The Economic Development Authority (EDA) and Town of Front Royal issued the following joint press release today, February 19, 2021:
On Friday, February 12, the Economic Development Authority (EDA) Board of Directors passed a resolution accepting a final sales price from developers 2 East Main, LLC of $325,000 for the purchase of the Afton Inn located in Front Royal’s downtown. The Board is pleased to announce that the settlement has taken place and the building has been sold!
This transaction came to fruition with the cooperation among the Town Council of Front Royal, Warren County Board of Supervisors, EDA, and the developer. The Board is grateful for the willingness of Town Council, and Warren County Board of Supervisors to focus on a goal that resulted in a “win” for everyone. EDA board members Greg Harold and Jeff Browne, plus EDA Legal Counsel Sharon Pandak, of Greehan, Taves, and Pandak worked hard to make this sale happen. The developers, Jim Burton and Alan Omar, had an unwavering commitment to the vision for this property.
“This is a privately funded transaction. It won’t cost County or Town taxpayers anything to transform the Afton Inn into a welcoming anchor building for visitors to Main Street,” said Jeff Browne, EDA’s chair.
Front Royal Mayor Chris Holloway welcomed the news of the sale. “On behalf of Council, I am proud to share in the celebration of the sale of Afton Inn and look forward to partnering with the developer to remove any barriers to restore and modernize this building expeditiously. The sale of Afton Inn marks an important milestone for our community as we continue to focus on redevelopment,” said Holloway.
(The EDA Board of Directors will have their regular February monthly board meeting via Zoom on Friday, February 26, 2021, at 8 a.m.)
EDA Litigation Update – that and other impacts on Economic Development
The morning of Friday, July 30, this reporter sat down for a “Town Talk” with Economic Development Authority (EDA) Board of Directors Chairman Jeff Browne. Well, maybe we should call it a “County Talk” since the Town of Front Royal continues to distance itself from what Browne pointed out is still legally the Front Royal-Warren County EDA, as unresolved civil litigation initiated by the Town regarding financial liability from the EDA financial scandal continues to swirl and the Front Royal Town Council continues its initiative to create a parallel, unilateral EDA.
Those moves have come despite the total realignment of the EDA staff and board of directors, and a repeated EDA offer to work out of court to determine who is owed what in the wake of alleged embezzlement and misdirection of EDA assets between at least 2015 and 2018 under the leadership of former EDA Executive Director Jennifer McDonald.
LITIGATION!!! – Now there’s a topic of conversation to begin our discussion by whatever name we choose to call it. Acknowledging that public interest, and discontent, is high concerning the slow pace at which both civil and criminal court proceedings have developed related to the EDA financial scandal, Browne agreed to open our conversation with an update on those legal developments.
Prominent among those are the recent Bankruptcy Court ruling forwarding a $9-million “non-dischargeable judgment” that central financial scandal figure McDonald, along with the EDA, has agreed to.
Watch the discussion progress through that litigation front among others, including what is known on the criminal side since it was handed over to federal officials in the Western District of Virginia, and how all this legal maneuvering impacts the EDA’s day-to-day operational goal of economic development, targeting business recruitment and retention. It is an operational environment also traversing Warren County’s extremely low statewide 37% COVID-19 pandemic vaccination rate, something that could be frowned upon by some potential economic development clients.
And after all that, we end on an upbeat, or beats:
First, that the new EDA board and staff are actively and jointly working to market Warren County in its entirety to the type of Technology, Manufacturing, and Logistics companies that would fit in well with what this community has to offer.
And second, the anticipation of an Open House to be hosted by a recently recruited drone manufacturer and operations manager, Silent Falcon at the County’s Front Royal Airport (FRR). While no date has yet been set as Silent Falcon continues development of its new home base, at least one kid, if a somewhat aging one, is anxiously anticipating coverage of that event. – And I think we’ll bring the video crew along for that one – Mark, Mike, who wants the drone assignment?
Town Talk is a series on the Royal Examiner where we will introduce you to local entrepreneurs, businesses, non-profit leaders, and political figures who influence Warren County. Topics will be varied, but hopefully interesting. If you have an idea, topic, or want to hear from someone in our community, let us know. Send your request to news@RoyalExaminer.com
Financial Scandal Era Audits near completion as EDA ponders Budget Adjustments
Friday evening, July 23rd, through the office of Administrative Assistant Gretchen Henderson, the Warren County Economic Development Authority (EDA) released a summary of action items on the agenda of the EDA Board of Directors regular monthly meeting held that morning. Prominent on that agenda were matters related to the completion of the contracted audits of the EDA’s Fiscal Year 2018 and 2019 budgets. Those were the final two full years of leadership under past board member and former Executive Director Jennifer McDonald.
