In coming stories Royal Examiner will explore how the “catastrophic failure” of processes and oversight leading to the EDA financial fraud investigation and its resultant civil and criminal cases developed. Newly-named EDA Board Vice-Chairman Jeff Browne introduced the “catastrophic failure” term in an opening statement on behalf of the EDA to open the August 27 Town-County-EDA discussion of a path forward.
The 16 specific transactions and projects tied to the EDA fraud allegations occurred over the course of years under the supposedly watchful eye of a total of 12 elected officials on two municipal boards – six councilmen and one mayor of the Town of Front Royal and five Warren County Supervisors; not to mention seven more appointed members of the Front Royal-Warren County Economic Development Authority Board of Directors. It is that municipally-appointed EDA board that forms the first line of oversight of EDA business transactions and land investments.
Perhaps reconsideration of EDA board membership as an unpaid, volunteer position should be on the table for change as a potential means of bringing a more conscientious and professional outlook to the job in the future. But let me add that the recent volunteer appointments made to fill vacancies, as well as some sticking it out from year or so tenures, appear to be committed to learning from past board mistakes, even ones they were involved in, and implementing change to prevent a recurrence.
Elected municipal officials, particularly on the Town side, are now asking pointed questions and expressing righteous indignation at past offenses alleged in the conduct of economic development in this community. But one is left to wonder where those questions, or at least attention to them when they were asked by colleagues or the media, were over the past five-plus years.
Those were years that saw myriad projects, proposals and promises generated out of EDA-Town-County discussion of coming economic revitalization and financing for municipal capital improvement projects.
Many of those projects had fundamental factual assertions that should have elicited basic questions seeking verification or explanation before agreeing to:
– A one month $10-million Town bridge loan that was twice-extended with only one month of fee payments equaling lost monthly interest on the investment account withdrawal over the three-month period paid to the Town. That short-term municipal loan enabled the EDA to convince a perhaps skeptical bank to finance the ITFederal project with $10 million issued to ITFederal through the EDA. QUESTION – Where is evidence of a $140-million federal government contract with ITFederal upon which Sixth District Congressman Robert Goodlatte and EDA Executive Director Jennifer McDonald based the promised $40-million ITFederal investment and 600 high-dollar tech jobs here on?;
– a $445,000 “moral obligation” EDA purchase of a property initially presented as a $10 gift from McDonald relatives, followed by the $10 giveaway of that property now written off as a $640,000 EDA loss. QUESTION – What tax credit deal and deadline is that gift to the EDA based on? And why am I being asked to sign and send a deed of sale to Winchester with no price on it, allowing a sales price $444,990 less than our purchase price to be filled in by the buyer?;
– and what might best be described as a collective Front Royal Town Council majority pipe dream that a new $11-million town police station could be financed virtually interest free through a New Market Tax Credit (NMTC) program that a brief phone call would have revealed the project did NOT qualify for.
Some town councilmen now trumpet loudly that they were “misled” by Jennifer McDonald over the availability of the NMTC program for police station or other capital improvement project financing.
But how, one might ask, did not only those seven elected Town officials, but also five elected County officials impacted on other pending capital improvement projects fail to make or initiate staff to make that one phone call? It was a call that would have revealed, as subsequent EDA/municipal discussion has indicated, that the NMTC low-interest loans were available for projects defined as job-creating, economic development stimulating projects.
While a magnificent and long-overdue facility, FRPD’s new headquarters created no new permanent jobs, just housed existing ones in a more professional environment with room for long-term departmental growth.
Perhaps the mayor and town council should have paid more attentions when both their Town Manager and Finance Director, along with the People Inc. regional administrator of the NMTC low-interest loan program, Brian Phipps, told them in December 2017 and January 2018, respectively, that if you’ve got a promised 2.65% interest rate locked in for 30 years through a bank, you MIGHT want to take a serious look at accepting that deal on the loan to construct your new $11 million dollar (non-job creating) police station.
The collective failure to ask, listen or verify by a great majority of public officials and employees when it mattered over the course of years leads us to an exploration of terms used to legally describe failings of people in public office. There are three such terms describing various degrees of abuse or failures of public officials – malfeasance, misfeasance and nonfeasance. They are terms now increasingly heard in the public conversation in Front Royal and Warren County.
While some examples of failures in public office may be a consequence of ignorance of some statute or regulation or even intellectual laziness, other acts may be intentionally carried out for personal gain.
Malfeasance is defined as intentional conduct that is wrongful or unlawful, especially by officials or public employees. Malfeasance is at a higher level of wrongdoing than nonfeasance (failure to act where there was a duty to act) or misfeasance (conduct that is lawful but inappropriate).
