By AP/KWMU

Springfield, ILL. – An Illinois appellate court has ruled that the state must live up to its agreement to forgive $42 million in loans on hotels in Collinsville and Springfield.

The ruling declared that Treasurer Judy Baar Topinka indeed had the authority to negotiate a reduced loan repayment in 1995 and must honor it even though she later withdrew the offer.

Attorney General Lisa Madigan will ask the Supreme Court to hear an appeal in the case, a spokesman said Tuesday. "The state literally cannot afford this agreement," spokesman Melissa Merz said.

The court's decision, filed last week, would allow an investor group to buy the hotels' debt for the $10 million Topinka offered in 1995.

The saga began in 1982 when the state lent money to developers to build a Collinsville Holiday Inn and what is now the Renaissance Springfield Hotel.

Currently, the Springfield hotel owes $25.5 million in principal and interest, and the Collinsville hotel owes $27.2 million, Topinka's deputy chief of staff Martin Noven said.

The borrowers owed a combined $43 million in 1995 when Topinka took office. She said two appraisals put the combined value of the hotels at about $8 million. She negotiated a $10 million payoff, but Jim Ryan, attorney general at the time, put a stop to the deal, saying it needed the governor's approval.

Topinka deferred to Ryan and reneged, the owners sued, and the appellate court sided with them. "The treasurer was solely responsible for state oversight of the operations once the investment was made," the appellate court ruled.

But Noven said both sides in the negotiations knew that Ryan would have to sign the deal, too. "The settlement agreement had a signature line for the attorney general," Noven said.

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