FRONT ROYAL – Figures that County Administrator Doug Stanley presented during a Tuesday budget work session gave a clearer picture of how the alleged embezzlement within the Front Royal-Warren County Economic Development Authority affects the county budget.
Stanley’s proposed budget includes between about $1.5 million and $2 million in EDA-related expenses.
Supervisors Chairman Walt Mabe said over the phone “that’s a big chunk” and the EDA “has affected everything.”
“If everything was clean and clear, yeah, we would probably have an extra $2 million,” he said.
This comes as the county faces an $865,222 shortfall.
To cover that shortfall without raising taxes, Stanley presented a series of proposed budget cuts.
The largest cut is $205,535 in savings that would come from closing the county-operated golf course at the Front Royal Country Club.
The second-largest cut was found in providing the EDA $258,583 in operating funds compared to the $378,770 the EDA requested.
Last year, the EDA — which is nearing insolvency — received $108,234 in operating funds from the county and $54,117 in 2018.
Stanley said over the phone that the county is working to figure out what the EDA’s true operating budget should be, as past figures may not have truly represented what was needed. EDA Executive Director Douglas Parsons said over the phone that “there was cash moving in and out of the organization that was used for operating, whether it should have been or not.”
“Since we’re not using money from dubious activities or so forth to pad our operating and we’re putting money from property sales toward reducing the taxpayers’ debt then yeah, we do need a little more for operating because I think it’s a more true representation of what our organization needs for operating funds minus all of the shenanigans,” he said.
The $258,583 in operating funds does not include the EDA’s debt service, which Stanley said depending on a variety of factors could range from $1.3 million to $1.8 million.
Stanley’s proposed budget includes $210,000 in new debt service payments the county would assume for the EDA in addition to the $300,000 in debt service payments the county already makes to the EDA.
Stanley said using the county’s fund balance would be one possible way to cover the rest of the EDA’s debt service, which could range from about $790,000 to $1.3 million.
He noted that the EDA’s debt service totals could decrease, as the authority is working to sell its properties. He added that he must assume this will not happen in his proposed budget.
Meanwhile, the county is paying the Sands Anderson law firm to pursue a civil lawsuit for the EDA that alleges $21.3 million of embezzlement and questionable dealings within the authority.
Supervisors Clerk Emily Mounce stated in an email that the county paid the law firm $1,522,943 from February 2019 through last month. Stanley noted over the phone that the county has recouped $275,000 through a crime and theft insurance policy, meaning the county has paid $1,247,943 for the EDA’s lawsuit. That money is not part of the upcoming budget as it has already been spent, he said.
Any payments to the law firm after June 30, however, would come out of the upcoming fiscal year’s budget.
Mabe noted that the county could recover more money if there are any convictions in criminal cases related to the alleged embezzlement.
The county also already paid $486,000 for a forensic audit of the EDA’s finances, which was the basis of the civil suit. The total costs of the lawsuit and audit stand at $1,733,943.
Stanley noted that it remains to be seen what the EDA will recoup in its lawsuit.
“What I don’t know is what we’re gonna get back…What will EDA recoup in the next 15 months dollar-wise? What’s the net cost gonna be? Because anything that they recoup is supposed to come back to us to help pay,” Stanley said.
Stanley noted that his proposal does not include the county covering debt service for the Front Royal Police Department’s $8.4 million new headquarters, which the EDA has been paying.
The town, which was originally supposed to take over the debt payments, has not paid and instead filed a $20.2 million civil lawsuit against the EDA for alleged monetary losses.
“I don’t feel it’s the county’s responsibility to pay the town’s debt,” Stanley said.
Supervisor Delores Oates noted that if the county does not take over the police headquarters’ debt service, nobody would be paying for the building. She asked what would happen if payments for the police headquarters ceased, a question Stanley deferred to the absent County Attorney Jason Hamm.
“That’s probably a whole lot longer conversation than we can have today,” Oates said.
She added that “the word ‘default’ is not in my vocabulary” and “somebody has to honor that commitment.”
Parsons noted that if the EDA quits paying for the police department, the bank’s “main remedies are coming after the EDA.”
To cover the shortfall, Stanley also proposed that the county use $425,000 from its fund balance to fund a series of projects.
The shortfall does not include Warren County Public Schools’ request for a $267,200 increase in local funding. School representatives presented their proposed budget to the supervisors during the work session, saying they need increased funding for items including salary raises, new buses, textbooks and more.
Mabe said over the phone that the supervisors will give the schools “as much money as we can give them and I won’t guarantee that we will give them every dime that they’re asking for.”
“We will do the best job for the county that we can,” Mabe said.