Public malfeasance can be prosecuted as a crime in Virginia, though the act of malfeasance itself is a misdemeanor offense. However criminal acts tied to such malfeasance could result in more serious criminal charges.
Malfeasance is usually used to refer to deliberate misuses of power or violations of trust for gain. Any criminal act by public officials would be considered malfeasance, as could other actions that are reckless but not actually illegal.
That latter category could include inappropriately high-risk investing of managed funds leading to lost public resources; the use of business expense accounts for non-business purchases; and even nepotism in using one’s public office to enrich relatives by means outside the normal conduct of public business; as the enrichment of one’s self in a similar manner would be.
An act defined as malfeasance must be found to be contrary to the public good; must have been performed in the individual’s official capacity; and interfere with the individual’s performance of his official duties or with the official duties of another public official.
In committing an act of malfeasance the official may have either committed an affirmative act or an act of omission. In the latter case it would be a purposeful decision not to act in order to further an unethical or criminal end.
Misfeasance is the wrongful execution of an appropriate act or carrying out a proper act in a wrongful, harmful or improper way. In other words, misfeasance is a harmful act that is legal but improperly performed.
Misfeasance includes irresponsibility in performing tasks or failing to act with diligence that is due and appropriate for the situation.
Misfeasance is accidental rather than intentional, but still blameworthy as falling short of fulfilling an official responsibility.
Nonfeasance is the omission of an act that should be done; it is the neglect or refusal to perform an act that is a legal duty to perform. Nonfeasance is the failure to act according to one’s responsibility; it is when operational procedures of an organization are circumvented for a direct or an implied assurance of personal profit.
An example of nonfeasance: an administrator willing to hide transgressions – his own or others’ – for fear of retaliation and/or public outcry.
So now readers are armed with defined parameters for their future discussion of perceived liability of public officials in the development of what is alleged to have happened within the financial world of economic development in this community – and we are confident you will use them appropriately.
EDA Asset Committee Chairman blasts Town for ‘bad faith’ actions
As part of his Asset Committee Report at Friday’s Front Royal-Warren County EDA Board of Director’s meeting, Greg Harold began a two-phased counterattack on the Town of Front Royal’s recent actions toward the EDA, particularly as they relate to the Town’s refusal to make good on its legal commitment to repay the EDA for $8.4 million spent thus far on the new Front Royal Police Department headquarters across Kendrick Lane.
“The EDA may soon be sponsoring an introductory level class on Municipal Financing and Understanding Loan Commitments,” Harold wrote in his agenda packet Asset Committee Report, referencing “bad debt and shady accounting” from a “community partner known as the Town of Front Royal” which he described as continuing “to act in bad faith”.
And that was just the start – at the meeting’s outset Harold made a motion to add a statement he wanted to make on the above topic to the meeting agenda. That motion passed unanimously. Harold’s statement read into the meeting record following the second of two closed sessions was titled “The Town of Front Royal’s Charade of Partnership”.
In it Harold describes a pre-Thanksgiving meeting he and Board Chairman Ed Daley had with Town officials that was “cordial, respectful and collaborative”. “However, actions speak louder than words he adds before concluding, “Merry Christmas”.
See Harold’s scathing indictment of Town officials’ recent behavior toward the EDA as a newly re-tooled EDA staff and board of directors works to right its situation in the wake of what stands at a $21.3-million dollar financial scandal alleged to have been forged during some portion of the 10-year executive leadership of Jennifer McDonald in this exclusive Royal Examiner video:
Update: EDA Board grills Tederick on Town’s intent toward this EDA
The gloves came off at Friday morning’s Front Royal-Warren County Economic Development Authority meeting. A hint of things to come was alluded to at the 8 a.m. meeting’s outset when Asset Committee Chairman Greg Harold made a motion to add a statement on the status of the Front Royal Police Department construction project and the town government. Harold’s agenda addition passed unanimously.
As Interim Town Manager Matt Tederick completed his report on Town business, EDA Board of Directors Vice Chairman Jeff Browne questioned Tederick on several matters related to the status of negotiations with ITFederal on a drainage line through that property; and the Town’s intent as it builds a “war chest” to fund its civil suit against the EDA and discusses creation of a second EDA while the Town-County one continues to exist.
See that exchange and other EDA board member questions to Interim Town Manager Tederick in this exclusive Royal Examiner video:
In response to Browne’s opening question on the Town-ITFederal drainage dispute Tederick reasserted the Town’s stance that it is the owner’s responsibility to install the drainage system across its property, but had no update on that impasse with Tran.
