Taxpayers could have to cover Rep. Emanuel Cleaver’s bad loan

By DAVE HELLING and STEVE KRASKE

The Kansas City Star



Keith Myers
U.S. Rep. Emanuel Cleaver, D-Mo.




Taxpayers could be on the hook for up to $1.1 million to cover a bad loan for U.S. Rep. Emanuel Cleaver’s car wash in Grandview, the Small Business Administration said Friday.

SBA officials said the agency had guaranteed roughly 75 percent of the 2002 Bank of America loan to the firm that owns the business, Cleaver Company LLC. In a lawsuit filed March 30, Bank of America said the company — along with Cleaver and his wife, Dianne — owed more than $1.46 million in principal and interest on the loan.


That means the SBA, a federal agency charged with helping small businesses, could end up paying the bank three-fourths of Cleaver’s principal and interest debt, or roughly $1.085 million, if the Democratic congressman’s company cannot meet its obligations.
Officials cautioned that the exact amount of the SBA’s responsibility might not be known for months, and could be substantially less.
The bank’s lawsuit asks a Jackson County court to appoint a receiver for the car wash, who could sell or lease it to satisfy at least part of the debt, incurred before Cleaver was elected to Congress. Any of those proceeds would be used to reduce SBA’s exposure on the loan.


The agency’s payout would be further reduced by any payments the Cleavers make on the debt.


If the SBA has to pay its loan guarantee, the funds will come from taxpayers and fees charged to lenders and borrowers. In its fiscal year 2012 budget request, the agency asked Congress for $161 million to cover higher than expected loan subsidy requirements.
Despite several requests Friday, Cleaver declined further comment on the lawsuit. But in an earlier statement he blamed a “business dispute. The business has been run by an outside manager for years.”


The identity of the manager could not be confirmed Friday. A phone call to the car wash was not returned.


However, it isn’t clear how much a sale of the car wash would bring. Jackson County tax records show the land and improvements were appraised at $462,541 in 2011, roughly 8 percent less than five years ago, and far short of the $1.5 million the lawsuit claims that Cleaver owes in principal, interest, and penalties.


It also isn’t known how much additional revenue the business itself might bring in a sale.


But in his May 2011 financial disclosure, Cleaver valued the car wash between $100,000 and $250,000. He valued all of his and his wife’s investment assets between $513,000 and $1.295 million.


Cleaver, who earns $174,000 as a member of Congress, is current on the taxes for the car wash, records show. In 2010, he also received a pension of $20,932 for his service as Kansas City mayor and a city councilman, and a salary of $9,664 from the Methodist Church where he was a pastor.


A Bank of America spokeswoman said Friday the bank filed the lawsuit after several attempts to reach an agreement with Cleaver on the debt. The bank’s court filing showed three attempts to extend payments and delay foreclosure on the car wash, located at 12204 Blue Ridge Extension in Grandview.


“We’ve worked with him for a while, and tried to reach an agreement, but that hasn’t happened,” said Shirley Norton, a spokeswoman for the bank. “At this point we just had to go ahead and file a lawsuit.”


The lawsuit over the loan is the latest problem involving the car wash for Cleaver, who serves as chairman of the Congressional Black Caucus, and is running for reelection in the 5th Congressional District this fall.


In 2004, during his first race for Congress, Cleaver was forced to explain a $36,000 tax delinquency on the property. At the time, he said many business owners fell behind on their taxes, and he paid them as soon as he learned of the tax bill.


He also said he planned to sell the car wash, which he said was losing money.


Despite the car wash issue, Cleaver won easily. And some observers said they expect voters this year to understand the difficulty of operating the business.


University of Kansas political scientist Burdett Loomis characterized the situation as not helpful to Cleaver’s political future, but not fatal.


“There’s certainly no winning for him on this at all,” Loomis said. “It’s a business deal gone bad. He wouldn’t be the first or last person to have that happen to him.”


But given the dynamics of the 2012 election cycle, when well-funded special interests can contribute anonymously and in unlimited amounts to political committees, the development presents an opportunity for Republicans who dislike Cleaver to embarrass him, Loomis said.


Two Republicans seeking Cleaver’s seat said Friday the development is damaging for the Democratic incumbent.


Jacob Turk, who lost to Cleaver in 2010 by a 9 percent margin, asked why taxpayers should foot any of the bill for the bad debt when Cleaver earns a healthy salary as a member of Congress.
“Why are we on the hook?” Turk asked. “They need to pay the bill.”
He also suggested Cleaver should release his tax returns every year since 2002 to ensure that the money was properly spent.


Another Republican candidate, state Rep. Jerry Nolte, said the situation had the potential of being damaging.


“It definitely is not a good thing,” Nolte said.
Cleaver is seeking his fifth term this year.





Read Also":

Bank wants Missouri Rep. Cleaver to pay $1.5 million on car wash loan


Steve Kraske and Dave Helling

U.S. Rep. Emanuel Cleaver's car wash headache is raging once again.
The bank that loaned the Kansas City congressman and his wife $1.3 million in 2002 to buy the Grandview Auto Wash at 12204 Blue Ridge Extension is now demanding payment of more than $1.5 million, after the Cleavers repeatedly fell behind on repaying the loan.

The suit, filed last week in Jackson County Circuit Court, said the demand for repayment came after three attempts to delay foreclosure. Bank of America also is seeking attorney’s fees and a receiver to protect collateral.

“The Cleaver Company failed and refused, and continues to fail and refuse, to pay the outstanding obligations due and owing … under the note and other loan documents,” the lawsuit said.

In an email statement, Cleaver said, “This is a business dispute. The business has been run by an outside manager for years.” He said because it was a legal matter, he would have no further comment.

According to court documents, the outstanding principal totals $1.2 million with interest totaling $240,545 as of March 6. Late fees have reached $54,587. Both Cleavers had personally guaranteed the debts, according to the suit.

The loan was originally part of a Small Business Administration program. It was not clear Thursday how much money, if any, taxpayers will have to provide if the loan defaults.

The car wash became a hot topic when Cleaver, a Democrat and former Kansas City mayor, ran for the U.S. House for the first time in 2004.

His opponent, Republican Jeanne Patterson, paid for a TV ad that pointed out that Cleaver owed $36,000 in property taxes on the car wash for 2002 and 2003. At the time, Cleaver said that many business owners become fall behind on taxes, and he paid up shortly after learning of the delinquency.

During the campaign, he said that the business had been a losing proposition for him and his family and that he was looking for a new owner.

In November 2004, Cleaver turned daily management of the car wash over to two couples. But by April 2005, Cleaver had again fallen behind on his car wash property taxes after failing to pay the $13,679 he owed at the end of 2004.

He paid the amount, with interest and a 2 percent penalty, just a few days after a story noting the non-payment appeared in The Star.

Read more here: Bank wants Missouri Rep. Cleaver to pay $1.5 million on car wash loan - KansasCity.com

Rep Cleaver is also famous for "Spittlegate".