LeMay — America’s Car Museum sued Tacoma and the city’s banker Tuesday over the handling of a $3.6 million federal loan to finance the museum’s construction.
The museum, which draws about 150,000 visitors a year to its gleaming downtown building, claims the Bank of New York Mellon mishandled the payback of interest on the loan and demanded a lump-sum payment of about $118,000 plus tripled monthly payments to cover its mistake.
In an interview, museum president and CEO David Lowe Madeira said that at the beginning of the loan repayments in 2010, the bank had demanded more per month than the museum expected.
The explanation from the bank to museum chief operating officer Paul Miller was that the loan had been converted from escalating interest to an interest rate fixed to a central bank rate.
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This seemed to benefit the museum in the long run, Madeira said, so it went along and paid the bills on the fixed rate for six years.
The terms of the loan meant that the museum was to spend seven years paying only the interest on the principal, which would come due in 2017. This summer, the museum started making inquiries about refinancing the loan to prolong its term.
Instead, Madeira said, the conversations prompted BNY Mellon to re-examine the arrangement.
The bank found no written proof the loan had ever been converted to a fixed rate, according to city documents. It billed the museum for about $118,000 to cover back interest and changed the monthly payments for the loan’s final year from about $4,000 to over $13,000.
The museum counters that it paid the amount it was billed monthly for more than six years, and that its auditors’ annual checks with creditors had for years confirmed that the bank was current on its payments. The museum, he said, is unfairly being put on the hook for the bank’s problems justifying its own billing.
“They’re saying, ‘We misbilled you, in essence, shame on us,’” said John Barline, an attorney and museum board member.
Barline added that museum officials believe an email confirmed the change in interest terms years ago. There’s only one problem.
“We can’t find it,” he said.
After the lawsuit was filed in Pierce County Superior Court, Mayor Marilyn Strickland told The News Tribune in a text message that the city had given the museum “generous and supportive” backing for years, including the land donation to build the museum next to the Tacoma Dome.
“The interest rates on the loan were structured to help them get on their feet over a long enough period to stabilize them,” Strickland wrote. “It’s unfortunate that they are willing to incur the cost of litigation when it could be used toward repayment of a loan to which they legally agreed.”
Madeira and Barline said their attempts to discuss the situation with city leaders, including Strickland, were unproductive and they went to court to keep the loan from going into default.
The federal loan at the center of this lawsuit represented a key piece of financing for the 165,000 square-foot museum, which opened in 2012 after more than a decade of funding efforts from public and private agencies. The city obtained the Department of Housing and Urban Development block grant for community development, then used it as a low-interest loan to help the museum get construction financing.
In the years since it opened, the car museum has fallen short of drawing the annual 450,000 visitors discussed as its goal. That figure would have made it a peer of the Museum of Flight. Instead, the LeMay — America’s Car Museum’s annual IRS filings show it receives about 150,000 visitors per year. Madeira said the museum might be able to draw an additional 100,000 guests a year.
Barline and Madeira said the bill the museum is fighting doesn’t indicate that the city — and its banker — are trying to get their money before the museum experiences financial peril.
“It isn’t about the financial stability or instability of the LeMay at all,” Barline said.
Madeira said the museum could cover the amount being demanded, but at the cost of eliminating a couple of jobs and possibly closing one or more days a week. Instead, it is going to court.
The suit is set for a hearing March 10 before Superior Court Judge Frank Cuthbertson.