Then Browne asked the interim mayor about his sense of the town council’s attitude in its recent decision to divert scheduled debt service payments to the EDA totaling $282,000 into “the Town’s legal war chest” for its civil suit against the EDA. The Town has filed litigation seeking recovery of “up to $15 million” in allegedly misdirected or promised Town assets from the EDA. The EDA has a civil action against 14 people and business entities for recovery of $21.3 million in misdirected EDA assets at this point.
Browne pointed out that initial statements from Town Attorney Doug Napier at the time the Town suit was filed indicated it was done as a precautionary measure against Statute of Limitations running out on unknown and still unspecified Town assets involved in the EDA financial scandal.
“Do you have a sense where you all are going with all of this?” Browne asked the interim town manager about the Town’s evolving and seemingly more contentious legal stance against the EDA.
“I do have a sense but I’ll have to refer you to our counsel, related to that,” Tederick replied, without elaborating if he was referring to the town attorney or the Alexandria law firm of Damiani & Damiani council authorized payments of up to $200,000 in legal fees to related to its suit against the EDA on November 25. Council also approved $45,000 of those diverted EDA debt service payments to Mitchell & Company for auditing services related to its EDA litigation.
“How do town residents feel about paying double legal fees when the EDA is willing to sit down and figure out the differences with you?” Browne continued – later elaborating that as dual Town and County citizens, town residents’ tax payments to the County are helping fund County financial support of EDA legal expenses, including in defense of the Town civil action against it.
“I can’t speak for town citizens,” Tederick replied.
About this second EDA
“Then finally on another issue, could you explain the reasoning behind your attempt to create a second economic development authority?” Browne asked, this time eliciting a more detailed response.
“The town council I believe, is of the belief that the EDA is going to be insolvent in February or March based on public comments of the EDA members and Mr. Parsons has made based on financial records. So, we want to be in a position that in the event of the … EDA does become insolvent, we want to be able to have an economic development authority to promote business and to get appropriate financing.
“So, there’s been no decision by the Town to do that,” Tederick added, then describing the process chosen on advice of the town attorney to lobby the State General Assembly for a Code change permitting the Town of Front Royal alone, to be able to create a second EDA while the existing one it created with the Warren County Board of Supervisors in the 1960’s, presumably will still exist.
“A strong argument can be made that until all the debts and bonds of the existing EDA are paid, the existing EDA must remain in existence,” Napier wrote in his agenda summary of December 2.
“It’s not uncommon, there are a number of towns in the Shenandoah Valley that have Economic Development Authorities,” Tederick continued of the second EDA initiative, adding, “So there hasn’t been a firm decision that we actually are going to get one.”
“How many towns have two economic development authorities?” Browne queried Tederick.
“I don’t think any towns have two, no sir, and neither is the Town of Front Royal going to have two – we’re going to have one,” Tederick asserted.
With the town attorney’s recommendation that the Town maintain its founding co-membership in the existing EDA due to the potential of receipt of half of EDA assets if and when it is dissolved, we asked Tederick about his assertion of only one EDA as he was leaving following his presentation and Q and A with the EDA board.
The interim town manager said he meant the Town would have only one solely-created “Town EDA”, not that it wouldn’t still have its membership in the existing Town-County EDA.
Harold then asked Tederick if the Town was in communications with ITFederal and Tran regarding the drainage impasse.
“I know they’re not communicating with me,” Tederick said. However, he added that he was aware of a recent communication with a staff member whose identity he did not know, regarding whether the Town would contribute to the drainage pipe costs.
“I can find out, I’ll go back and ask,” Tederick told EDA officials.
“I think it would be very helpful, sir, if correspondence between the Town and ITFederal on this thing, if we could be included in that … as part of our negotiations with ITFederal … so we can tell if he’s telling the Town one thing and telling us another, just kind of playing the two off there,” EDA Board Chairman Ed Daley told Tederick of re-opening lines of communication the Town seems to have been pulling back from as it strikes a more aggressive litigious stance.
Afton Inn status
The conversation then concluded as the EDA board and Tederick discussed the physical and ownership status of the Afton Inn. A scheduled post closed meeting two vote on terminating the lease/purchase agreement between the EDA and Afton Inn developer 2 East Main Street LLC was tabled to the January EDA Board meeting.
Following the meeting’s adjournment, EDA Executive Director Doug Parsons said he and the board were holding out hope the redevelopment project, derailed by the civil litigation and the uncertain EDA financial situation, might still be saved.
The developer has not been implicated in any of the alleged financial misdeeds; however, it is alleged that McDonald used the Afton Project to move EDA funds to her personal benefit, including payment of credit card debts and attorney fees.
Following the old Town Hall/Afton swap, circa 2014-ish, the Town transferred ownership of the dilapidated 151-year-old Afton Inn building to the EDA for marketing. Friday there was brief discussion of the process of transferring ownership back to the Town should the EDA/2 East Main redevelopment partnership be terminated.
