WINSTON-SALEM, N.C. — Members of the Winston-Salem City Council had questions during their last meeting about why a newspaper would ask the city for a loan, but they couldn’t say it was without a precedent.
On a unanimous vote, the council on Tuesday approved a $100,000 low-interest loan to the Winston-Salem Chronicle, a weekly newspaper that focuses on news in the black community.
The newspaper last received a city loan of $50,000 in 1984, which was repaid in full.
The newspaper plans to use the new loan to increase its sales staff and improve sales and circulation. According to the letter that the newspaper’s publisher, Ernie Pitt, wrote to the city in December, the money would be used to create three to five jobs at the newspaper. The average salary would be about $30,000.
City council members had no problem approving the loan, saying that the newspaper, as a business, appeared to qualify for the loan.
But council members did wonder about the effect the loan might have on peoples’ perception of the newspaper as an unbiased source of information.
“I assume the Chronicle may face questions of appearance, and I assume they are prepared to answer these concerns of appearance,” Council Member Dan Besse said during Tuesday night’s discussion on the city council.
Council Member Robert Clark said that a newspaper is part of the system of checks and balances.
“I am somewhat surprised that the press does not have ethical standards to not borrow the money,” Clark said.
Taking another view was Council Member D.D. Adams, who said that as long as the city is following proper procedures she has no problem with the loan.
Derwick Paige, the assistant city manager who handled the newspaper’s request and brought it to the council, said that the newspaper had approached the city with a request for a grant instead of a loan.
However, the Chronicle did not meet the guidelines for getting an economic development grant because the minimum capital investment required to receive the grant is $1.5 million. The newspaper also didn’t qualify for another loan program geared toward small-business startups.
Under the loan approved by the council Tuesday, the newspaper would not have to begin making repayments for the first 36 months after receiving the loan. At the end of the deferment period, the Chronicle would have to make monthly payments with a 2 percent interest rate.
The loan is secured by a lien on business assets including accounts receivable and the personal guarantee of the borrowers.
Paige said the loan program has a successful track record and has been used to give loans to smaller businesses and Fortune 500 companies.
“It is a job-creation program for businesses looking to expand,” Paige said. “These are typically extremely successful portfolios because they are existing businesses looking to expand.”
Under the terms approved by the city, Pitt must assign $100,000 of life insurance proceeds to the city and keep that coverage in place for the life of the loan. Once loan payments start, the Chronicle will have seven years to repay the $100,000, plus interest.
The Chronicle must also keep its property insured, and would have to get the city’s permission if it obtains other long-term loans and wants to make the city’s loan subordinate to the other debt.
What the newspaper risks is the perception that the deal comes with strings attached: favorable coverage in exchange for the loan.
“Does the city government expect gratitude and will the newspaper show gratitude?” asked Lois Boynton, a journalism professor at UNC Chapel Hill, as she outlined the questions that people may ask. “I am not familiar with a government giving the media a lot, except maybe grief. I think maybe the challenge and the concern I would have is how will people perceive that relationship.”
It helps at least that the loan is for sales personnel, Boynton said, although she added that many people are not aware of the “separation of church and state that comes between advertising and news in the newsroom.”
One of the stated reasons for the loan is to improve the newspaper’s “For Seniors Only!” tabloid. That might not be as problematic as a loan used to support news operations, Boynton said, if the tabloid is more of a promotional item than solid news.
Pitt could not be reached for comment about the loan Wednesday.
The managing editor of the Camel City Dispatch, an online news publication, criticized the loan and said his organization would never ask for or take government money.
Kevin Kampman, the publisher of the Winston-Salem Journal, said that “a newspaper accepting any type of government-backed loan raises the possibility of a conflict of interest.”
“The Winston-Salem Journal would never seek a loan from a government agency for any reason,” Kampman said.