The audits are expected to shed some light on how and under what rationales EDA assets were moved or committed to projects during the final two years of what related civil suits against McDonald and alleged co-conspirators assert was a conspiracy to defraud the EDA and move its assets to the personal benefit of McDonald and others. The EDA civil actions seeking recovery of those allegedly misappropriated assets cite activities believed to have been occurring at least between 2014 and 2018. Brown Edwards, the contracted auditing firm doing those audits, is not the same company that did the EDA audits annually during the alleged financial scandal. Discussion of potential liability of that previous auditor for not recognizing/alerting the EDA to unusual money movement has been broached, if not pursued at this point. The total amount of allegedly embezzled assets has fluctuated between $26 million and a recent jump to $62 million related to McDonald’s Chapter 7 Bankruptcy filing.
See related story on recent rulings in McDonald’s Bankruptcy Court filing and the EDA’s civil litigation against alleged embezzlement-misappropriation of EDA funds co-defendant ITFederal
UPDATE: EDA and McDonald agree to $9-million debt exemption to her bankruptcy claim
On Tuesday, July 20, U.S. Western District Harrisonburg Division Bankruptcy Court Judge Rebecca B. Connelly issued a “Non-Dischargeable Consent Order Judgement” in Jennifer McDonald’s bankruptcy filing. The judge’s order decrees that “The Warren EDA is granted judgment against and is entitled to recover from Debtor, the sum of $9,000,000; and this judgment shall survive discharge of the Debtor in this Chapter 7 bankruptcy …”
The preface to Judge Connelly’s ruling notes that “In the interest of resolving this matter and avoiding litigation uncertainty, risks, and costs, but without the Debtor admitting the Warren EDA’s allegations, the Warren EDA and the Debtor have engaged in arm’s length negotiations and agree that the Warren EDA’s non-dischargeable claim is in the amount of $9,000,000 …”
The bottom line appears to be that the EDA and its former executive director have agreed that $9 million is the amount of the EDA’s civil court claim against McDonald, without her agreeing that she actually did anything wrong to justify the claim. So, that amount will be subject to collection in the civil action claim by the EDA outside the bankruptcy court process. The bankruptcy court order notes that any amount the EDA was to recover in the bankruptcy action would apply to achieving its $9-million civil claim in Warren County Circuit Court.
A reading of an “Exhibit A1 – the Stipulation” explaining detail of the “Non-Dischargeable Consent Order Judgement” further elaborates that McDonald as “The Debtor waives any right to contest the validity, enforceability, extent, and scope of the terms of the Stipulated Non-Dischargeable Judgment … and waives any right to seek relief from this Stipulation on any grounds” based on any applicable law.
Remaining at issue between the parties appears to be how the EDA will collect that $9-million dollar judgement the parties have agreed to. A number of McDonald-owned properties were frozen by the court early in the civil process, while properties co-owned with other family members were not. Since that order several relatives were named as co-defendants. The “Stipulation” also notes that the EDA-McDonald agreement order “shall not release or discharge any entity other than the Debtor from any liability owed to the Warren EDA” under its Amended Complaint in civil court against all co-defendants.
No ‘Summary Judgement’ against ITFederal
Also, on the EDA vs. McDonald et al. civil action side, on July 14, Harrisonburg-based presiding Circuit Court Judge Bruce D. Albertson dismissed an EDA motion for a “Summary Judgement” ruling against Truc “Curt” Tran’s ITFederal LLC. Plaintiff and defense attorneys made oral arguments on the EDA motion before Albertson on June 10. The bottom line here appears to be that the court has ruled there is not enough substantive information in the plaintiff’s original complaint to rule ITFederal immediately liable for the claim against it.
ITFederal’s $10-million EDA loan to achieve the development of its 30-acre parcel (valued at about $2 million but gifted to ITFederal by the EDA for one dollar) at the Royal Phoenix Business Park/former Avtex Superfund site, with as much as another $2 million in developmental expenses, was the largest single claim in the initial EDA financial scandal civil action.