January 10th set for decision on EDA civil defendant motions to quash
Attorneys for multiple Front Royal-Warren County Economic Development Authority civil litigation defendants argued for dismissal of their clients’ inclusion in that list in Warren County Circuit Court on Thursday, December 12. After hearing over 4-1/2 hours of testimony surrounding a 45-minute lunch break, Judge Bruce D. Albertson took those arguments and plaintiff counsel counter-arguments under advisement.
After an explanation to defendants present, including Donald Poe, April Petty and Jesse Poe, about the reason for the time he will take before returning to court to make a ruling on their and other defendants’ counsel arguments, Albertson set a date of January 10, at 2:30 p.m. to make his ruling.
That is the same date the judge continued a scheduled Show Cause hearing on a Civil Contempt charge against primary EDA civil and criminal defendant Jennifer McDonald earlier during the Thursday docket. McDonald’s civil contempt hearing will follow an already scheduled McDonald criminal hearing on the 1 p.m. docket on January 10.
McDonald’s criminal case attorney Peter Greenspun informed Albertson he was taking over his client’s civil case as well in the wake of the withdrawal of her former civil attorney Lee Berlik.
Greenspun told the court he needed additional time to familiarize himself with the civil aspects of McDonald’s legal situation.
A third EDA-related hearing on Thursday morning’s docket was Donald Poe counsel William Ashwell’s motion to Quash a Perjury charge regarding the Earth Right Energy principal’s testimony to the EDA Special Grand Jury. That case went forward first on what was slated to be an 8 a.m. start to Thursday’s docket, delayed by late arrivals of a court reporter and McDonald’s Northern Virginia-based attorney.
After hearing Ashwell and new Rockingham County prosecutor’s arguments, Albertson deferred a ruling on dismissal of Poe’s perjury charge to the January 22 date on which that trial is scheduled to begin.
Ashwell told the court that his client was the one defendant “not on the continuance train” with an originally slated perjury trial date of December 6 having been moved to a three-day slot in January to accommodate the recent placement of a new prosecutor’s office to handle all the EDA criminal cases. Incoming Warren County Commonwealth’s Attorney John Bell has recused himself from EDA cases and current County Commonwealth Attorney Bryan Layton has withdrawn due to his pending departure from the office.
In addition to McDonald on her case and Donald Poe, April Petty and Jesse Poe who were present with counsel Thursday, EDA civil defendants represented in Thursday’s Demurrer motions hearing were Truc “Curt” Tran and ITFederal and Poe’s Earth Right Energy Solar Panel Installation company.
The basis of those defense counsel arguments for dismissal of their clients from the civil case revolved around several points. Primary among those is the plaintiff notion of an overarching conspiracy that somehow links the various defendants to central figure and former EDA Executive Director McDonald; and that there were definable contractual breaches by those defendants making them individually liable for funds that came their way through McDonald.
Lead plaintiff attorney Cullen Seltzer argued that there did not have to have to be direct knowledge among all defendants of each interlocking conspiracy McDonald is alleged to having been a party to for that conspiracy to exist.
He used an analogy to a gang that planned to rob every Bank of America in Richmond, saying a gang member assigned to one “bank job” did not have to know the detail of every other bank robbery to be criminally liable for the entire take.
Seltzer dismissed defense arguments that “McDonald is a rouge tornado dumping all this EDA money into all these pockets” without the recipients’ knowledge that something illegal was transpiring that they were beneficiaries of.
However, Jesse Poe and April Petty’s attorney William Schmidheiser argued that such a conspiracy theory did not apply to his clients, whose alleged “unjust enrichment” did not go directly to them, but rather to real estate companies handling the closings on their homes.
Schmidheiser noted his clients’ limited incomes, telling the court the reason he represented them both was a necessity to pool their resources to finance their defenses. He called their being packaged as part of an alleged $21 million civil suit conspiracy for mortgage payoffs of $125,000 (Petty) and $280,000 (Jesse Poe) was, short of the loss of a child or a cancer diagnosis, one of the worst things that could happen to an average person.
He said that while there might be “unjust enrichment” claims the plaintiff could argue – we’ll deal with those down the road, he told the court – the circumstance of his clients’ involvement distanced them from the plaintiff EDA counsel’s conspiracy theory.
He compared his clients’ circumstance to that of the casino McDonald is alleged to have lost at least $750,000 gambling at, noting that while the casino received cash from McDonald that could have been EDA assets, the casino was not a defendant.
In arguing that Earth Right Energy’s (ERE) contracts with the EDA through its then-executive director were valid and binding, attorney Ryan Huttar told the court that at the time those contracts were enacted “Jennifer McDonald (was) the EDA”.
