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EDA Executive Director addresses questions on ITFederal process as site work begins at Royal Phoenix

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We asked Front Royal-Warren County Economic Development Director Jennifer McDonald about Councilwoman Bébhinn Egger’s original line of questioning about ITFederal at the October 24, 2016 Council meeting; and the subsequent public portrayal of company CEO “Curt” Tran’s reaction to Egger’s line of questioning.  Egger alleged a “Perfect Storm of Silence” surrounding ITFederal as delays in final approval of the negotiated deal with the EDA drug on for over a year.  She also raised questions about the reliability of companies funded through the EB-5 visa program.  Then you had Councilman Bret Hrbek voice not only concerns Tran was re-considering his investment at Royal Phoenix, but suspicions of intentional delays orchestrated by the Office of Democratic Governor Terry McAuliffe in State DEQ permitting.

QUESTION: So Jennifer, what is going on with ITFederal and the process to bring, and keep it here?!!?

Jennifer McDonald: The EDA applied for the DEQ permit November 25th 2014, we received the permit November 16th, 2015.  Nothing Mr. Tran did caused this delay; this was simply a year-long process to get a stormwater permit from DEQ. (writer’s note: ITFederal did not enter the Royal Phoenix equation until June 2015, and a contract with the EDA for the 30-acre Lot 6 parcel was not agreed upon until September 2015.  So DEQ permitting came within two months of the deal being announced, and exactly three weeks after ITFederal’s ceremonial groundbreaking.)

Blair Mitchell, Counsel for the EDA at the time, sent a letter to EPA requesting the partial satisfaction. That letter was sent September 15th, 2015. The EDA received the signed letter back from EPA September 23rd, 2016. Not a single thing that Mr. Tran did to cause this delay in receiving this letter.

Is there light at the end of the remediation tunnel at the former Avtex Superfund site? EDA Executive Director Jennifer McDonald, red pull-over, leaves discussion with site work supervisor Stevie Lockhart on Wednesday, Dec. 28. Photo/Roger Bianchini

During the time period that Mr. Tran was putting his site plan together he had met with Town staff several times to discuss the layout and design of West Main Street extended because his development was based upon the design and features of that road and if VDOT was going to participate in the funding of the road. If VDOT would not fund their portion ITFederal would have to put their entrance off Kendrick Lane rather than West Main Street extended. – Again, nothing that Mr. Tran could control.

QUESTION: We asked McDonald about her effort to get a response to Councilwoman Egger’s request that Sixth District Congressman Bob Goodlatte, whom McDonald has credited with bringing the company to the EDA as an “Economic Development Opportunity”, for an official endorsement of ITFederal’s business model.

J McD: I did send Mr. Goodlatte’s office a request for a letter supporting the legitimacy of ITFederal on November 15th after Ms. Egger’s request.  I did not hear anything back from the office and sent another email asking if they had seen my request and received an email that staff had been in D.C. at a meeting.  He replied that he would get back to me with the Congressman’s answer.  We have not received a reply.

Q – Are there precedents for the type of up-front economic incentive done for ITFederal, in this case a one-dollar sale on a parcel valued at $2-million?  Also, were there difficulties in marketing a Superfund site that played into the decision to give away the first commercial lot?

On Dec. 9 at the EDA’s final meeting of 2016, Executive Director Jennifer McDonald, gray sweater, summarized positive movement on the ITFederal project at the Royal Phoenix Business Park … Photo/Roger Bianchini

J McD: There absolutely is a precedent for this type of economic development incentive.  Back in the early 90’s when the County was trying to jumpstart the economic growth they offered free land to Toray for jobs investment and tax investment.  Toray has been in the community since 1995, so it seems that this type of incentive works and turns out to be a great investment for the community.  Also, PenTab was offered land at a very reduced rate to attract their company.  Now the community has a taxable piece of property and a building that remains occupied.  This is economic development 101 and happens across the Country during hard economic times or with difficult sites to develop.

It is not as easy as everyone thinks marketing a Superfund site to potential users.  The word Superfund alone scares investors away.  We were lucky that Mr. Tran was willing to be the first to take a chance on development.  Once others see there is no danger in putting a business on a completely re-mediated site, then it will be much easier to recruit and develop.