The EDA alleges that the ITFed loan was achieved under false pretenses as part of the over-arching embezzlement-misappropriation of funds conspiracy allegedly orchestrated by McDonald as EDA executive director after former federal Sixth Congressional District Representative Robert Goodlatte brought Tran here with much ballyhoo for a fall 2016 ITFederal ribbon cutting at the Avtex site. And now the EDA claim against ITFederal, which remains current on its EDA loan payments of about $40,000 a month with an estimated $2 million spent on site, will, unlike the EDA claim against McDonald, continue as a contested part of the EDA’s civil action.
See related EDA meeting, 2018-19 audit story – “Financial Scandal Era Audits near completion as EDA ponders Budget Adjustments”
EDA crunches operational budget numbers, moves scandal year audits forward
The Board of Directors met today for their regular monthly meeting. Following an approximately two-hour Closed Meeting, on a motion by Jim Wolfe and seconded by Scott Jenkins, the EDA Board unanimously agreed to add an additional $10,000 to the contract with Brown Edwards, who is completing the FY2018 and FY2019 audits, pending documentation of work completed and review by legal counsel.
Under New Business, the Board agreed to table action on updating the EDA Bylaws. The Board of Directors did pass three additional motions:
On a motion by Jorie Martin and seconded by Jim Wolfe, the EDA Board unanimously approved requesting to the Board of Supervisors an increase of three line items to the EDA’s FY2022 Operations budget:
Professional fees-Auditor $32,500: this increase is to account for a $10,000 amendment to the Brown Edwards contract for FY 2018 and FY2019, and $40,000 to conduct the FY2020 and FY2021 audits.
Marketing-$5,880: this increase is to account for updated plans to participate in economic development programs and site visits, as well as marketing materials.
Maintenance-$14,310: The EDA is reimbursing the commercial tenant at 1325 Progress Drive for HVAC replacement and repairs. Additionally, the HVAC at 400 Kendrick Lane-West and 426 Baugh Drive need extensive service.
On a motion by Jorie Martin and seconded by Jim Wolfe, the EDA Board unanimously approved a Request For Proposals (RFP) to advertise for auditing services for the fiscal year 2020 and 2021.
Finally, on a motion by Jorie Martin and seconded by Jim Wolfe, the EDA Board approved reimbursing Visionary Optics, the tenant at 1325 Progress Drive, $4,500 for expenses related to HVAC replacement and repairs.
The EDA Board of Directors will have their next regular monthly board meeting via Zoom on Friday, August 27, 2021, at 8 a.m.
EDA Finance Committee scrutinizes FY-22 Budget proposal, dynamics
Friday morning, July 9, the Finance Committee of the Warren County Economic Development Authority met to discuss the EDA’s Fiscal Year-2022 Budget proposal. In addition to Committee Chairman Jim Wolfe and members Jorie Martin and Tom Patteson, present for the in-person meeting at the EDA’s Kendrick Lane Office were EDA Board Chairman Jeff Browne, Executive Director Doug Parsons, Administrative Assistant Gretchen Henderson, and County Board of Supervisors Chair Cheryl Cullers.
The County Board of Supervisors holds the purse strings for the EDA, as the new EDA board and staff continue to navigate the financial and legal aftermath of the $26-million-dollar-plus financial scandal uncovered during the administrative leadership of former EDA Executive Director Jennifer McDonald and a previous EDA Board of Directors.
How the financial consequences of that yet-to-be resolved civilly or criminally alleged misuse, embezzlement or fraudulent acquisition of EDA resources continues to impact the retooled EDA was a topic of interest during the committee meeting. As annual debt service revenues from property rentals and loan paybacks versus loan debt service expenses were discussed in a second phase of the budget review, that point was made quite pointedly after a debt service revenue deficit of $704,700 was noted.
“Let’s make this clear for the public,” Committee Chairman Wolfe injected with a glance the media’s way, continuing, “So, there are three (primary) figures on the page … there is the $220,000 General Fund Operating Allocation. And the way to think about it is as a matter of public policy the County says, ‘economic development is a good idea, let’s put some money toward that kind of development’.
“There’s another operating supplement of … $39,200.
“And because of all the debts of prior activities, there’s another roughly $700,000 in unfunded debt payments because of past transactions. Those don’t have anything to do with current economic development or moving forward. That’s trying to clean up after the other ones. – Did I misstate that in any way?” Wolfe concluded with a question for his EDA colleagues.
