FRONT ROYAL – At a Tuesday, January 16, work session Front Royal Public Works staff explained what happened to the Town’s plan to move to single-stream (unseparated) recycling, then analyzed the cost, pros and cons of maintaining its residential trash collection service.
Fueled by staff analysis that contracting out trash collection to a private, for-profit business would cost the Town and its taxpayers an additional $635,000 annually, the verbal unanimous consensus to maintain the Town’s Solid Waste Department trash collection services appeared to be a no-brainer.
“I think we have a bargain … and should stay with what we have been doing,” Mayor Hollis Tharpe said following a power point presentation by Public Services Manager Robert Boyer under the watchful eye of Environmental Services Director Jimmy Hannigan. Eventually, all six councilmen agreed.
As for the plan to move from separated to non-separated, single-stream recycling that seemed on the horizon early last fall, a failure to get a single bid on two Requests For Proposals (RFP’s) the Town issued, explains why town residents are still asked to separate their recycling. That is not likely to change any time soon.
Sans bids, town staff met with the sales manager of Manassas-based American Disposal to discuss single-stream recycling. They were informed the company wasn’t accepting new clients and was in the process of raising prices for existing customers to cover an estimated monthly loss of $400,000 to $500,000 at their facility.
Solid waste variables
The bargain on maintaining residential trash collection that the mayor referenced included an estimate that if outsourced, base residential trash collection costs would rise from the current level of $14.10 a month by about 70% to $23.99.
However, council’s decision to maintain residential trash collection didn’t come before a detailed examination of the numbers presented in support of the staff recommendation to maintain that service. Jacob Meza led that examination, questioning costs in both past town budgets and in a staff analysis of trash collection options presented at a work session last May.
Pointing to an apparent gap of only $190,000 between a past solid waste budget ($982,000) and projected annual outsourcing costs of $1,171,402, Boyer pointed out the outsourcing number Meza was looking at did not include $411,033 in annual tipping fees the Town would be charged. In fact, those tipping fees counted for $6.59 of the $9.89 increase in estimated monthly costs to customers.
Boyer also pointed out that council approved $240,000 for the purchase of a new trash collection truck in last year’s budget. Dropping the service, the Town would be stuck with that purchase and nothing to do with the truck other than figuring out how much of a loss it would take on an attempt to unload (pun intended) it.
As for the projected need to purchase additional replacement trash trucks and recycling trailers ($45,000 to $50,000 each for the latter) at some future point, Town Manager Joe Waltz said the new truck would be paid for by the time the next truck needed to be purchased. Waltz added that staff could guarantee that residential trash collection rates could be kept stable for the next three years. The staff power point also stated that the Town would continue to realize a $20,000 annual profit on traditional recycling collection in house.
Asked what staff wanted from council Tuesday night, Waltz responded a decision on the future direction of the town trash and recycling collection service. That decision was being sought to assure solid waste staff they would continue to have jobs in the coming year or years. Boyer’s power point presentation noted that as of January 2017 several solid waste collection staff positions had been lost in the wake of the fact council was considering outsourcing the service became known. While all but two of those lost positions have since been filled, the department will continue to wrestle with staff turnover without a guarantee the department would be kept.
With staff numbers on relative costs and service advantages explained, council concurred with both staff and the mayor’s position that in-house trash and recycling collection services are in the best interest of the town and its citizens.
No ITFederal at Royal Phoenix, no need for infrastructure either?
How the Town of Front Royal should react to the news of an abrupt change of plans at the Royal Phoenix Business Park site – news town officials apparently learned about from media reports published March 14, including Royal Examiner Editor Norma Jean Shaw’s “Update: Tran says ITFederal is not opening and is an EB-5 Visa Project” and Josh Gully’s (Northern Virginia Daily) “$500,000-plus spent on dead police academy” – were a heated topic of discussion at the Monday, March 18 Front Royal Town Council work session.
