Council considers debt options for police home
FRONT ROYAL – Regardless of how the town plans to finance the Police Department’s new home, taxpayers can expect to cover the cost for the next 30 years.
The Town Council continued its discussion Monday over whether or not to use a program that would allow Front Royal to cover just the loan interest for the first seven years or to opt for more traditional financing. The council had asked for comparisons between the program and a fixed-term loan the town would pay off in 30 years. A few members said at the work session they didn’t like the uncertainty inherent with the new financing program but also wanted more information before making a decision.
The town plans to build a new facility for the Police Department on Kendrick Lane and Monroe Avenue near the former Avtex Fibers site. The estimated construction cost of $10.21 million does not include the total price after the town pays interest on any debt it incurs to build the project. The town ultimately would pay $16.08 million if it receives a 30-year loan with an interest rate of 2.65 percent.
The Front Royal-Warren County Economic Development Authority and nonprofit organization People Inc. offered to include the town in the New Market Tax Credit program expected to provide some benefit with the loan repayments. The council had expected a representative with People Inc. to provide more information about the program at the work session. No one from the organization showed up for the meeting and town officials say they hadn’t heard back from its representatives to reschedule an appearance. EDA Executive Director Jennifer McDonald also did not attend the meeting.
Finance Director B.J. Wilson provided council with information and funding scenarios about the New Market Tax Credit program as well as the option of taking out a 30-year, fixed-term loan. The town could take a 30-year, fixed-term loan at an interest rate of 2.65 percent.
The New Market Tax Credit program calls for the town to pay only the interest on the loan for seven years after the project’s completion. The town would need to refinance the remaining balance of the loan at the end of the seven years, and it would benefit if it can obtain a 30 percent credit from the program and the fixed-term interest rate remains under 4.8 percent for 30 years. However, as several council members and Wilson noted, no one can predict the interest rate in seven years or the program’s future.
Scenarios Wilson presented to council assume construction price tags of $11 million for the Police Department headquarters and $5.5 million for the building of the second phase of improvements for Happy Creek Road. Scenarios assume the town can obtain a 30-year term when it refinances the remaining debt from the New Market Tax Credit program. The scenarios also include interest-only payments on the $16.5 million. The town would refinance the debt of $11.55 million or 70 percent of the original $16.5 million once the program ends.
The town would need to increase the real estate tax levy by 0.025 cents per $100 of assessed value to cover the total expense of $24.41 million if Front Royal receives a 30-year, fixed-term rate at 2.65 percent.