Rather than a correction, Executive Director Doug Parsons elaborated on Wolfe’s observation with added detail on how the deficit numbers broke down between inherited debt versus that acquired by the new EDA – the short answer being all six of current EDA loans with a total annual debt service of about $1.5 million were inherited and none acquired by the retooled EDA board and staff.
During the committee meeting Parson also pointed to a $658,000 General Fund Cap number plugged in by the county administrator that could be adjusted upwards to help cover that $704,700 debt service shortfall. The shortfall was created by the difference in the $1,556,700 annual debt service of the six inherited EDA loans and the $852,000 of Offsetting annual revenue from the Baugh Drive Warehouse rent ($345,600) and the ITFederal Loan payback ($506,400).
Operations and the Future
In the first phase of discussion it was the Operational Budget under scrutiny as the new EDA board and staff continues to move forward with economic development in the community, while still traversing the legal and civil liability minefield of the financial scandal referenced above. A 28-line-item FY-22 Operational Budget totaling $367,100 was brought to the table.
Major areas of concern discussed included “Marketing” of the community to potential businesses seeking a favorable geographic and social environment; “Maintenance” of EDA properties – variables and potential HVAC costs at Baugh Drive and the EDA office complex were put on the table; “Legal” and “Auditing” fees; “Insurance” including, not only “Property Insurance”, but also “Professional Liability” insurance; the impact of a 2.5% Cost Of Living Act (COLA) increase on staff salaries; and continued efforts on community education to limit and reverse the spread of the Spotted Lanternfly in the county.
Wolfe observed from his experience that marketing was often a first budget line item to be reduced during tight economic times, but added that “it should be the last”. A $10,000 “Marketing” request was reduced to $4,300 by the County Administration. While the importance of advertising was agreed upon, its type and context to achieve maximum positive exposure and result remains an issue the EDA Board has devoted some discussion to recently. How that may translate into a final number submission remains to be seen.
A $10,000 “Maintenance” request was unaltered by the County. However, with looming HVAC maintenance or replacement issues at several locations, the potential need of more than the originally submitted amount was noted.
Legal, Auditing & Insurance variables
Legal fees were listed at $84,000 – pared back from a $96,000 request – and auditor fees at $17,500. It was explained the $17,500 was for one fiscal year’s audit. But the advantage of seeking both the FY-2020 and FY-2021 audits in the coming budget year was broached to catch the EDA up with the County in the auditing process. This past year the EDA went through a lengthy, soon-to-be finalized by the firm of Brown-Edwards, audit of the FY-2018 and FY-2019 budget years when alleged embezzlements and other financial misappropriations were occurring.
Of the coming-year audits beginning with FY-2020, Parsons commented: “They will be drastically more simple than 2018 and 2019 because we were all here” throughout those years’ budget and operational processes.
It was noted that while the EDA must put the FY-2020-and-21 audit services out to bid, due to their experience here through more trying budget cycles it seemed a longshot that Browne-Edwards would not get the call back.
On the insurance front, $10,000 was listed for “Property Insurance” and $400 for “Professionally Liability Insurance”. With the EDA having received a $500,000 “Liability” payoff from current carrier Cincinnati Insurance, the potential of a bidding war to pick up the Warren County EDA’s liability coverage seems slim.
“I’ve been working on this for nine months and nobody will touch us,” Martin told her colleagues of interest from other companies. The advisability of sticking with Cincinnati if possible, but changing local agent Stoneburner-Carter due to proprietor Tony Carter’s current and past seat on the Warren County Board of Supervisors, was broached.
County EDA Board elects officers for coming fiscal year; reviews operational, budget and banking matters
On Friday, June 25, the Economic Development Authority Board of Directors met for their monthly board meeting, which included a two-and-a-half-hour closed session during which legal, banking, and real estate matters were discussed. The latter topic included the potential disposition of real property related to Avtex Redevelopment, as well as real estate at Baugh Drive and the Stephens Industrial Park. No announcements came out of the closed session.
During the open session that followed, the Directors discussed EDA committee reports, a draft Fiscal Year-2022 budget, and held officer elections for the coming Fiscal Year. Starting July 1, 2021, EDA Board officers will be Chair-Jeff Browne, Vice-Chair-Greg Harold, Treasurer-Jim Wolfe, Secretary-Jorie Martin. Tom Pattison’s motion to nominate that slate of officers passed without opposition, and there were no counter nominations.
