Columbia residents challenge borough's authority to lend public funds to private developers

By Brian Brueggemann | May 3, 2019

LANCASTER – A group of citizens is challenging a new revolving loan program in the Borough of Columbia, arguing the borough has no authority to use public funds to make investments in private entities.

The suit filed by Columbia Concerned Citizens Association seeks to have the loan program declared invalid, and asks that the borough be required to cancel or adjust a tax increase that it enacted after creating the loan program.

In 2018, the borough passed an ordinance that created a commercial revolving loan program. The suit alleges the borough does not have authority to lend public funds to private developers and does not have the authority to invest the borough's funds in mortgages.

The borough, in a response to the suit, argues in part that the three individuals named as plaintiffs "have no basis for standing other than being taxpayers of the Borough of Columbia."

The borough also argues that the plaintiffs "have failed to allege any negative impact in a real and direct fashion and have failed to show a substantial direct and immediate interest in the subject matter of this action."

The suit argues that the borough has increased taxes to fund the program, and that the borough's 2019 budget includes an $800,000 contribution to the program. The suit asks that the ordinance creating the loan program be declared invalid, and that the borough either undo the tax increase or adjust it to reflect the elimination of the loan program.

The suit states the first loan made through the program was a $250,000 loan to Murphy Acquisition Group. The group used the money to renovate a restaurant, with the borough obtaining a mortgage for the loan, the suit says.

"At best, the borough is a second-position lien holder on the property that is collateral for this mortgage," the suit states.

The suit quotes the Commonwealth of Pennsylvania's Constitution, which states, "The General Assembly shall not authorize any municipality or incorporated district to become a stockholder in any company, association or corporation, or to obtain or appropriate money for, or to loan its credit to, any corporation, association, institution or individual."

The borough, in its response, states the loan program was started with funds that were obtained through the sale of its sewer system. The money for the Murphy Group loan did not come from taxes, the borough argues.

"The funds utilized to fund the loan did not come from the 2019 Tax Ordinance and could not have come from 2019 taxes," the borough argues. "No challenge has been filed by the plaintiffs or anyone else as to the constitutionality or validity of the 2019 Tax Ordinance. Even if the Commercial Revolving Loan Program was declared unconstitutional, it would not affect the 2019 Tax Ordinance."

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