FRONT ROYAL – Following a 17-day end-of-the-year break from public meetings, Front Royal’s Town Council got back to the business of municipal government at a January 2 work session. The first agenda item was a revisiting of financing options for the $11-million new Front Royal Police Headquarters.
After that, council:
• moved proposed proffer changes on the Front Royal Limited Partnership (FRLP) development of as many as 320 residential units on 149 acres of FRLP property on the town’s eastside to a public hearing;
• found out it is still committed to building a wastewater pumping station to service initial commercial development, including first client IT Federal, at the 149 acre Royal Phoenix Business Park;
• got an overview of budget items proposed to be cut in Fiscal Year 2019 in order to produce as close to a balanced budget without further tax increases as possible. – Council has already committed to an undetermined tax increase to initial funding, whatever it ends up being, of construction of the new police headquarters;
• and added liaison committee discussion with the County on how to approach the coming law moving inspection and all other window stickers away from the center of auto windshields.
But back to that first agenda item of 2018 – following a 55-minute presentation on the in and outs of the New Market Tax Credit program that offers up-front savings, if no long-term guarantees those savings will last over a 30-to-40-year payback period, it appeared a distinct council majority is IN – well almost, with a few more numbers verified on those potential savings.
As previously reported by Royal Examiner, following a December 4 work session see story those potential tax credit savings range from a best case scenario of $5.5 million and about $240,000 in annual debt service over much of the payback period to a loss of about $2-million in total costs and about $4,000 more in annual payments in the worst case NMTC scenario presented by town staff.
However, as noted in our earlier story the staff cost estimates in the NMTC program are based on guesstimates of what interest rates will be in seven to nine years when the tax credit program interest-only payment period ends. As Town Finance Director B. J. Wilson told us last month, the actual rates “could be better or they could be way-way worse.”
In fact, during his presentation People Inc. Vice President for Development Bryan Phipps told council that the 2.65-percent fixed rate option being offered to the Town as an alternative to the New Market Tax Credit Program People Inc. administers “looks pretty good to me,” adding, “To be the devil’s advocate, if you have 2.65% fixed for 30 years that might be the way to go. – I want to be as honest as I can with you.”
Pressed for a risk versus reward assessment of the options before the Town, Phipps said, “My advice – do you really need it (New Market Tax Credits) to get this project done?”
During his opening remarks Phipps recounted the creation of the New Market Tax Credit program as assistance to “low-income communities” to realize needed capital improvement projects. Of his seven years administering the federal tax assistance program, Phipps joked, “During that time I’ve lost a lot of brain cells – it is a fairly complicated federal tax program.”
As explained in our coverage of the December work session discussion, 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. It is administered through the Community Development Financial Institutions (CDFI) of the U.S. Department of the Treasury.
Between 2001 to 2016 the program invested $50.5 billion in struggling local economies. However, Phipps told council that at this point in time, regional administrator People Inc. had $11.4-million available to invest.
Eugene Tewalt, Council’s primary advocate of taking the guaranteed, fixed rate option, remained skeptical of the risks involved. “In two months all or part of that ($11.4 million) could be gone,” he said. Phipps agreed.
As discussed on December 4, the question of whether the tax credit program will continue to exist by the time the seven-to-nine-year interest-only repayment period ends continues to be an unknown. Asked what he thought about the program’s long-term prospects, Phipps replied said while there were no guarantees, he thought it likely it would survive – he theorized a greater danger was the competition for the remaining money in People Inc’s. hands.
That information in hand, Council seemed committed to a financing decision for construction of the police headquarters on a fast track of four to six weeks. That is probably a good thing, since as Mayor Hollis Tharpe pointed out bills on early stages of that construction are poised to start coming in imminently. At the December 4 work session, Town administrative and finance staff recommended the more stable fixed, 30-year 2.65% interest rate option.
And despite Phipps confidence in both the short and long-term survival of the New Market Tax Credit Program, as Royal Examiner reported in coverage of potential economic consequences of the recently-passed Republican tax reform bill, like Private Activity Bonds, New Market Tax Credits were negotiated saves in the final version of the approved tax bill. And there were no details on how those multi-billion dollar federal programs will be funded in the face of an estimated $1.5 trillion in lost federal revenue from the tax bill.
Watch the Town Council at work.