Citing “newspaper articles” about ITFederal principal Truc “Curt” Tran’s decision not to relocate his Northern Virginia-based tech solutions company to the 30-acre Royal Phoenix Business Park property gifted to him in 2015 by the Front Royal-Warren County Economic Development Authority for one dollar, Councilman Jacob Meza questioned the Town’s financial commitment to infrastructure development at the Royal Phoenix site.
That commitment is currently two-fold: 1/ to build a wastewater treatment pumping station designed to serve an estimated seven commercial pads and as many as 4,200 people on site at a cost estimated at $400,000 in 2017; and 2/ phase one of the West Main Street connector road designed to eventually serve as the main access through the 147-acre business park property. Phase One of the western connector road project through the 30-acre ITFederal parcel from Kendrick Lane has been estimated at a cost of $1.3 million, with a $650,000 VDOT match and a $150,000 commitment from Tran in exchange for not having to build an individual wastewater pumping system for his project.
How Tran’s decision not to relocate his company here, but rather attempt to sublet the 10,000 square-foot building under construction on site, will impact his financial commitments to the property remains to be seen.
But with the first commercial development project at the Royal Phoenix site in flux, Councilman Meza asked if the Town’s planned infrastructure investment at Royal Phoenix might not be put to better use elsewhere, most specifically in funding the growing debt service projections on construction of the new $10-million Front Royal Police headquarters across Kendrick Lane from the Royal Phoenix site.
As one of council’s strongest proponents last year of rejecting a locked-in 2.65% bank-secured 30-year interest rate bond issue in favor of a promised nine-year period of interest-free paybacks on a long-term loan through the New Market Tax Credit program to fund the police station, Meza has been somewhat defensive about those climbing police headquarters debt service projections during recent work sessions – “No one ever said it was going to be built for free,” Meza volunteered at a March 4 work session.
Following the revelation the EDA had not secured a $24-million capital improvement projects loan through the NMTC program as council believed had been accomplished, construction costs are currently being met through an EDA line of credit. However, those costs on the $10-million project will eventually have to be paid back at what have been steadily-climbing interest rates that are currently in the 4.5% range over a 30-year payback – numbers Meza cited on Monday resulting in the need to cover an annual debt service in the $600,000 range. When council thought the NMTC option was available initial annual debt service payments of $240,000 were cited, compared to the fixed 2.65% rate’s 30-year term annual debt service of about $342,000.
Meza suggested council move the Royal Phoenix infrastructure funding into the police station debt service payback as a means of avoiding raising taxes to cover at least a portion of that rising annual debt service number.
However, Mayor Hollis Tharpe countered that the infrastructure is not being constructed solely for ITFederal, but to facilitate the recruitment of additional commercial clients to the site. The mayor pointed out that the Royal Phoenix property was the town’s primary hope for expanded commercial development and increased commercial tax revenue for the future. And the plan at this point is still to attract a commercial client into the first Tran-constructed building on site.
Tharpe also pointed out that the West Main Street connector road was planned to, not only service the entire Royal Phoenix site, but serve as a long-sought western bypass to take north-south thru traffic off residential streets in mid-town Front Royal.
See council’s debate over the importance of a continued financial commitment to commercial redevelopment at the former Avtex Superfund site versus preventing tax hikes to cover rising debt service costs on this linked Royal Examiner video.
Follow the money: EDA-ITFederal financial roadmap tricky to navigate
FRONT ROYAL – Nearly four years ago, on June 12, 2015 former Congressman Bob Goodlatte (R-VA) announced an economic development agreement that would bring ITFederal, LLC to Front Royal. In a press release from the Sixth District congressman’s office, Goodlatte said, “I am happy to have supported the efforts leading up to this announcement and commend Front Royal and Warren County officials for their hard work to ensure it came to fruition.”
Goodlatte’s release further stated that details of the land purchase agreement were being “worked out between the EDA and ITFederal” and indicated that details were likely to be finalized the following week.
What Goodlatte’s office never released—what no office ever released—was details of the sweetheart deal in which ITFederal owner Truc “Curt” Tran payed just one dollar for a 30.11-acre tract of land. In fact, no one knew just how great a deal Tran had scored on the property until Royal Examiner broke the story Nov. 1, 2016. See Related Story:
On Oct. 26, 2015, Goodlatte showed up to join local dignitaries and shovel some dirt at the official groundbreaking for ITFederal at the former Superfund site where Tran’s company was slated to begin building shortly thereafter. Little did the community realize no other shovels would touch the soil on the project until over two years had passed.
Three months after Tran closed the deal on the former Avtex Fibers site, the Front Royal-Warren County EDA went to extraordinary lengths to ensure that he would have plenty of cash to begin building what he pledged at the time would be a complex featuring 67,000 square feet of mixed-use office space, retail space and a cloud data center. The project, according to Goodlatte’s press release of June 12, 2015 would “create over 600 high paying jobs for the community.”
On Sept. 14, 2015, after being told by the EDA that Truc Tran needed a $10 million bridge loan “to start construction” on the $40 million project, the Town of Front Royal agreed to loan the money for one month. The loan was eventually extended to three months and paid back by the EDA after it obtained a loan from another entity. Though Tran had money in hand, construction did not begin until over two years later, in Dec. 2017. Disbursement Authorization
Just two days later, on Sept. 16, 2015, the EDA used the money loaned by the Town of Front Royal to structure a loan to Tran at 3% interest, amortized over 30 years, with a possible rate adjustment every seven years. The loan agreement required monthly payments of $42,160 and payment in full by Sept. 16, 2045. After the initial seven-year period, a total of approximately $8,440,000 will remain on the principal balance. Attachment to Note
In December of 2015, the EDA managed to secure a $10 million loan from First Bank & Trust of Lebanon, Va. through its Winchester commercial loan office (not to be confused with First Bank of Strasburg, Va.). The loan was secured to “provide funding for economic incentive for ITFederal, LLC,” according to loan documents.
The loan has an interest rate of 4.35%, with the balance due after seven years. The required monthly payment was $40,000. Moreover, the EDA secured the loan with a Deed of Trust on the remaining 117 acres of land at the former Avtex site.
Additionally, it was secured by a Promissory Note that was endorsed to First Bank & Trust by the EDA. After seven years, the Principal balance due will be approximately $9,672,000. Loan Agreement
It appears that the EDA is losing money each month on the loan to Tran:
|Principal Amount||$ 10,000,000.00||$ 10,000,000.00|
|Annual Interest if no repayment of principal||$ 300,000.00||$ 435,000.00|
|Interest for 7 Years (No repayment of principal)||$ 2,100,000.00||$ 3,045,000.00|
|Difference||$ (135,000.00)||$ (945,000.00)|
Now that Tran has admitted that ITFederal will not open, and the EDA is left paying back a substantial amount of money that opens the door for Warren County citizens to ask some tough and pointed questions of the Board of Supervisors, who are using taxpayer money to perform an outside, mostly secret audit into the finances of the EDA.
The audit began around the time that Royal Examiner broke the story last fall that the Town of Front Royal was owed nearly $300,000 related to debt servicing payments by the EDA. See Related Story:
Interim EDA Executive Director John Anzivino said in a telephone interview Tuesday morning that moving forward, he felt the EDA would “operate in transparency.” He said the office is short-staffed and that he is dealing with many Freedom of Information Act (FOIA)requests, as well as working with the board regarding the ongoing audit and going through the agency files, which he admitted were sometimes lacking in terms of detailed record-keeping.
Anzivino said that over the years, the EDA had been instrumental in some very positive developments for the community, citing the corridor development along Routes 340/522 and believed the agency would foster economic growth in the future. The EDA board, he stated in the conversation, was devoted to moving forward with transparency and was hopeful regarding the future and marketing the community to prospective businesses.
Anzivino said that while he worked in nearby Fauquier County over the years, he often noted how well development was moving along in Warren County.
View all EDA loan documents related to ITFederal and Truc Tran here:
- Attachment to Note
- Opinion of Counsel
- Settlement Statement
- Title Insurance
- Town of Front Royal Resolution
- Certificate of Borrower
- Checks Listed
- Collateral Receipt
- Credit Line – Deed of Trust Receipt
- Deed of Trust
- Disbursement Authorization
- Document Checklist
- IDA Resolution
- Loan Agreement
- No Oral Agreements Notice
Town okays arts grant application and bad debt write offs
In business other than explaining rising costs of service causing Town electric rates to go up and moving toward covering those expenses, on Monday, March 11, the town council authorized contributing funds toward a Virginia Commission of the Arts Creative Partnership Grant for three local organizations; and approved a resolution updating its Bad Debt Policy in conjunction with dropping five years of accumulated bad debt off its books.
First, by a 5-0 vote with Meza absent, Council approved a total of $4,500 that would be matched by the state Commission of the Arts Creative Partnership to be divided between the Blue Ridge Arts Council, the Front Royal Oratorio Society and the Blue Ridge Singers. The Town contributions would be $3500 to the Arts Council and $500 each to the Oratorio Society and Blue Ridge Singers, resulting in state-local matching grant totals of $7,000 to BRAC and $1,000 each to the singing groups when awarded.
Then by the same margin, a bad debt total of $277,974 (and 34 cents) was approved for removal from the Town ledger as uncollectable. No positive action toward collections on those 17-plus pages of unpaid bills was reported over a five-year period. A quick look-over showed unpaid bills as low as $34.25 and as high as $5,346, the latter likely on the commercial side.
Councilwoman Letasha Thompson observed that the Town averages a collection rate of 99.5%, adding, “I think staff is doing a tremendous job” on the collection front.
See discussion and the votes on this Royal Examiner video:
Traversing the maze of inter-departmental municipal finances
During Monday’s citizen-town staff question-and-answer on Town electric utility rates, it was explained that increases already reflected in the Power Cost Adjustment (PCA) line item on utility bills is a reflection of the rising cost of doing business to provide the Town’s electric utility service.
A question on how the Town does business with its enterprise fund utilities and services departmental budgets came from a former councilman present at the Q&A. Current Shenandoah District County Supervisor Tom Sayre asked how much Electric Enterprise Fund money had been transferred to support Town General Fund (administrative) projects. After some quick research Town Finance Director B. J. Wilson replied $1,950,000.
Responding to a later Royal Examiner question, Wilson said, “The transfer is a contributing factor to the overall (electric) rate as are all expenses in the electric department, but is not a factor for the proposed increase.” Rather, he explained that the transfer is part of the annual town budget process and was already incorporated into the existing rate prior to the jump seen in recent months. See related story:
Wilson elaborated that the $1.95-million transfer is a typical annual enterprise fund budget item that covers administrative support of the electric, water, sewer and refuse departments. That support includes administrative functions such as Human Resources, IT, billing and collections.
Wilson told Royal Examiner that while the annual administrative support transfer of $1,950,000 is not reflective of an internal loan process, one such internal loan is outstanding on the Electric Fund books. That $1,500,000 loan dates to September 2011, when the sitting council authorized an interest-free internal transfer to pay for the purchase of and renovations to the current Town Hall building at 102 East Main Street. As some of you sports fans may recall, the new Town Hall was most recently used as a bank when the Town purchased it in 2011.
That purchase facilitated a move out of the old Town Hall on North Royal Avenue that was in need of its own renovations and was deemed to small to continue to function as the Town’s administrative seat of government. The old Town Hall building was eventually traded by the EDA, marketing it for the Town, for the Afton Inn. But THAT is a trip down Memory Lane for another day.
According to Town Finance Director Wilson, the $1,500,000 Electric Fund loan for the new Town Hall is being repaid over the course of 10 years by way of annual payments of $150,000. By law municipalities must pay back such internal loans, though whether to include any interest in that payback is at the discretion of the municipality’s elected officials. The interest-free internal payback to the Town’s Electric Enterprise Fund began in Fiscal Year 2013 when the renovations at 102 East Main Street were completed. The full payback is scheduled for completion in 2022.
And that is the long answer to Supervisor Sayre’s query on the status of the Town Administration’s financial relationship to its Energy Services Department, which as staff noted Monday evening includes emergency operational reserves that have dipped below the recommended three-month reserve. Numbers in the Town Budget indicate a recommended reserve amount of $5,012,883 for the Energy Services department, compared to the $3,851,179 on the department’s books at the end of the last fiscal year.
The bottom line appears to be that neither the existing $450,000 balance on a seven-year-old internal loan or an annual administrative operational funding transfer of $1,950,000 to the current general fund budget, have anything to do with rising electrical costs seen on Town utility bills in recent months.
It’s just the rising cost of doing business, as town staff explained in detail Monday evening.
WATCH: Q&A Forum – Town staff answers concerns from utility customers
The Town of Front Royal held a Q&A Forum on Monday, March 11, 2019 from 6:00 PM – 7:00PM in the Warren County Government Center Board Room, 220 N. Commerce Avenue, Front Royal, Virginia. Town Director of Energy Services David Jenkins, Director of Finance B. J. Wilson and Town Manager Joe Waltz answered questions from concerned electric utility customers regarding the proposed electric rate increase and the Power Cost Adjustment (PCA).
Royal Examiner’s camera was there:
See related story:
Town staff fields questions on electric rate and bill increases prior to vote
With a public hearing and first reading vote on adjustments to Front Royal’s electric service rates on its meeting agenda of Monday, March 11, town staff addressed citizen concerns at a question and answer session held at 6 p.m., an hour prior to the beginning of the first regular town council meeting of the month. Present to field questions were Town Director of Energy Services David Jenkins, Director of Finance B. J. Wilson and Town Manager Joe Waltz.
Council observers from near the outset included Mayor Hollis Tharpe, Vice-Mayor William Sealock, Councilwoman Letasha Thompson and Councilmen Eugene Tewalt, Gary Gillespie and Chris Holloway. Jacob Meza was absent from Monday’s Q&A and regular meeting.
“Everyone on Facebook is complaining about increases up to $200 dollars or more,” one woman told those present.
“Everyone on Facebook” translated to six citizens at the session’s outset who asked questions about the dynamics involved in creating that higher electric portion of town utility bills in recent months. That number grew to nine and then 12 with the addition of three downtown business people, Rick Novak, Mike McCool and Ann Orndorff, and a few others as the regular meeting time approached.
Only one of those, Springtime Garden Center owner Orndorff, spoke at the public hearing preceding the regular meeting first-reading vote on the proposed increase. That vote was 4-1, Holloway dissenting and Meza absent, for approval of the proposed rate changes. A second and binding vote is scheduled for March 25.
At issue for those present on March 11, and the social media multitudes absent, are substantial increases in the electric portion of town utility bills in recent months. Thus far those cost-of-service increases have been reflected in a Power Cost Adjustment (PCA) line that has been included in Town utility bills since November 2008.
“What is that a tax? Will it ever go away,” the first citizen to speak asked of the PCA line item on utility bills.
The PCA aspect is generally utilized to accommodate costs that fluctuate in the short term, sometimes monthly, to allow those service provision costs to be met without necessitating a lengthier – Waltz cited two months – political process of approving base rate adjustments back and forth on a continual basis.
