FRONT ROYAL — The Town Council at its meeting this week unanimously approved the allocation of $282,800 for its $15 million civil suit against the Front Royal-Warren County Economic Development Authority and associated auditing services.
To fund the litigation in which the town will seek reimbursement for money lost in the alleged embezzlement within the EDA and auditing services to support the case, the town is using money previously budgeted for debt service payments to the EDA.
Specific projects that the town will no longer pay for debt service include Success Farm, a Baugh Drive extension road, the Happy Creek Technology Park, the Stephens Industrial Park and Leach Run Parkway.
Town Councilman Jacob Meza explained that the $282,000 is not “new money that we’re tapping into,” but money that was already budgeted.
“I don’t want there to be a misperception that we’re looking for new revenues in order to be able to pay for this at this time,” he said.
Also at the meeting held Monday, the town unanimously voted to pay $492,284 to contractors that worked on the Front Royal Police Department’s headquarters. Meza noted this money is coming from funds budgeted for the headquarters’ construction.
The council approved this expenditure despite a request made from EDA Chairman Ed Daley to pay the total principal and interest due on the project, which is about $8.6 million.
In a letter to the Town Finance Director B.J. Wilson, Daley stated that the EDA would not pay any more invoices for the project until the town pays the $8.6 million that has already been spent.
While the town is supposed to pay the EDA back for the headquarters’ construction, a disagreement has arisen regarding what interest rate the town should pay.
Town Attorney Doug Napier explained over the phone Tuesday that the town believes the interest rate should be 1.5 percent. He said this is because former EDA Executive Director Jennifer McDonald represented to town officials that the project qualified for the New Markets Tax Credit Program and a low interest rate that comes with the program.
The project, however, never qualified for the program.
Napier said that the town is essentially freezing any payments owed to the EDA.
While that is the case, he said the town is paying the contractors because it is not fair for them to wait until litigation is complete to get paid.
He added that the EDA may soon go bankrupt, in which case the town may not get any of its money back.
EDA Board Member Greg Harold via email explained the difference between bankruptcy and insolvency.
“Bankruptcy is not a viable option as some county officials and now managers have publicly advocated. Such a move could very well jeopardize both the town and county’s finances if that were to occur,” he stated.
Harold added that a bankruptcy proceeding may take years “given the magnitude and intertwining of town, county, banking assets, and EDA equity.”
“A bankruptcy judge would determine the distribution of any assets based upon the relative credit position that any creditors lay claim. This would certainly not occur until all civil matters regarding asset reclamation has been exhausted,” he stated.
Based on numbers presented at an EDA meeting earlier this month, the authority will be insolvent in about four months if its current expenditures remain constant.
“We’re not trying to stiff the EDA, but we also don’t want to stiff the taxpayers,” Napier said. “So we’re saying that until the court makes a definitive ruling on what we owe the EDA, we think it’s prudent not to pay anything.”
EDA Executive Director Douglas Parsons said over the phone that the authority would love to work the issues out with the town outside of court, but it appears the matter will be settled via litigation.
Due to the pending litigation, Parsons said he “can’t say a whole lot.”
“But like anyone else, we would like to be reimbursed for what we’re owed,” he said.
Napier said the town “will pay every nickel” of what a judge says is owed to the EDA but “until we get a definite ruling, we’re just gonna sit tight.”