That was a point the EDA legal team disputed, noting that large dollar (over $10,000) transactions had to be approved by the EDA Board of Directors, which they stated, did not happen.
ITFederal attorney Brandon Elledge argued that the EDA Board did approve the $10 million dollar loan it is seeking recovery of from his client, as well as the subsequent vendor payments of $1.4 million also in dispute.
Sands Anderson plaintiff counsel countered that the loan and the vendor payments were received under false pretenses concocted by Tran and McDonald in concert.
Elledge also stressed that Tran remains current on his loan payments, and that no proof had been offered that his client personally benefited from the payments, rather than professionally as intended. Oddly however, the Deed of Trust on the property was amended so that Tran only has to spend $2 million of the $10 million loan on the Front Royal property.
In setting the January 10 date for a decision on the motions to dismiss the defendants from the civil suit, Judge Albertson compared himself to a student.
“The attorneys teach us their view of what the law is” related to their cases “and it will take several weeks to fact check their arguments – I will treat this seriously, please be patient,” he asked the defendants present.
Following State Law seminars EDA votes to request legal fee assistance
The three Warren County Supervisor-elects, Cheryl Cullers (South River District), Delores Oates (North River), and Walter Mabe (Shenandoah) were all present for seminars on State Freedom of Information Act (FIOA) and Financial Disclosure/Conflict of Interest laws Monday evening, December 9.
The seminars were presented by the Front Royal-Warren County Economic Development Authority (EDA), all of whose board members save Greg Harold out of state on business, were also present for the Special Meeting and seminars held in the Conference Room of the Virginia Inland Port in the county’s North Industrial Corridor.
And after hearing the two seminars totaling nearly two hours, the incoming supervisors were informed they are now legally-certified in FOIA and Conflict of Interest/Financial Disclosures for the first two-years of their coming four-year terms of office – and they got a free meal hosted by the EDA and catered by McAllister’s prior to the meeting’s 6 p.m. start.
Legal and fed – can beat that.
The EDA Special Meeting agenda’s one other order of business was a vote on a Resolution reflecting the EDA’s intent to reimburse its past and present EDA board members’ legal fees regarding the now-dropped criminal misdemeanor charges of misfeasance and nonfeasance regarding oversight of former EDA Executive Director Jennifer McDonald in the latter part of 2018, upon requested receipt of that funding from the Warren County Board of Supervisors.
The total amount sought to cover the expenses of those seven current or past members is $36,827.17, with former member and Chairman Greg Drescher topping the list at $10,000 in legal fees and former member and Vice Chairman Bruce Drummond at the bottom end of the legal fee scales of justice at $3,000.
Discrepancies in legal fees have been explained by County staff as relating to when that representation was retained and the varying amounts of work those attorneys put into the cases before they went to court.
The vote on a motion by current Vice Chairman Jeff Browne, seconded by Greg Harold by remote phone connection, was 6-1, with only EDA Treasurer Jorie Martin dissenting. Martin later explained to the media that her dissent was based on her belief the reimbursement does not need to come through the EDA, but rather should be paid directly by the County Board of Supervisors to those EDA board members, most of whom the supervisors appointed.
Prior to the vote all involved current board members – Mark Baker ($4727.50), Gray Blanton ($4665), and Tom Patteson ($4809.67) read public disclosure statements concerning their personal interest in the vote. In addition to Drescher and Drummond, the no-longer serving members seeking reimbursement are William Biggs ($5000) and Ron Llewellyn ($4625).
The County Supervisors have already cast a 4-1 majority vote to compensate its own members’ legal fees on the same dismissed charges. Only dissenting voter Tom Sayre (Shenandoah District) declined to accept the County compensation, choosing to pay his own legal fees.
Despite that rift, Sayre’s colleagues joined in support of the departing Shenandoah District Supervisor’s motion (seconded by Fox) to delay a vote on that EDA legal fee request at the Board of Supervisors meeting the following morning, Tuesday, December 10. Recent public comment has urged the majority lame-duck county board to defer a decision on those legal fee compensations until the new board is seated at the turn of the year. And by a unanimous 5-0 vote they did.
The seminar presenters were newly-contracted EDA Attorney Sharon Pandak of the Woodbridge law firm of Greehan, Taves & Pandak (FOIA law) and Virginia Conflict of Interest and Ethics Council Executive Director Stewart Petoe, the latter up from Richmond. Pandak deferred to Petoe to begin due to his longer trip home. And as Petoe informed the group during his presentation, overnight accommodations paid for by non-employers can run afoul of ethics law in certain circumstances.
