County Council members, stung by Savage Mill's brief encounter with bankruptcy last fall, should have plenty of questions for the administration tonight when they discuss a plan to lend money to another private company and back the loan with taxpayer dollars.
The last time the county got involved in such a loan was in October 1990, when it lent $900,000 to Savage Mill Limited Partnership. Savage Mill is out of bankruptcy now, but the county won't be getting repaid any time soon.
Tonight, the council will take up County Executive Charles I. Ecker's proposal to borrow $900,000 from the state, back that loan with the "full faith and credit of the county government," and lend the $900,000 to Marble Source Unlimited, an Annapolis Junction company specializing in the manufacture of natural stone products.
But the Marble loan proposal is expected to receive much more scrutiny than did the Savage Mill loan in September 1990.
"It is bad for government to be in the surety business or co-signing business loans," said Ellicott City Republican Darrel Drown. "That is the purview of free enterprise. If you get into questionable things, you generally end up in a box."
Democrat C. Vernon Gray of east Columbia agreed.
"Outright loans backed by the full faith and credit of the county may be bad policy in light of our earlier experience" with Savage Mill, he said.
"We need to really scrutinize this new loan very closely and look at their cash flow projections and their capability for repaying the loan."
But administration officials said the proposed loan to Marble differs from the Savage Mill Loan in two respects: The county would not be lending its money to Marble and the county would be first in line should Marble default. It was third in line in the Savage Mill deal.
Marble is an entirely different situation "because the risk [of default] is very small," Mr. Ecker said.
It is a sentiment echoed by John J. Congedo, president of Marble, which manufactures counter, floor, and wall sheathing from marble and granite. "My wife and I built [the 8-year-old business] without help from anybody," said Mr. Congedo, whose company has been wooed by Carroll and Baltimore County officials. "We have no debts and we have a huge national contract, servicing 160 dealers in a six-state region."
County had surplus
The 1990 Savage Mill loan came at a time when the county was flush with a $25 million surplus. The loan looked like such a good thing that the county added $300,000 of its money to the $600,000 it was borrowing from the state.
Within a year, however, hard times had come to county government and county businesses, including Savage Mill. The partnership filed for bankruptcy protection late last year after defaulting on a $4 million loan to Allied Capital Corp., of Washington, D.C.
The partnership also owed the county about $950,000. If Allied had foreclosed, the county probably would have lost its money, county attorneys say.
Instead, four days before Christmas, Savage Mill worked out a payment plan with Allied. The county agreed to let Savage Mill postpone repayment of its debt to the county for three years. The state followed suit and waived repayment of the county's loan for three years also. As of Jan. 17, the county owed the state $557,378.10.
County officials say that, ideally, the loan now being considered for Marble would not cost the county any money. Marble, which would be getting the loan at a lower interest rate than it could get from a bank, would pay the principal and interest on the loan.
If the loan is approved, Marble would use the money to expand its operations and build its work force from 16 to 44 people.
Mr. Gray said it "may be appropriate" to lend money to private companies, but he does not want the county to back the loans and take money from the general operating fund.
Democrat Mary C. Lorsung, of west Columbia, voiced similar feelings.
"We don't have a lot of full faith and credit left that's discretionary," she said. "I don't have an objection or problem with programs that provide support for businesses to expand, but there needs to be clear criteria for the use of the money and the objectives we're pursuing."
Mr. Ecker has appointed an 11-member task force of business leaders to help provide such criteria. He wants the committee to decide what types of "incentives," if any, the county should be using to attract and retain businesses. And he wants the committee to develop guidelines for determining which companies would be offered those incentives.
"One of my concerns is to have a bargaining chip," Mr. Ecker said. "I don't want to get into bidding wars [with other jurisdictions]. Yet business is very, very important to our economic vitality. Economic development is one of my highest priorities."
Intercounty competition appears to have fueled Mr. Ecker's desire to provide a loan to Marble and give a quick test to the incentive theory. He said the company requested the loan after being offered a similar package in Carroll County.
Mr. Congedo said he knew that Baltimore and Carroll counties offer the type of loan he is seeking under the Maryland Industrial Land Act, and he has talked with officials in both counties. But he prefers to remain in Howard County where he was raised.
"I think a group of artistic manufacturers is a pretty wonderful thing to have in the county," he said. "We see [the benefits of expansion] as an opportunity to give back some of what has been given to us."
He said the expansion would add about $129,000 a year to the county and state in taxes when completed in about three years.
"I want a program that works well for us and works well for the county," he said. "But if not, it was just not meant to be."
Failure to win approval for the loan "may mean going to another county and it may not," he said. "I don't want to put the county in a competitive position. If you and another person hold a position next to a hot griddle, one or two of you are going to be burned."