… Three weeks later there was visible evidence of that movement behind the EDA’s Kendrick Lane headquarters on site. Courtesy Photo/EDA

It was the belief of the EDA, EPA, and FMC that taking a loss on the sale of the first 30 acres of the site in order to start the redevelopment efforts was worth the risk. These three agencies are the ones taking the loss upfront, not the Town of Front Royal and we were willing to do so to generate the investment and would most likely make that decision again if we had to.

Q – Also, can you explain a little about jobs ITFederal will create versus other businesses he may market to – you/EDA talked about a “Campus” on the Lot 6 parcel, I think there is confusion about how much space he and his business interests will occupy versus other business he will market to as clients, retail or whatever they may be.

J McD: The complex will include approximately 37,000 square feet of office spaces for ITF, a 10,000 square foot cloud data center facility and approximately 20,000 s.f. of space that ITF will rent out to retail and commercial customers (10,000 s.f. on first floor of phase 1A and 10,000 s.f. on phase 2B)

These two graphics shows the complete ITFederal site plan. The first, closer perspective shows ITFed building in orange, with parking in gray. Kendrick Lane runs across the top of the graphic – the EDA office complex is the long, lighter colored building to right. The longer shot, below, gives more perspective with most of the Royal Phoenix Business Park shown. The ITFed complex at left, with Kendrick Lane running from bottom left toward top center. The lighter-colored building complex at center of second graphic is projected future development.

As for job creation you can see from the table below what the anticipated ITF jobs will be salary wise and a total of jobs for the entire ITF operation based on year.  Year 1 was based on a start date of Fall 2015, so the numbers are a little lower because of the time of year. All of these jobs are strictly ITF jobs and not related to the retail component.

Table: Personnel

Personnel Plan
Year 1 Year 2 Year 3 Year 4 Year 5
Executive Staff $180,000 $298,000 $317,800 $400,000 $500,000
Executive Assistance $45,000 $74,000 $64,800 $77,760 $93,312
Operation $90,000 $94,500 $99,225 $104,186 $109,396
SG&A Staff $180,000 $848,062 $1,122,093 $1,346,499 $1,750,449
Overhead Staff $330,000 $941,180 $1,246,770 $1,496,110 $2,468,550
NRC Contract Staff $2,249,724 $5,155,900 $6,233,850 $7,480,550 $8,228,500
Other Contracts Staff $889,000 $1,778,000 $2,667,000 $4,000,500 $6,000,750
NRC Subcontractors Staff $642,779 $1,187,400 $1,781,100 $2,137,300 $2,351,000
Other Subcontractors Staff $254,000 $508,000 $762,000 $1,143,000 $1,714,500
Other Government Staff $0 $225,000 $337,500 $675,000 $1,012,500
Commercial Business Staff $67,500 $525,000 $1,050,000 $2,100,000 $4,200,000
Office Assistance $41,392 $49,136 $49,163 $49,259 $49,385
Total People 168 366 465 525 616

Below is a chart that depicts first year jobs including direct and indirect jobs.  This is the chart that shows construction jobs and retail jobs that are not included in ITF job count that was given to the EDA for consideration.

Activity

Direct Empl Indirect Empl Induced Empl Total Empl
New Construction [79.5] 28.3 44.6 72.9
IT Operation 203.4 61.4 160.8 425.6
Facility Engineering, Maintenance 51.4 5.5 12.0 68.9
Computer/Com. Design, Maintenance 12.8 8.9 11.8 33.5
Cloud Services 91.7 29.0 56.3 177.0
Commercial/Retail Lease 27.3 3.6 6.0 36.9
                     Total

lllll

386.6 136.7 291.5 814.8

So we based our job count on the 705 jobs for IT operation, Facility engineering, computer/communications design and cloud services.

As the EDA views this, any developer that is interested in developing this parcel to be for their own use or to lease out for commercial use it is still a win for the Town of Front Royal because of the tax investment in real estate and personal property.  Back in 2006 the EDA considered selling the entire parcel to Lerner for development because of the tax investment involved.  At that time everyone thought that was a great idea, but unfortunately Lerner became nervous because it was a Superfund site.

Q – How big was the Commonwealth Transportation Board Main Street extension okay you mentioned at the December EDA Board meeting – how much will the state contribute?  Could you also explain the $150,000 Tran offered the Town to that road project in lieu of the bridge loan interest in months two and three?