As for adherence to conflict of interest and ethics standards, while there are many detailed rules, Petoe’s short advice was “if it seems squirrely” or “it doesn’t seem right, it probably isn’t.”
To expand slightly you can’t enrich yourself, family members or friends “from confidential information received in the conduct of your job until that information becomes common knowledge” available to the general public.
And take special care when inducements or gifts are offered by lobbyists, lobbyists’ employers and contractors seeking work from you or your board.
There are many detailed rules and guidelines and when you get elected or appointed to an involved public entity, you better contact the COI/Ethics Council – anonymity assured on all specific queries – and find out what they are.
On the FOIA side, Pandak’s advice in a nutshell was that to conduct public business in governmental or quasi-governmental settings, the former like an EDA, it must generally be done in a public meeting setting advertised at least three days in advance.
Specific exceptions to open meeting requirements are noted in law, as in the familiar to the press “consultation with legal counsel” on matters where public disclosure could have a detrimental effect on the body’s litigation or pending business dealings; not to mention “personnel matters”.
But regardless of those exceptions to open meetings, action “on any matter” must be done at a public or special meeting properly advertised in advance – “NO secret ballots” to establish public policy. (Hmm, I wonder if there is any public record of that EDA board – the old one – decision to give ITFederal and Curt Tran that 30-acre Royal Phoenix parcel for a dollar when all the open meeting discussion this reporter, and apparently all others, ever heard revolved around a $2 million dollar sale price?)
As for producing public records requests showing adherence to public policy informational guidelines, the short advice was if those records exist, produce them within five working days; if there are difficulties you may request additional time; and if the request is extremely broad and encompassing, charge a justifiable price for the time and effort required to comply in whatever timeframe is authorized.
Pandak also noted that electronic communications, on public or personal devices, related to public business ARE subject to FOIA request. Her bottom line – follow the law and where questions exist rely on Attorney General opinions, court decisions or FOIA Council published opinions.
And like we said above, when you’re elected or appointed to a public body and need to know more – contact the relevant state councils and get schooled on the details.
A new EDA? Town Council approves resolution seeking state’s blessing
FRONT ROYAL — The Front Royal Town Council on Monday unanimously passed a resolution seeking a change in the Code of Virginia that would allow the Town to create its own Economic Development Authority (EDA) if it sees fit to do so.
Specifically, the Town’s newly approved resolution requests that the Virginia General Assembly amend a portion of the State Code to allow just Front Royal, VA, to establish a new EDA that’s “separate and independent” from the existing Front Royal-Warren County EDA, which is embroiled in a multi-million-dollar financial scandal.
“Upon deliberate and studied consideration,” the Town Council “finds that it is to the benefit and betterment of all the inhabitants of the Commonwealth of Virginia, and in particular to the inhabitants of the Town of Front Royal,” that the Town be able to form a Front Royal EDA so that it “can forge its own path forward in the future, unencumbered by the tremendous financial, legal, and reputational burdens currently encumbering the Existing EDA,” according to the resolution.
“Here’s the thing,” Meza continued. “Our current EDA — which you could make the easy argument is ineffective — is going to be really difficult to operate through… at least in the next coming year and possibly years.”
Because of that fact, Meza said the Town Council wanted to be sure to submit its approved resolution prior to the start of the General Assembly’s legislative work that begins in January, “essentially hedging our bets that if our EDA becomes ineffective as a joint Town-County operation, then the Town has the ability to establish its own EDA so that we can continue moving forward on Town projects, especially related to property acquisitions and developments.”
If Front Royal were to miss submitting its request now, then the Town would have to wait to submit it in July 2021, said Meza.
“We wanted to get the ball rolling on this so that we have the option and the ability to continue if needed,” he added.
Councilman Gary Gillispie echoed those sentiments on Monday night.
“Please keep in mind, just because we are asking the General Assembly to authorize Front Royal to have an EDA, it does not necessarily mean that we’re going to launch into it,” Gillispie read from a prepared statement. “Once authorized, we can commence the process to determine if it’s in the best interests of the community.”
To avoid a potential legal hurdle, the Town Council seeks the State Code change without withdrawing from its current legal interest in the existing EDA.
“It appears to the Town that as long as there are outstanding and unpaid Existing EDA bonds and indebtedness, the Town cannot even rescind it ordinance co-creating the Existing EDA all, in which case the Town would not even be able to create a separate Town EDA which could fund Town EDA facilities either inside the Town’s corporate boundaries,” the resolution states.
In fact, the current EDA is saddled with outstanding and unpaid bonds and other indebtedness for private and public facilities, including hospitals and schools, states the resolution, which also pointed out that “apparently the Existing EDA likely will become insolvent sometime in the year 2020.”
The Town Council’s resolution also acknowledges, among other items, that if the Town did rescind its ordinance for co-creating the existing EDA, then it would waive its rights to share in one-half of any of the funds and properties held by the existing EDA at the time it was dissolved.
Such action “might well be construed as wastage of Town assets by Town Council, and thereby construed as legal misfeasance on the part of Town officials, which would be unacceptable to the Town,” the resolution.
The Town Council in its resolution also wasn’t shy about laying out reasons for why it wants to form its own EDA.
For instance, the six-page document outlines “the legal and financial troubles” of the existing EDA’s former executive director Jennifer McDonald, who “has been creditably accused and has been indicted in excess of 30 felony charges in connection with criminal charges related to alleged misappropriation of Existing EDA and Town funds.”
Additionally, the resolution says that McDonald — who isn’t named in the document but only referred to as the ‘former executive director’ — “has been civilly sued in the Circuit Court of Warren County, Virginia, by the Existing EDA for over $21 million in damages in relation to said alleged misappropriation of said funds.”
The resolution also makes it clear that the “Town, Town Council, Town officials and Town employees had no role whatsoever in the former executive director’s actions,” and is civilly suing the existing EDA and McDonald in Warren County Circuit Court for $15 million in damages.
The resolution also says that the “brand” of the current EDA “has been so badly damaged as to make it very difficult, if not impossible, for the Existing EDA to attract new commerce and industry
into the Town.”
And the Town charges that “there is an inherent conflict of interest” on the part of existing EDA officials and employees who appear to favor attracting new commerce and industry “to benefit the County as opposed to the Town.”
For these and other reasons, the Town Council proposed a change to Virginia Code 15.2-4905 (Powers of authority section) that would grant the Front Royal Town Council the power to create its own industrial development authority (IDA).
“The purpose of an EDA or IDA is to bring economic development to a community where it is authorized,” Gillispie read. “It is also important to give existing businesses support to help them compete and stay profitable.”
Front Royal needs good-paying jobs, the councilman added, and there are several business parks within the Town limits that also need development.
“We just need someone who can market our Town and be able to go to Richmond or wherever it’s needed to get this accomplished,” said Gillispie, who added, if the General Assembly accepts the Town’s request and amends State Code, then Town Council members will work diligently to put safeguards in place that ensure such financial fraud never happens again.
Following Meza’s motion on adoption of the resolution, with a second from Councilman Chris Holloway, the members of the Front Royal Town Council, including Vice Mayor William Sealock and Councilmen Gillispie and Letasha Thompson, all voted yes to approve it.
Watch the Town Council meeting on this Royal Examiner video:
Town skirts EDA request for FRPD construction back payments
The Front Royal Town Council passed a series of four motions Monday, November 25, authorizing expenditures totaling $1.02 million dollars related to its civil litigation against the Economic Development Authority, as well as payments to contractors regarding construction of the new Front Royal Police headquarters across Kendrick Lane from the EDA office complex.
Of that million dollars plus total, $527,800 approved in a series of three motions is for legal and auditing fees related to the Town’s civil suit against the EDA. The $492,284.34 approved in the last of the four motions is for vendor (contractor) payments recently come due on the FRPD construction project.
The motions were all approved by 5-0 votes, with Mayor-Elect Gene Tewalt not voting as Mayor Pro Tempore as he was declared at the meeting’s outset. As noted above, over half of the authorized payments are for attorney and auditing fees for services related to the Town’s attempt to recover “as much as $15 million” from the EDA. The $492,284 was approved to cover direct payments to contractors on the Front Royal Police Headquarters construction project.
However with its litigation still pending as the EDA struggles to right its financial situation, the Town did not make good on an EDA request for back payments totaling over $8 million dollars for vendor/contractor payments it has made on the FRPD headquarters project on behalf of the Town.
In a letter from EDA Board of Directors Chairman Ed Daley to Town Finance Director B. J. Wilson dated November 15, 2019, included in the agenda packet on the final of the four EDA-related payment authorization requests, the EDA appears to attempt to force the Town’s hand on making up those back payments to the EDA.
After informing Wilson of the EDA’s receipt of FRPD project Requisition (invoice) “# 45” dated October 22, 2019, Daley wrote, “After speaking with our Board of Directors, I write to advise the Town that we will hold this pay requisition without paying until the Town of Front Royal pays the principal and interest due on this project.
“The principal, legal fees and draw fees paid by the EDA for the Town to date is $8,440,797.17,” Daley continues, adding, “The interest amount is $291,856.21 which covers interest on the previous 44 pay requisitions, up to October 31, 2019.” The recently-installed EDA Board Chairman closes by informing the Town, “Once we receive the past amount due on this project, we will process pay requisition # 45 accordingly.”
The Daley letter seeking reimbursement on the $8.44 million in police headquarter construction payments indicates an FRPD project payment and interest accrued history attached. But in the council motion on authorization of vendor payments there is no amount attached to Requisition # 45. However, in the “Revised Item # 15 motion made by Jacob Meza, seconded by Chris Holloway, an amount of $492,284.34 is cited to cover payments directly “to vendors Dustin Construction, Mosley Architects and JTS LLC for construction of the Police Department Project.”
The motion continues to cite the use of money “previously budgeted for the Police Department Project” and notes the Dustin Construction payment will be released “after signed waiver of lien is obtained.”
Contacted by phone on Tuesday, EDA Administrative Assistant Gretchen Henderson said that Dustin Construction ($243,843.48) and JTS LLC ($893.84) were included in payment Requisition # 45, but not the Mosley payment which may be from a separate invoice.
So it appears that the Front Royal Town Council has decided to respond to the EDA’s most recent request it make good on its $8.4-million FRPD project payment debt to the EDA by bypassing the EDA on that debt as the Town’s civil suit against the EDA moves forward; while simply making future invoice Requisition payments directly to the vendors.
The first EDA-related Council payment authorization of Monday’s meeting was $282,800 for “attorney fees and auditing services related to the Town’s civil suit against the Front Royal-Warren County Economic Development Authority (EDA)”.
The funds for that payment were requested to be transferred from scheduled FY 2019 and FY 2020 Town debt service payments to the EDA on a number of projects. Those projects and transferred amounts were cited as Success Farm ($10,370), Baugh Drive Extension ($6,535), Happy Creek ($6,845), Stephens Industrial Park ($11,725), Leach Run Parkway ($105,925), and “Appropriated Funds Forward ($141,400), totaling the $282,800 authorized for attorney and audit fees related to the Town lawsuit against the EDA.
The now $21.3-million EDA financial scandal revolving around former EDA Executive Director Jennifer McDonald began unraveling in late spring to early summer of 2018 when Town Finance Director Wilson discovered about eight years of Town debt service overpayments to the EDA. EDA officials told Royal Examiner they have not yet seen a number on those believed Town overpayments.
Might one take a guess based on that $282,800 transfer of future scheduled debt service payments to the EDA; or might one look at the fact that transfer comes within $9,056 of the disputed FRPD interest payments of $291,856.21?
Hey, guessing is always a gamble, isn’t it?
As those keeping a scorecard on the now multi-faceted EDA financial scandal and related civil and criminal litigation know, the Town Council authorized its legal department to file the aforementioned civil action against the EDA seeking recovery of “as much as $15 million dollars” of allegedly misdirected Town assets as a precaution against unknown variables, including possible statute of limitation issues. Included in the Town’s suit for recovered assets is exactly what interest rate the Town should be paying on the FRPD construction project.
The EDA is paying 3% interest on the FRPD construction project. However, the Town is holding out for a 1% rate that would coincide with what it contends was promised to it by the EDA, or at least by its then Executive Director McDonald, as part of the New Market Tax Credit Program for which the project did not qualify because it was not a job-creating economic development project.
In fact as Royal Examiner has previously reported, then Town Manager Joe Waltz and Finance Director Wilson, as well as People Inc. regional administrator of the NMTC Program Brian Phipps all advised Council against “gambling” on competing for the NMTC funding versus accepting a guaranteed, 30-year fixed 2.65% interest rate offered to the Town in late 2017 through a private sector bank.
Contacted Tuesday, Town Attorney Doug Napier said that after Phipps’ early January 2018 work session appearance before council, Town officials contacted McDonald, who assured them Phipps “didn’t know what he was talking about” and that the NMTC bond issue had been achieved to include the FRPD project.
Consequently a council majority decided to take that gamble on the best case scenario of nine years of interest-free payments significantly reducing the total interest due on a project bond issue.
The other two EDA-related payment authorizations unanimously approved by council Monday evening were “up to $45,000 to Mitchell & Company PC for auditing services to support litigation in the Town’s civil suit against … (the EDA)” and “payment not to exceed $200,000 to Damiani & Damiani for legal services related to the Town’s civil suit against the …(EDA).”
Contacted Tuesday for a reaction to the Town Council’s response to the EDA board’s request the Town make good on its FRPD payment debt, current EDA Executive Director Doug Parsons said,
“What the Town does is their business, what they chose to pay, what they chose not to pay it’s entirely up to them. We feel confident in the figures we provided on the invoice for the Front Royal Police Department. We would love to work out this difference of opinion with them; and we’re always ready to work with them on other projects while we work out our differences.”
Watch the entire Front Royal Town Council meeting of November 25th here: