The beginning of the end of hostile litigation? Town announces $8.4 million loan agreement on police station

The October 5^th, Monday evening Front Royal Town Council work session was sandwiched by two closed sessions. A hint that something of import might come from the first of those was that the 7 p.m. closed meeting was called as part of a Special Meeting preceding the evening’s scheduled seven-item work session. That meant that official action could be taken at the Special Meeting following the adjournment of the closed session.

And BINGO, it was.

At the end of the hall to the right, after 9 minutes behind closed doors, Matt Tederick waves media and others back into the meeting room for some big news, and eventually a prediction of an end to Town-EDA litigation. Royal Examiner Photos by Roger Bianchini – Royal Examiner Video by Mark Williams

Following a brief nine minutes behind closed doors, on a motion by Chris Holloway, seconded by Letasha Thompson, by a roll call vote, council unanimously approved an $8.48 million loan – $8,483,001.15 to be exact – with United Bank to take over financing the debt service on its new town police headquarters construction completed in the fall of 2018 under Town-County Economic Development Authority financing.

The loan’s “PURPOSE” as stated in the United Bank summary of the loan made available to the media is: “To refinance the debt obligation evidenced by that certain Promissory Note dated October 31, 2018 … made by the Industrial Development Authority of the Town of Front Royal and the County of Warren, Virginia, payable to the order of United Bank” on the FRPD police headquarters 5.24 acres at Monroe Avenue and Kendrick Lane.

The town police will be glad to be out of the crosshairs of Town-EDA sparring over the financing of its new headquarters.

Well, hallelujah and stop passing the (verbal) ammunition – could this event portend an Armistice in the recently escalating litigious and verbal jousting hostilities referenced in our story “Light agenda or groundwork for a community legal-economic EXPLOSION?” among others?!?

It would certainly seem so, as the EDA and County reached a point where they said as of October, they would no longer cover what they believed was the Town’s moral obligation to pick up the debt service on its new police headquarters after almost two years. From information received earlier from the EDA on billing schedules, it appeared the EDA United Bank loan on the FRPD project was poised to go into default around October 10^th. It would not have been a pretty day for the financial future of this community from any governmental perspective.

As pointed out by Vice-Mayor William Sealock, the new loan payments include the October payment about to come due. As previously reported, the EDA has been making approximately $21,000 interest-only monthly payments on its loan that was to go to principal and interest payments of about $50,000 on November 1^st. That interest rate at the root of much of the dispute between the Town on one side, and the EDA and County over the Town’s previous refusal to assume its police headquarters debt service, was 3%, negotiated down from an original rate of 4%.

The interest rate on the 10-year Town loan was announced at 1.87% with Bank Qualified Tax-Exempt (BQTE) financing. At any time the loan does not qualify for BQTE financing, the interest rate will adjust upward to 2.24%. Town officials have cited saving of over a million dollars with the newly acquired interest rate.

Monthly interest and principal payments of $30,806.23 totaling annual payments of $369,674.79 (based on a 30-year amortization) were cited, with the balance on loan coming due at the end of the 10-year period. Some quick calculating indicated a remaining balance of $4,786,253.25 after 10 years, perhaps indicating the possibility of some future refinancing negotiations.

Maybe we won’t need that second EDA?

Absent from the bank summary of details of the loan handed out by Interim Town Manager Matt Tederick was the approximate $500,000 the EDA, with some recent County assistance, has already paid on the interest on its FRPD construction project loan. However, following approval of the financing package, council members were unanimous in expressing hope that this will be a step toward resolving issues between the Town and EDA, including the Town’s litigation against the EDA. The Town has filed a $20-million-plus civil suit seeking recovery of nearly all the $21.3 million the EDA is seeking to recover from the original group of defendants in its civil litigation against former EDA Executive Director Jennifer McDonald and believed co-conspirators in her alleged embezzlements and misdirection of EDA assets belonging in some part to the Town and County.

Council started its night off with a BANG, approving a United Bank loan to take over FRPD construction financing this month, in a nick of time as the County and EDA were stopping FRPD loan payments in October.

During a brief recess between Monday’s work session adjournment and council’s second closed session to discuss the status of its permanent town manager search, we asked the interim town manager, who was not staying for that second closed meeting, about the status of that $500,000 in interest paid by the EDA. The town has contended the EDA bank loan taken at a higher than 1.5% interest rate verbally promised by former EDA Executive Director McDonald was “fraudulent” in that council never approved an interest rate higher than 1.5%.

Does the Town loan purposefully leave that half-million dollar hanging to be used as collateral in coming negotiations? We asked Tederick.

“It does. I think the rationale is, it’s clear that the EDA owes the Town money. The next step is tomorrow; literally tomorrow, our attorney is going to contact the EDA attorney and say let’s start having discussions on reconciling what we owe you or you owe us,” Tederick replied. “You’ve got to keep in mind the EDA’s been two years without an audit – no audit in two years. And when they give us an invoice with no supporting documents … We believe in the one-and-a-half-percent loan. The council’s been hard on the New Market Tax Credit loan, and that’s been their position … So, we’ve got to reconcile it.

“I wouldn’t be surprised within 45 days we have it reconciled,” Tederick said of the path forward.

The view from the EDA office complex toward FRPD headquarters across Kendrick Ln. at Monroe Ave. It has seemed so near and yet so far away like a resolution to its financing. But could that all be about to change, with Election Day looming?

See the motion, vote, and discussion of the Town’s newly secured FRPD loan and work session discussion, including about the Valley Health-Anthem Insurance impasse; Rounds 1 and 2 of the Town’s CARES Act distribution and reimbursement; the coming Town-County Liaison Committee agenda for October 22; how Fiscal Year-2021 revenues and contingency funds are developing through the year; an EDA rezoning request near the Happy Creek Technology Park; and two coming Board of Architectural Review terms expiring in November, in this Royal Examiner video: