WATCH: Council discusses Town’s debt service to the EDA

The Royal Examiner’s camera was at the November 26, 2018 Front Royal Town Council meeting. Below is the resolution to read.

Watch the council’s discussion and vote below:

RESOLUTION REGARDING TOWN’S FINANCES WITH EDA

WHEREAS, during the May 21, 2018 Work Session Town Council requested recommendations from the Town’s Finance Director on the possibility of using various Town budget fund balances to  pay off existing Town debt, recommending future tax rates, and giving Town Council the Town’s current financial status regarding debt service. Upon researching payoff amounts for the debt service the Town owed to the Economic Development Authority (EDA), the Finance Director discovered the Town likely had not have been billed correctly for debt service incurred by the EDA, and therefore, incorrect information apparently had been provided to Town Council for its decision-making process.

WHEREAS, it appeared that, as of May 2018, the payoff amounts provided by the EDA for debt service were higher than the Town had anticipated to end in Fiscal Year 2021, with a later payoff amount provided by the EDA to the Town was considerably higher than the Town anticipated. The Town had been previously been informed verbally and at least twice via email by the EDA that these loans would end in 2021.

WHEREAS, The Town’s Finance Director met with the EDA’s Executive Director on June 4, 2018 to discuss the debt service. The Finance Director was told by the EDA’s Executive Director that all of the EDA’s debt service was refinanced in January 2016 by the EDA and that all of the EDA’s debt service should be refinanced in 2024, which was not consistent with previous correspondence  from the EDA from a few days earlier.

WHEREAS, after the June 4, 2018 meeting with the EDA, the Town’s Finance Director began a retrospective review of the Town’s historic finance records with the EDA and the EDA’s Financial Statements prepared by the EDA’s independent auditor. Based on the debt service listed in the EDA’s Financial Statement, the invoices the Town received from the EDA, and various agreements between the Town and the EDA approved by Town Council, it appeared to the Finance Director that the EDA had annually overbilled the Town by approximately $87,000.00 for the projects listed on the invoices.

WHEREAS, the Finance Director then contacted the EDA of what appeared to be the EDA’s billing errors and provided the EDA with the Town’s calculations based on the EDA’s Financial Statements. The Town requested additional support documents and an explanation regarding the differences.

WHEREAS, on June 21, 2018, the Town’s Finance Director again met with the EDA’s Executive Director to discuss the Town’s debt service concerns. The EDA’s Executive Director informed the Finance Director that the EDA had been billing the Town for various items associated with EDA/Town joint projects that were not included in the loan amounts that the EDA had financed for the Town, which was why the amounts being billed the Town were higher than the amounts seen on the EDA’s Financial Statements relating to long-term debt and that some of these items were paid for out of the EDA’s lines of credit. The Town requested documentation from the EDA to establish this assertion.

During this meeting the Town also asked why the invoice for debt service did not change for some projects when EDA refinancing had occurred in January 2016. The EDA responded that credits which were associated with the lower debt service were applied to the amounts with higher debt service, but overall were proportionally correct. The Town requested documentation to establish this assertion, in the form of support documentation showing the calculations from the refinance, copies of amortization schedules, coupons from the bank for debt service payments, and estimates on any future maintenance fees that would be associated if the Town were to pay off the current debt.

WHEREAS, on June 25, 2018, the Town received correspondence from the EDA that some of these debts the EDA had been billing the Town would be paid off in the near future with the potential sale of EDA property. The Town was also notified of a project from 1999 regarding some Avtex engineering that did not appear to have been recently invoiced to the Town. The EDA stated in the June 25 correspondence that “…since 2008 we have not put any insurance or maintenance of projects in loans except for the Leach Run Parkway. I was under the impression we would pay that directly out of our funds and not add to the Town or County debt”. Also, in the June 25 correspondence, the EDA sent several amortization schedules that appeared to have been created by the EDA itself, and not by the originating bank, and copies of various bank coupon payments for loans. Based on previous correspondence the Town had been informed by the EDA that all of the EDA’s debt was refinanced into one loan. Upon receiving copies of multiple bank coupon payments, the Town requested an explanation for the multiple coupons and the response received from the EDA’s Executive Director was “I am just sending you everything we have.”