Browne, who took over as EDA board chairman in the wake of Ed Daley’s departure for what was initially an interim appointment as County Administrator that has stretched on long enough that the “interim” has been removed from his title, called the board’s current and recent personnel “a great group to work with”.
Browne also noted that Friday’s meeting at the Warren County Government Center was the EDA board’s first in-person meeting in over a year since the COVID-19 pandemic restrictions went into effect. He called the meeting, held for the most part in the caucus room adjoining the main meeting room “a hybrid meeting” as it was broadcast, as have been all EDA meetings over the past year, on ZOOM.
During committee reports, Jorie Martin noted positive work on the Joint County-Town Tourism Board – “The bottom line is that I’m hoping this board will continue to work together, and I think it’s much more effective for us to be together as the County and the Town working together for tourism,” she noted, pointing to the next Joint Tourism meeting on Wednesday, June 30. Hmm, County and Town working together on economic development as opposed to litigating and duplicating efforts – what a novel idea.
Operations and Budget
During his Executive Director’s Report, Doug Parsons informed his board of two “Business Retention and Expansion” projects with “significant new jobs and investment” prospects he termed “very exciting”. The EDA executive director also gave recently elevated County Planning Director Joe Petty a pat on the back, calling him “great to work with” on these initiatives.
Parsons also noted recently recruited drone manufacturer and operations contractor Silent Falcon’s plans for an Open House “to showcase their products and renovated space” at the County’s Front Royal Airport (FRR) in July or early August (OH BOY, Royal Examiner video camera field trip!!!).
The makeup of committees as to numbers and bylaws adjustments to accommodate necessary changes was discussed with EDA attorney Sharon Pandak. It was noted that with a two-person committee, a public notice of a “meeting” would be necessary just for one committee member to call the other to discuss projects. With a three-member (or more) committee, that would not be necessary.
Chairman Browne noted the advantage of having a point person forwarding projects to the point of authorization and final decision-making by the board. He stressed the importance of striking a balance between efficient operations and transparency in the wake of operational irregularities discovered during the financial scandal investigation. That criminal investigation, now in the hands of the Western District of Virginia federal prosecutor’s office, and consequent civil litigation targeting the previous executive leadership of Jennifer McDonald, and alleged co-conspirators, found a lack of adequate oversight by the previous EDA Board of Directors in place dating from around 2014-15 to early 2020. The new board is trying to avoid such absentee oversight without creating unnecessary micro-management that could stall successful recruitment or other economic development efforts.
After noting the relocation into the new Warren Memorial Hospital space earlier in the week, it was agreed that Jim Wolfe would spearhead efforts with ownership to market the old hospital. Options related to the presence of a commercial kitchen in the 108,000 s.f. space was broached as to possible uses as a culinary school and working restaurant in a portion of the building.
A draft FY-2022 Budget was reviewed, with comments on potential impacts of bank loan refinancing opportunities. Executive Director Parsons said if all refinancing opportunities came to fruition, it would equal $138,000 annually “to the good” for the EDA as it continues to emerge from the shadow of the alleged financial scandal that pre-dates the current EDA board and staff.
Also noted was a $90,900 adjustment from the potential of refinancing of the IT Federal loan, which is the single biggest line item – $10-million to $12-million – in the EDA’s civil litigation regarding the above-referenced financial scandal alleged to have occurred under the previous board and executive director’s tenures, the latter which ended in December 2019.
Parsons was noting an average monthly legal expense of about $7,000 just prior to the loss of the ZOOM connection to the board’s first “in-person meeting in over a year” at the Warren County Government Center. Contacted later, Parsons said several phone connections failed around the same time shortly before the meeting’s adjournment, cutting communications with several remote participants or observers, including EDA Attorney Sharon Pandak.
The Board of Directors will hold a Special Meeting on Friday, July 9, 2021, from 10-to-11:30 a.m. to take part in FOIA/COIA training, led by EDA Counsel Sharon Pandak of Greehan, Taves, and Pandak. The EDA Board of Directors’ next monthly meeting is scheduled for Friday, July 23, 2021.
(Some info in this story came from an EDA Press Release on the meeting.)