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Op-Ed: County, EDA officials cited for failed oversight – why not the Town?

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The status of the ITFederal project and the $10 million loan that facilitated it is likely to be under increasing scrutiny by EDA civil attorneys contending that loan was acquired under false pretenses. Royal Examiner File Photos/Roger Bianchini

Many have wondered when or even if prosecutors and state investigators guiding the Warren County Special Grand Jury’s look into criminality tied to the Economic Development Authority financial fraud investigation would expand its focus beyond a tightly knit circle surrounding former EDA Executive Director Jennifer McDonald.

On Tuesday, September 24, they got an answer, if not precisely the one many citizens critical of the political and economic status quo here were hoping for.

That answer was a total of 42 indictments, three each against 14 new players, including the entire elected Warren County Board of Supervisors, the top county administrative official and recently departed County and EDA attorney, as well as a mix of former and sitting EDA Board of Director members.

The disappointment for some was that those indictments were all misdemeanor charges related to an absence of due diligent oversight of EDA affairs, specifically over the last four months of 2018 regarding the continued administrative authority of Jennifer McDonald. (See linked story below)

The bookings at the Magistrate’s Office of the Rappahannock-Shenandoah-Warren County Regional Jail (RSW Jail) didn’t even generate the orange jail jumpsuit mug shots many social media denizens would have likely framed for posterity.

No mug shots today – County and EDA officials charged with misdemeanor failures of due diligence in the conduct of their office were not booked into the jail, as any defendant in similar circumstances released on their own recognizance would not be RSW Superintendent Gilkison has explained.

But while County officials rightfully face scrutiny for their failed due diligence, the Town of Front Royal governmental apparatus has thus far escaped unscathed, at least regarding criminal liability and even the level of public criticism aimed its way.

No Front Royal Town official has yet been indicted for criminal negligence regarding financial oversight of EDA operations; and to our knowledge there is no “recall them all” petition being circulated against the Town Council.

Why?

Three years ago, it was an overwhelming majority of Council that threw a defensive and protective shield around both McDonald and two of the more implausible projects she was instrumental in bringing forward.

This mid-2016 photo perhaps shows varying levels of disinterest expressed by all of Bébhinn Egger’s Town Council colleagues over her claims about ITFederal at the time.

In fact, those two projects, ITFederal and Workforce Housing, account for nearly $11 million, $10 million and $650,000 respectively, of the $21 million in EDA assets alleged to have been either misdirected by McDonald or moved under false pretenses during her executive oversight.

But some Town officials have claimed Front Royal has nothing to do with EDA operations since the County took over the Town’s portion of the EDA’s annual operational funding in 2012.

But as Royal Examiner has reported previously, that notion is questionable at best with much of the EDA’s work being done on behalf of the Town on projects inside the town limits. ITFederal, Workforce Housing, the Afton Inn and new police headquarters construction project come to mind.

If that wasn’t the case how do Town officials explain filing suit against the EDA to recover as much as $15 million in Town assets they contend were misdirected, lost or acquired under false pretenses? Do they think McDonald snuck into a secret town vault to pick the lock or hacked into Town bank accounts and sent their $15 million to a secret offshore location?

No, if experience tells us anything chances are that if McDonald had asked the Town Council for $15 million they would have just given it to her with a pat on the back.

In fact, that’s exactly what Council did in 2015 when McDonald came and asked for a $10 million “bridge” loan to help prop up the EDA’s case with First Bank & Trust to finance a $10 million loan to ITFederal through the EDA. Council was even kind enough to extend that initial one-month loan taken out of an investment account generating nearly $4,000 of monthly interest for two additional months without fee compensation for lost interest revenue beyond the first month.

It seems very possible that without that three-month Town handover of the desired ITFederal loan amount the bank loan for ITFederal would never have been achieved, reducing the EDA’s claimed losses by almost half.

But when Councilwoman Bébhinn Egger warned her colleagues that ITFederal did not appear to be what it was purported to be financially or from a business standpoint by McDonald, Congressman Robert Goodlatte and the company’s CEO Truc “Curt” Tran the reaction was not one of cautious due diligent verification.

Rather, the unanimous consensus of Egger’s colleagues was to either ignore or berate her, not to mention your then newly created online news source, for telling them things they didn’t want to hear – even if as it turned out, they were verifiably true at the time – as in no $140 million government contract basis upon which to create 600 high paying tech industry jobs as part of a $40 million ITFederal investment in this community.

From left on Nov. 28, 2016, Councilmen John Connolly, Hollis Tharpe, Bébhinn Egger, Gene Tewalt, Bret Hrbek, Mayor Tim Darr, and Jacob Meza at far right, bid farewell to Town Manager Steve Burke, second from right. Only one of this group, you know who she is, performed due diligent oversight of EDA affairs. It was a majority state of affairs that lasted on council for another year and a half.

Revisionist History?

The day after the County and EDA misfeasance and nonfeasance misdemeanor bookings the Town of Front Royal issued a pat-us-on-the-back press release in which Interim Mayor Matt Tederick lauded the town government’s role in launching the Virginia State Police investigation into EDA finances.

“Due to the watchful eyes of the Town Government, potential financial irregularities involving the EDA were discovered in the late spring and early summer of 2018. The Town Council swiftly turned their findings and suspicions over to the Virginia State Police, who in turn immediately commenced an investigation,” Tederick states, adding, “The citizens need to rest assured that the Front Royal Town Council will continue to pursue its lawsuit against the EDA and any others in order to hold those responsible for the Town’s losses accountable. The public’s continuing confidence in Town government is greatly appreciated and I might add, warranted.”

Pals – then EDA Executive Director Jennifer McDonald and private citizen Matt Tederick pose before start of Sept. 25, 2017 Town Council meeting. It was a meeting at which Council voted against a Board of Architectural Review recommendation to deny the EDA request to allow demolition of the Afton Inn to facilitate redevelopment at the site.

As far as ascertaining responsibility for any Town losses, both current and past councilmen and mayors over the past five years might begin by looking in the mirror.

As for “continued confidence”, as mentioned near the end of our story on a Council initiative to explore creation of its own EDA, if Tederick is referencing the work of town staff, as opposed to all but one of its elected officials (Egger) in recent years, he may be on to something.

After all, in June 2017 Town Police investigators began to develop suspicions that some reported criminal actions targeting the EDA offices and its then executive director had been staged from the inside.

And about a year later Town Finance Director B. J. Wilson did discover an eight-year history of over $291,000 in Town debt service overpayments to the EDA that finally set the process of EDA financial scrutiny in motion.

But that scrutiny was a long time coming, about 2-1/2 years after council was warned by one of its own that things appeared horribly amiss in some EDA projects. And the scrutiny of 2018 did not generate from any Town Council initiative targeting the EDA, but as noted above from staff discoveries while exploring Town finances that landed a “smoking gun” of precise evidence on Council’s lap.

It was Wilson, Town-contracted auditors and the Town Attorney who took the point in confronting McDonald, EDA Board Chairman Greg Drescher and EDA Attorney Dan Whitten over those debt service overpayments of nearly $300,000 on August 23, 2018. It was at that meeting during which the term “fraud” may have been first broached regarding EDA finances.

Greg Drescher and Jennifer McDonald appeared grumpy at times under questioning by Tom Sayre and Archie Fox at June 2017 joint work session on the EDA’s Workforce Housing Project.

That mid-2018 meeting between Town and EDA officials led to Drescher’s resignation as EDA board chairman the following day. It was also likely a driving factor in the County’s hiring, on behalf of the EDA, an investigative public accounting firm, Cherry Bekaert, to begin a probe into irregularities within EDA finances.

It was also a meeting that, as Tederick observed, led to the launching of a State Police investigation. But by that point, not to forward staff’s information on EDA financial irregularities to law enforcement for scrutiny might have eventually been seen as indictable as a more serious felony charge of complicity in a cover up of financial fraud.

As for that State Police investigation, one might contend it was begun a year earlier by the Front Royal Town Police. But that investigation was allowed to be shut down in 2017 at the request of EDA Board Chairman Drescher to allow, first the EDA board, then its executive director to control the investigation of alleged crimes targeting the EDA and its chief executive through a hired private investigator.

It was a request and decision that allowed the alleged EDA financial subterfuge, whatever its source, to go unchecked for an additional year and a half.

Accountability – where?

But beyond an honest self appraisal of its past complicity in throwing a protective shield up against scrutiny of EDA projects and its executive director’s assertions about them, should town officials be vigilant about past EDA activities that may have targeted more of its assets versus those of the County? – Certainly.