“The PCA is a tool used by most electric utilities so they can recover those costs without having to increase their actual electric rates,” Director of Energy Services Jenkins and his Administrative Assistant Mary Ellen Lynn explained to this reporter in response to earlier questions, adding, “A big part of it is also the fluctuation in fuel costs to generate the power. The PCA provides an avenue to adjust dependent on any differences in the average cost from the base cost of wholesale power.”
“We were hoping the increases were anomalies but they stayed,” Town Manager Waltz told those assembled Monday at the Warren County Government Center meeting room, noting that when that permanence in power provision costs became apparent the Town commissioned a consultant rate study. That study resulted in a series of recommendations to increase rates to cover the Town’s electric utility expenses.
“It is the cost of doing business – we have not raised our base (electric) rate in 10 years,” Waltz told those present on March 11.
In response to previous questions from Royal Examiner, Jenkins and Lynn elaborated, “The Town has seen an increase in wholesale power cost, transmission and congestion charges on the transmission network over the past year. This increase has prompted staff to engage GDS Associates to perform a Cost of Service Study to determine the appropriate rate structure. The Town’s distribution system is continuously changing, and we must adjust accordingly to accommodate any changes and ensure that our rates recover our costs to serve our customers.”
As Waltz noted several times, by law municipal utilities are not operated for profit and can only charge fees necessary to maintain and expand their service as necessary.
And while aided by its municipal energy cooperative membership in American Municipal Power (AMP) Front Royal was enjoying its place as one of the three cheapest municipal power providers in Virginia, including several years in the number one spot on that list, no one took notice of those monthly PCA adjustments. But when the PCA started adding $100 or more to monthly bills in recent months, people definitely took notice.
When a rate change is approved following the required second reading those cost increases now showing on the PCA line of utility bills will be incorporated into the kilowatt hour usage aspect of those bills (ELEC-RE) and will vanish from the PCA line.
“The energy charge increase and PCA decrease almost balance each other out,” Energy Services staff told this reporter. The proposed adjustment in the Town’s residential electric rates would see a hike in the charge per kilowatt hour from the current 8.49-cent rate to 9.85 cents (+1.36 cents); and a corresponding drop in the PCA from 2.3-cents down to 1.0 cent (-1.3 cents).
The bulk of the estimated two-dollar hike per 1,000 kilowatt hours of residential usage come from a $1.50 increase to the “facility or customer charge” aspect of the electric bill from the current $7 level to $8.50.
According to energy department staff the facility or customer charge, “is essentially a fee on each customer’s bill that helps pay for the equipment, infrastructure and upkeep associated with providing electricity – transformers, power lines, etc.”
However, it is the increase already felt and thus far reflected in the existing PCA line on utility bills that is the basis of citizen complaints and confusion. And as Waltz explained early on, those increases “are the (rising) price of doing business” after 10 years of not having to do so on the power provision front.
On the commercial side of the increase the monthly facility/customer charge will go from $7.16 to $20; with the charge on the first 700 kilowatt hours rising from 11.5 cents to 12.6 cents; and from 7.56 cents to 8.8 cents per kilowatt hour over 700.
That commercial facilities or customer charge jump from the seven to twenty dollar range (200%) compared to the $1.50 jump (about 23%) on the residential side definitely attracted the attention of commercial customers Novak and Orndorff, as did a base rate hike five times the residential rate – $2 per 1,000 kilowatt hours per month residential versus $11 per month on the commercial side.
When Novak asked if the rate hikes couldn’t be spread more equally between residential and commercial customers, staff explained the proposed changes reflected the consultant study of how commercial and residential rates are generally balanced.
And if adjusting to the increased costs has taken the Town of Front Royal down a notch in the cheapest municipal energy provider “sweepstakes” according to a chart provided by the town staff, Front Royal does remain favorably positioned among energy providers statewide. With its PCA adjustment in place the Town ranked eighth of 31 various types of municipal providers across the commonwealth; after the rate adjustment on the table the Town will fall to 12th place.
Where does the Town of Front Royal rank among other utilities in VA?