HUTTO – With no income and $9.4 million in debt, city officials say bankruptcy is not a viable option for lawsuit riddled Cottonwood Development Corp.
“In my mind Cottonwood is insolvent and therefore bankrupt, and therefore it should just be dissolved, but, (city litigation attorney) George Hyde said there’s ongoing litigation and so you cannot dissolve a corporation that currently has active litigation in it,” Interim Finance Director Anne LaMere told the CDC board at a special meeting June 15.
CDC is overseen by a three-member board that consists of city council members Randal Clark and Mayor Pro Tem Peter Gordon, chaired by Dan Thornton.
“If we weren’t in the middle of these cases trying to win the appeals and trying to finish off the judgments we’d probably want to fold Cottonwood and everything would go to the city, but since we’re in the middle of litigation we finish it out,” Thornton said.
In 2021, the city and CDC borrowed money from Preston Hollow Capital, LLC to purchase land known as Cottonwood Properties along State Highway 79 in hopes of national sports recruiter Perfect Game moving to Hutto.
That deal fell through. Preston Hollow sued CDC and the city for repayment.
In February, the Hutto Economic Development Corp. purchased the property from CDC so they could repay the original $15 million loan from Preston Hollow and stop ongoing interest accrual. The interest already due on the lien remains the CDC’s responsibility.
“With the transfer of Perfect Game land to the EDC (without the transfer of the associated land debt), the CDC has no assets to sell to pay off the remaining debt. The CDC also has no source of revenue. The debt will continue to grow as legal fees continue to be incurred,” according to the city.
Hutto has a funding and refunding agreement with the CDC, which states that the city is responsible for CDC debts if the CDC is unable to pay.
The CDC financial statement presented by LaMere shows year-to-date negative assets of -$3,009,200. This is listed as “claim on cash,” which she explained was for surveys and other items related to Perfect Game land and a possible sports complex.
The balance sheet lists year-to-date expenses of $3,379,878, broken down into $1,372,519 million in legal services and attorney fees, $1,532,288 million in interest fees and $475,070 in loss of sale of asset (the land sale to EDC).
CDC’s total liability is listed at $6,423,169, of which $4,516,223 is principal still owed on land.
On LaMere’s advised that they could do a budget amendment later in the year if necessary, the board approved a fiscal year 2024 budget of $500,000 to pay anticipated legal and attorney fees for ongoing litigation.
“Given that we’re not undertaking new projects, given that we no longer own the land and given that we’ve been involved with lawsuits with every party, I’m not anticipating any thing other than appeals going forward,” Thornton said.
