Costs associated with a multimillion-dollar loan “debacle” will continue to leave the Corporation of Hamilton cash-strapped — even if it wins a court battle.

Charles Gosling, the Mayor of Hamilton, said he expected the corporation to face a seven-figure bill irrespective of how a wrangle ended over its guarantee of an $18 million loan from Mexico Infrastructure Finance.

He added he believed the corporation’s reputation was also damaged by the long-running controversy over a planned development of Hamilton’s waterfront.

Mr Gosling highlighted the corporation’s financial problems as he explained the need for a new sewage tax to pay for essential upgrades to the city’s wastewater system.

Mr Gosling said: “The city is still recovering from the significant loss in revenue from parking along with costs associated with the $18 million guarantee and waterfront debacles.”

Under the Team Hamilton administration that preceded Mr Gosling, the Corporation agreed in 2014 to guarantee a bridging loan of $18 million by MIF to help developers Par-la-Ville Hotel and Residences Ltd build a hotel on the Par-la-Ville car park.

PLV defaulted on the loan later that year and MIF took the corporation to court, as guarantor, for the outstanding balance of $18 million plus interest.

Judge Stephen Hellman ruled in 2016 the corporation was not liable to repay the loan, but the case has continued to drag on through the courts.

Mr Gosling said: “Some of the cost awards behind our challenge on the $18 million guarantee are before the courts. Even if we are fully successful in our award, I would still expect the final number to be in seven figures.

“When the civil court cases are finished there will be a report on the matter as a whole.”

The waterfront development has attracted controversy since it was announced as “the dawn of a new Hamilton” five years ago.

The corporation granted a 262-year lease for the project to Michael MacLean’s Allied Development Partners Limited in 2013, but the deal was axed by the One Bermuda Alliance government the next year.

Mr MacLean later made a string of allegations of corruption against government ministers, which were denied.

Mr Gosling said: “The waterfront debacle did have some legal costs to it as there was a cost in preparing the agreements and leases as well as the corporation having to go to the courts to recover its files from the law firm involved.

“The main damage here was one of reputation and public perception of the corporation’s ability to manage its assets, let alone day-to-day operations.

“While there is a signed development agreement, there is no credible evidence of any council resolution authorising the corporation, its members or officers to enter into any development agreement or ground lease.

“All council and committee meeting procedures are now set in law, all recommendations requiring ministerial approval before becoming corporation resolutions.”

The corporation warned upgrades to the 100-year-old sewage system were crucial to avoid “catastrophic circumstances” for businesses, homes, hospital facilities, schools and homes served by the network.

All properties connected to the city’s sewage system, including those outside the city boundaries, will be required to pay the tax.

In the first year, billable sewerage taxes will be calculated at 20 cents per $100 of the property annual rental value.

The corporation has budgeted $750,000 this year for an engineering report. The cost of repairs, due to begin next year, is estimated at more than $10 million.

The corporation warned failure to upgrade the network would lead to “catastrophic circumstances with a partial to full breakdown of the City’s sewage system”.

It said: “The social, economic and environmental impacts of the worst-case scenario would be monumental — hundreds of thousands of gallons of sewage in Hamilton Harbour and the island’s shoreline and complete sewage system failure of business, residential, hotel, school and hospital facilities that connect to the City’s system.

“This being realised, the City of Hamilton has advised that this new sewerage tax is critical to ensure the viability of the City of Hamilton’s sewage system.”

UPDATE: this article has been amended from January 30 to provide fresh content. The comments thread will be opened for an additional three days