FRONT ROYAL – While Front Royal-Warren County Economic Development Authority officials are happy that the Town Council has come to the table for negotiations on construction loan payments for the police headquarters, they are not satisfied with the town’s initial offer.
The Town Council on June 30 approved a reservations of rights agreement in which the town would make a one-time $10,528 payment on the loan’s interest. That payment represents a 1.5% interest rate while the EDA has been making monthly $21,102 payments on the loan’s 3% interest rate.
The EDA obtained the loan on the town's behalf with intentions of being reimbursed any debt service payments. The interest rate, however, is a subject of ongoing litigation between the EDA and town, with town officials claiming that the authority’s former Executive Director Jennifer McDonald claimed the project qualified for the New Markets Tax Credit Program and an associated low-interest rate.
That program provides private investors with tax breaks for investing in low-income areas. The police headquarters, however, never qualified for the program and the 1.5% interest rate was never obtained.
Due to the dispute, the town has not yet made any payments on the headquarters.
The town’s reservation of rights agreement states that the payment would not represent any “moral or legal obligation” to pay the loan and that it would be inadmissible in court “for any purpose except by the Town to recover this payment as damages.”
The town’s offer – which has not been accepted by the Board of Supervisors or the EDA – came after negotiations between two council members and two supervisors. The EDA was not involved in those negotiations, according to authority board member Greg Harold.
Harold explained via telephone that although the EDA relies on the county for funding, the authority still has a board of directors and “I was a little taken aback that there were negotiations happening without consultation of at least a handful of [EDA] Executive Committee members at the minimum.”
“'A' for effort, you know, but we’re an organization that’s developing processes and procedures and if the Board of Supervisors is negotiating on our behalf for something that is going to impact our operational ability, we certainly need to be at that table,” Harold said.
EDA Executive Director Douglas Parsons said he is “very encouraged” that discussions have begun and will continue. Regarding the town’s initial offer, however, he said “I don’t know that we can accept that as presented.”
“It’s a fine initial step. I think there will be more ongoing negotiations. I hope they bear fruit, I really do. I just don’t think that this needs to drag out in the court,” he said.
Parsons added that he is "encouraged by the fact that people on both sides are talking about our issues and working to find common ground and, hopefully, solutions."
EDA Vice Chairman Jeff Browne said via telephone that hopefully the town will come around to paying the full interest payment “and then we can move forward with discussions.”
“Paying half of the amount due doesn’t get you far when the county, rightly so, says ‘hey, it’s not our problem,’…and the EDA is not sitting with the funds to be able to service it. There really is only one outcome that makes any sense,” he said.
Referring to the town’s approved reservation of rights agreements, Browne said that “all they have to do, rather than writing a manifesto each time, is to put on the check ‘reserve all rights.’”
“It’s a logical thing to do to keep from needlessly going into default,” he said.
Harold noted on Thursday that the EDA has not discussed the matter as a board and the offer is being reviewed by the authority’s lawyer.
“From the EDA’s perspective, it has not been collectively discussed as a matter under consideration at this point in time. That’s not to say it won’t be taken up as an agenda item at the end of this month. But right now, there has not been any chatter about it amongst the members,” he said.
Harold said he commends the Town Council for their “good faith efforts” but “it falls short of any level of expectations that myself as a board member would expect of the Town Council at this point in time or any point in the future.”
Through the end of June, Parsons explained that the total principal and interest balance on the police headquarters is $8.9 million. To date, he said the EDA has made interest-only payments totaling $480,000. The $8.4 million principal balance is not being disputed by any party.
According to previous reports, the bank will begin collecting on the principal balance come Nov. 1, which will require monthly payments of $50,000.
Meanwhile, Parsons explained that the EDA is running out of money quickly and he expects the authority to be insolvent and require further county assistance by the month’s end.
Parsons also noted that the town owes the EDA $172,543 for debt service payments on projects including Leach Run Parkway, the Happy Creek Technology Park, the Stephens Industrial Park, the West Main Street extension and Baugh Drive.
To be fair, Parsons noted that the EDA has not yet billed the town on some of those invoices.
Supervisor Delores Oates said on Wednesday that negotiations between supervisors and council members continue but she did not respond to a request for further comments on Friday. Supervisors Chairman Walter Mabe and Vice Chairman Cheryl Cullers also could not be reached for comments.