J McD: The Town applied for a matching grant for the first phase of West Main Street extended. I believe they applied for a $650,000 grant, ($500,000 unmatched, $150,000 matched). Mr. Tran agreed that in lieu of interest for months 2 & 3 of the bridge loan that has been paid in full, he would donate $150,000 towards the road construction.  The Town agreed to that arrangement.

Looking southeast near the Kendrick Lane entrance to the site is the existing interior road that outlines the path of West Main Street extended. Now approved for State Industrial Access Funding, the West Main Extension is envisioned as the primary access road to the ITFederal complex. Photo/Roger Bianchini

Q – Can you comment on Hrbek’s politicizing the delays & suggesting maybe the Democratic Governor’s Office purposefully used DEQ to delay construction because “he was mad Goodlatte got credit for bringing them here” even though as Hrbek phrased it, he (the governor) offered more in the way of economic incentives.

J McD: DEQ is a State organization that has control over the stormwater, so I’m not sure McAuliffe had anything to do with that delay.

Q – And finally, Mr. Tran’s readiness to proceed from last year as originally hoped; his willingness to take on 30 acres at a former Superfund site, and other things he may be involved in, at Millennium Lotus or wherever – tell us exactly what someone willing to invest in THIS community, even relocate here, can mean economically – and the impact of the negativity or questions that have arisen during the year-plus of delays he did not create?

J McD: The EDA’s goal when recruiting a large industry or company tries to also recruit the President or head of the company to locate their family to the community.
That way they become involved in the community and have a vested interest. We now have one of the best school systems we’ve had in years and our healthcare system continues to improve, so marketing the community to not only the company, but to the owner of the company seems pretty easy from our point of view.  This time it worked, Mr. Tran loves this Town and wanted to be a part of it not only as a businessman, but as a resident.  So we considered that a success, not a scam.

Q – Would Mr. Tran really consider taking his $40-million ball and going home — or to Shenandoah County, as Mr. Hrbek suggested was the case on Nov. 14?

J McD: As I mentioned to you, Mr. Tran is not mad that anyone questioned the validity of a company moving to the area, but he is very angry that someone made a personal attack on him and called him a money launderer and scam artist.  The personal attack was unnecessary and frankly viewed by some as illegal.  I don’t know if you remember when former Council members had lawsuits filed against them for similar comments.

Again, I remind everyone that the Town of Front Royal has not invested a single dollar in this company.  They have not offered ITFederal any incentives, they have not been asked to offer any incentives; they have, however, been offered $150,000 towards the construction of their road and have been offered an investment on a Superfund site owned by the EDA that will generate tax revenue for the Town of Front Royal.  Not sure where the downside is for the Town of Front Royal or its citizens.  If it’s a risk that we get 400-600 jobs and $40 million worth of investment, it’s a risk the EDA Board of Directors was willing to take.

Workforce Housing Project

Q – While we had the EDA Executive Director’s ear, we decided to ask about the EDA Board decision to enter the apartment-management business related to the Workforce Housing Project.  Some have questioned whether it is appropriate for the EDA to be involved in apartment management, even if it relates to the young, local professional workforce it is designed to serve – and keep in this community.

J McD: The EDA has worked diligently on the workforce housing project for 10 years trying to get developers to step up to the plate to do the development of non-subsidized, quality apartments for our workforce.  Not a single developer stepped up to make it happen, so the EDA decided we would work on this on our own accord.  Once we made the announcement a few developers stepped up and wanted to participate, but at that time we had already made a commitment to the grant that we would own the property and it was put in our Special Use Permit by the Town.

A comment was made at a recent Council meeting that they had never heard of an EDA getting involved in this type of activity and that is true, but at the same time we were the first EDA to offer small business loans to start-up or existing businesses and that program has been very successful in providing over $1.7million dollars to local businesses, 85% of which were Main Street businesses. We are one of very few EDA’s that gets involved with road and utility infrastructure projects like the Leach Run Parkway, Baugh Drive Extension, West Main Street extended, and corridor utility extension. So, yes we are thinking outside of the box and the Board of Directors felt very confident that it is the right thing to do for the workforce of this community.

—– Which side are you on? —– Get your t-shirt!

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