WHEREAS, The Town’s Auditor, Mitchell & Company, had been kept apprised on an ongoing basis of the various financial matters and correspondences between the Town and the EDA, and the Town’s Auditor agreed with the Town’s Finance Director that it appeared the Town has been overbilled based on the approved Town agreements and the EDA’s Financial Statements. Mitchell and Company likewise requested, on the Town’s behalf, support documents and explanations for the EDA’s billings to the Town.

WHEREAS, given that the Town’s Finance Director and Town’s Auditor were unsure of the exact financial standings regarding the debt service and or maintenance costs associated with various Town projects being funded by the EDA, the Town’s Finance Director and the Town’s Auditor recommended that a meeting be set up between representatives of Town Council, the Finance Director, the Town Auditor, the Town Attorney, the EDA’s Executive Director, the E.D.A.’s accountant or auditor and whoever other EDA representatives the EDA deemed appropriate. If at that point satisfactory explanation and support documents could not be provided by the EDA, the matter would need to be escalated to a resolution satisfactory to the Town.

WHEREAS, following specific direction by Town Council at the request of the Town’s Finance Director, Town Manager, Town Auditor, and Town Attorney, the Town Attorney sent the EDA a
formal Freedom of Information Act (FOIA) request, setting forth specific financial documents that the Town’s Finance Director and the Town’s Auditor needed to see to make an informed judgement as to the Town’s financial standing with respect to the EDA. This FOIA response was due from the EDA on August 24, 2018.

WHEREAS, on August 23, 2018, the Town’s Mayor, another Town Council Member, the Town Manager, the Town’s Finance Director, the Town’s Auditor, and the Town Attorney, met with the EDA’s Executive Director, the EDA’s Chairman of its Board of Directors, and the EDA’s attorney, to answer a number of questions directly related to the FOIA request. At this meeting, the EDA’s Executive Director, in response to questions posed her by the Town’s Auditor, stated the EDA had mistakenly billed the Town for a portion of a $1.9 Million Virginia Department of Transportation performance bond related to Leach Run Park Parkway; further, the EDA had mistakenly billed the Town for an agreement related to debt service on the Avtex Administration Building; and further, the EDA had not closed on a more than $24 Million New Market Tax Credit Program low interest loan to finance a number of very important Town major capital improvement projects, even though the EDA had previously represented multiple times to the Town that the New Market Tax Credit Program loan had been closed and the EDA already had that money in its bank accounts. As a result of the EDA not having closed on the New Market Tax Credit Program loan, the resultant increase in interest rates now likely will cost the Town hundreds of thousands of  ollars per years in additional borrowing payment amounts over what Town Council had allocated in its annual budget.

WHEREAS, the Town’s Finance Director and the Town’s Auditor continue to investigate to determine the true status of the amount of overbilling of the Town by the EDA, and resultant overpayment by the Town to the EDA.

NOW, THEREFORE, BE IT RESOLVED, that Town Council commends its Finance Director and the Town’s Auditor for their vigilance and their tireless pursuit of the true status of the historic amounts the Town should have paid the EDA, as the financial transactions between the Town and the EDA span years are voluminous and are very complex, and commends both officials that in going forward the Town will be able to more accurately and timely pay no more to the EDA than it should.

NOW BE IT FURTHER RESOLVED that the Town will continue to pursue this matter, and will continue to carefully monitor all future financial transactions between the Town and the EDA,
between the Town and all other government agencies, and between the Town and all other entities with which and with whom it deals, to ensure, to the best of the ability of the Town and its officials and staff, that all financial transactions are conducted strictly in accordance with the terms of the agreements between the Town and the entities with which the Town has agreed, and so that the hard earned tax dollars of the taxpayers of the Town of Front Royal are protected and paid wisely and in the manner for which they are voted upon by Town Council.

This Resolution was approved at the Regular Meeting of the Town of Front Royal, Virginia, Town Council conducted on Nover 26, 2018, upon the following recorded vote:
APPROVED:
Hollis L. Tharpe, Mayor
Town Council Members:
John P. Connolly ____y___ Gary Gillispie ____y_____ Jacob Meza ___y____
Christopher Morrison ___y___ William A. Sealock ___n_____ Eugene R. Tewalt ___n______

See related story here.