After receiving a more-detailed work session summary of financing options for construction of its now estimated $11-million police headquarters, as well as Phase 2 of the Happy Creek Road upgrades, the Front Royal Town Council appears torn over a final decision. That is because by gambling on a best-case or close to it scenario through the New Market Tax Credit Program (NMTC Program) offered through People, Inc. the Town could realize savings of as much as $5.5 million over a 30-year bond issue.
However, there’s a reason they call it gambling – and that reason is why Town Manager Joe Waltz and Town Finance Director B.J. Wilson both recommended a more stable 30-year fixed-term loan now being offered outside the tax credit program at a set interest rate of 2.65 percent. And while two councilmen – Vice Mayor Eugene Tewalt and Gary Gillespie – were ready to commit to the safer path at a total 30-year debt service cost of $16.08 million for the FRPD project alone ($24.41 million coupled with financing of a second capital improvement project, the $5.5-million Happy Creek Road Phase 2 Project), others were not yet ready to hedge their “bets”.
And that bet is, first, that the New Market Tax Credit Program will be around through the initial interest-only ($247,500 annual) nine-year payment period. The second part of the bet is that the 2.65-percent interest rate, or close to it, on the balance will be available in 2027 when the full debt service on the remaining 70 percent of the FRPD balance is coupled with the debt service on the cost of the Happy Creek road improvements project.
The coupling of the FRPD and Happy Creek Phase 2 capital improvement project base costs is an assumption in all five financing scenarios presented to council. Due to that coupling of financing the two CIP’s, the base construction cost upon which all five financing scenarios are calculated is $16.5 million ($11 million FRPD, $5.5 million HC Road).
However, the potential range of 30-year debt services on that two-project cost vary from the best-case NMTC Scenario A at $19,115,400 (at 2.65% interest); to a worst-case NMTC Scenario D total of $26,464,890, the latter calculated at a 5.65-percent interest rate. All tax credit program estimates are based on guesses of interest rates available in 2027 after the NMTC Program interest-only payment period ends.
The total non-gambling, 30-year fixed rate debt service currently being offered is $24,415,550. And while that total is lower ONLY than the worst-case NMTC Program Scenario D – scenarios B and C totals are $21,422,880 and $23,876,580, respectively – according to the town finance director those tax credit projections are only guesstimates. As for the actual interest rates available after the cost-friendly nine-year tax credit interest-only payments end, “They could be better or they could be way-way worse,” Town Finance Director Wilson told Royal Examiner.
Then there is the variable of whether the NMTC Program will continue to exist through those first nine years. The New Market Tax Credit Program is a federal stimulus program dating to the year 2000, late in the Clinton Administration, though it was first implemented in 2001-2002, in the first year of the George W. Bush Administration. It was designed to provide government-assisted investment in struggling local economies. From 2001 to 2016 the program invested $50.5 billion to that end. It is administered through the Community Development Financial Institutions (CDFI) of the U.S. Department of the Treasury. The program is administered regionally through People Inc.
Town Manager Waltz explained the hope was to have a People, Inc. representative present for the December 4 work session discussion. However, he explained that Economic Development Authority Executive Director Jennifer McDonald had not only not been able to schedule a People, Inc. person for December 4, but had not been able to reach a representative to schedule another date. At the work session discussion’s conclusion, the town manager was instructed by Mayor Tharpe to work with the EDA to give another shot at bringing a People, Inc. representative to a future work session. Council’s next work sessions are slated for January 2 and 15.
But if the mayor and a majority of council weren’t ready to hedge their bets on the NMTC Program gamble, that reluctance was based on the numbers – kind of like the $200-million lottery pots that pop up now and then.
For starters there is the low nine-year interest-only payment on both major CIP projects ($247,500 annually in all NMTC scenarios) followed by $562,930 annual payments from 2027 through 2056 in Scenario A ($19,115,400 total cost); $639,846 annually in “B” ($21,422,880); $721,636 in “C’ ($23,876,580); and $807,913 in “D” ($26,464,890).
Those “guesstimate” numbers stack up against guaranteed numbers, including an annual fixed rate annual debt service of $804,185 paid from 2021 to 2050, after a first-year $268,063 payment in 2018 and payments of $681,125 in 2019 and 2020; again totaling $24,415,550 over the 30-year debt service on the $16,500,000 project costs of the police headquarters and Happy Creek Road Phase 2 projects.
You know – if the police could just work out of their homes – AND we gambled on the advent of the flying cars we’ve been promised since the 1950’s, ALL those costs could just vanish in the wind … couldn’t they?