Deciphering the finances of the FRPD headquarters project

Artist’s rendering of main entrance of the planned new FRPD headquarters. Other images presented at earlier work sessions are shown below. Photos/Roger Bianchini

As promised in our story on the debate over costs and financing of a new Front Royal Police headquarters, click here to read the previous story we sought and pinned down accurate numbers on the tax implications of funding that project.

First, Town of Front Royal Finance Director B.J. Wilson verified the impact on annual bond payments of the presence or absence of the much-discussed “New Market Tax Credits”.  As stated at the September 25 town council work session, that difference is an estimated $225,000 – the difference between annual payments of $525,000 and $750,000.  If this reporter’s “calculating” is accurate, over the 20-year span of the planned bond issue the total costs would be $10,500,000 (at $525,000 per year with the tax credits) and $15,000,000 (at $750,000 per year without them).

Wilson then attempted to explain to yours truly exactly how the state capital improvements tax credit program administered through the Economic Development Authority for both the Town and County, impacts project payments.  As we understand it, with the FRPD project qualifying for the tax credits the Town would pay “interest only” for seven years; then make payments on 30-percent of the amount borrowed for the remaining term of the loan.  The currently estimated FRPD headquarters project cost is $10,327,257 (and 88 cents) – up from estimates of $7-million to $9-million over the past year.

Tax rate, revenues

The Town’s current real estate tax rate is 13 cents per $100 of assessed value.  As to the tax implications – cited variously at 3 cents; 3 to 5 cents; and as much as 13 cents at the late September work session – Wilson said the current plan is to raise the Town real estate tax a total of 2.8 cents by 2024.

That will be accomplished by a half-cent (.05-cents) per year increase over a five-year period from 2019 to 2023.  A final one-third cent increase (.033) would be added in 2024.  With each penny of town real estate tax currently generating $105,000 of revenue, our abacus tells us that 2.8-cent tax increase will generate $294,000 annually once it is fully implemented.

The balance of annual debt service payments is anticipated to be covered by previous real estate tax hikes committed to the police headquarters project.  Those include one-third of a 2-cent increase committed to three capital improvement projects in 2014 (about .66-cents to each); a 1-cent increase in 2015; and a half-cent increase implemented in the current budget year.

So (and I’m “figuring” with my shoes and socks off now, kids), adding those previous allocations totaling 2.16-cents to the future increase of 2.8 cents in place as of 2024, a total of just under 5-cents (4.96) in real estate tax revenue has been committed to achieve funding of the new FRPD headquarters.

At the current revenue rate of $105,000 per penny of real estate tax – and I’m going to round that 4.96 cents up to 5 cents – that generates $525,000 of annual revenue to payment of the 20-year bond issue for the project.  Any shortfalls due to loss of the New Market Tax Credit Program or other variables would have to be dealt with by council as they arose – likely with either General Fund transfers or another tax hike.

So in the end it appears the Town will raise its real estate tax a total of about 38 percent to fund a new police headquarters designed to serve the department’s needs without further expansion 25 years into the future.  One would hope enough land off Kendrick Lane, across from the Avtex/Royal Phoenix Business Park site has been purchased to facilitate future expansion on site when the time comes.

A vote on approval of the New Market Tax Credit application and proceeding with the project at the $10,327,258 cost estimate is scheduled for the coming Tuesday, October 10 council meeting.