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Gloversville files suit against EDC over fund

City also considering second lawsuit

October 27, 2012
By LEVI PASCHER , The Leader Herald

GLOVERSVILLE - The city filed a lawsuit this week against the Fulton County Economic Development Corp. in an effort to recover an economic development revolving loan fund.

City Attorney Anthony Casale said the lawsuit, filed Tuesday, asks the state Supreme Court in Fulton County to require the EDC to transfer the loan's assets to the city under provisions in a contract between the city and EDC.

"The provisions state that upon expiration of the contract, all the assets must be transferred back to the city, and this is what we are asking for by the court," he said.

The city obtained a $1.5 million Urban Development Action Grant from the federal Department of Housing and Urban Development in 1993. The same year, the city contracted with the EDC to administer the grant, which later would become a revolving loan fund for economic development projects in the city.

The final contract between the city and EDC ran from January 2005 to Dec. 31, 2010.

Casale said the city tried to get the EDC to transfer the fund back to the city, but the EDC refused.

The city wants the EDC to give the loan fund back to the city so it can loan money to local businesses.

Today, the loan pool has 14 separate loans totaling more than $1.5 million and a cash balance of approximately $940,000, Mayor Dayton King said.

The Fulton?County Center for Regional Growth is the parent company of the EDC and Crossroads Incubator Corp.

CRG President Michael Reese on Friday had no comment on the lawsuit or discovery motion. He said he has not been served the court documents yet.

On?Oct. 19, officials announced plans for the CRG to dissolve the EDC and CIC. The dissolution process is expected to take several months.

Possible lawsuit

The city also may file a second lawsuit to recover a $750,000 loan the EDC made to its sister corporation, the CIC, in 2006. The loan helped pay for the redevelopment of the former Estee school in downtown Gloversville into what is now the 39-unit Estee Commons apartments.

On Tuesday, the Casale filed a discovery motion in state Supreme Court in Fulton County seeking records from the EDC and CIC going back from their creation in 1988 to the present day. The information obtained through the discovery motion will help the city prepare the second lawsuit, said Casale.

"It is without dispute that the EDC and CIC have been working together through the years; what I am looking for is the paper trail," he said.

The city has concerns the EDC is not holding the CIC responsible to pay back the loan, Casale said.

"No money has been paid on that loan since it was granted by the EDC in January 2006," Casale said. "When the first annual payment became due in April 2007, no money was paid and EDC didn't pursue any default remedies whatsoever."

EDC officials previously said the CIC will start paying back the loan when the project shows profit. They said if the CIC sells the building, proceeds will be used to pay back the loan.

Meanwhile, the EDC has been operating the Estee Commons building and collecting rent from the tenants living there through an assignment of rent agreement, Casale said. He said the rent money collected has not gone toward the principal of the loan.

"What bank would issue a loan for $750,000 and not have the borrower pay one cent on that loan and go into default for a period of five years and not do one thing to collect?" Casale said. "It just doesn't seem right to me."

He said the city is uncertain how much rent is being collected from tenants, but is hopeful that information will be revealed during the discovery process. He said the city may seek in the second lawsuit to replace the EDC as the collector of rent from tenants.

The city attorney said the EDC and CIC are trying to walk away from the loan by asking the city to hold them harmless through previously proposed agreements to transfer the loan fund.

Casale said the city wants to recover any management fees the EDC collected over the years to administer the loan fund because EDC officials have said they used the grant loan to cover personnel costs.

Levi Pascher covers Gloversville news. He can be contacted by email at



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