But why not continue the joint reform process the interim mayor and council propelled forward, rather than just withdraw from it? After all, new EDA Executive Director Doug Parsons has promised full cooperation in determining an accurate appraisal of the Town’s losses within those EDA losses financial fraud investigators have reported being misdirected through EDA operations over a number of years.

And we would suggest the interim mayor and council not continue a course of self-delusional praise and finger-pointing that tries to minimize the Town Council’s own long-term lapsed due diligence regarding EDA affairs it was directly involved in facilitating.

In mid-2016 Bret Hrbek, left, was Jennifer McDonald’s staunchest defender among many, when Bébhinn Egger, right, raised concerns about assertions about EDA projects, particularly ITFederal.

And speaking of that involvement, the media asked former EDA/County Attorney Whitten why the $10 million ITFederal loan the Town was so instrumental in helping achieve was included in the EDA civil litigation for recovery even though it is current on its rather lax terms.

“Because it was acquired under false pretenses,” Whitten replied following an EDA board meeting three months ago.

Whitten’s response echoed the above-referenced, ignored and even vilified warnings three years earlier that something appeared amiss in the EDA’s representations about ITFederal.

So “warranted continued confidence” may be a stretch, at least as it applies to elected Town officials over the past three to five years.

Nonetheless it appears Town officials may avoid the embarrassment of criminal charges, not to mention a high degree of public anger, for their long pattern of failed due diligence regarding oversight in their dealings with the EDA.

Why?

The answer we believe is two pronged legally: first, a statue of limitations on misdemeanor offenses; and second what we would contend was an unnecessary relinquishment of the Town’s authority to appoint two of the seven EDA board members based on the EDA’s fair funding formula split on Town-County investment in EDA operations.

As for a potential third prong in the Town’s escaping the extreme level of public scrutiny and recall petitioning aimed the County’s way, a primary social media purveyor of that public anger has not threatened to sue the Town for millions of dollars, so a public shaming there may have less interest.

But back on the legal side, note that the three indictments filed on the 14 County and EDA officials on September 20 for which they were booked on September 24 and 25, all involved EDA transactions between September and December 2018. Those charges involve only $309,000 of the allegedly misdirected or embezzled $21.3 million being sought for recovery by the EDA in civil litigation.

What about liability for a lack of due diligent oversight during the movement of the other $20.99 million, particularly that $10 million ITFederal loan the EDA now claims was acquired under false pretenses?

There is likely to be none – because misfeasance, nonfeasance and even malfeasance in the conduct of public office are misdemeanor criminal offenses. And there is a one-year statute of limitations on misdemeanor offenses. Also in the September to December 2018 timeframe, the Front Royal Town Council did not have appointment authority of EDA board members.

That is because when the County assumed responsibility for the Town’s 34% portion of the EDA’s annual operating budget in 2012, the Town Council allowed its appointment authority of two of the seven EDA board members to be withdrawn.

Was it a necessary condition? – We would contend not.

Because that County assumption of full annual operational funding from the previous 66%-34% County-Town split was made as part of the long and ongoing negotiations on two fronts: double taxation of Town citizens on certain services provided countywide; and compensation to the Town for its extension of central water-sewer utilities into the North Commercial-Industrial Corridor outside the town limits without annexation.

North Corridor commercial development was enabled by the Town’s extension of central water sewer outside the town limits without annexation. Many believe the Town continues to suffer from lost commercial tax revenue after a judicial striking down of agreed upon PILOT fees tied to utility bills as the Town’s major compensation for that lost tax revenue. Photo Roger Bianchini/Courtesy CassAviation

So if the County is essentially saying either, “We are going to stop the double taxation of Town citizens for countywide services” or “We owe you more compensation for your lost commercial tax revenue due in large part to a Town-County North Corridor compensation arrangement struck down by a Circuit Court judge, and this is part of how we’ll do it,” why would the Town Council agree to withdraw or reduce its past oversight of EDA operations it remained deeply involved in?

Whatever the reason, in 2012 the Town Council did agree to relinquish its EDA board appointment authority, and thus direct supervisory authority over EDA operations. In fact, that relinquishment is referenced in motions filings surrounding the EDA’s claim of sovereign immunity in response to the Town’s $15 million civil action against it.

“That the Town of Front Royal voluntarily waived its right to control the EDA, contrary to the statutory mandate, does not create an actionable fiduciary duty to (the Town’s) benefit,” EDA attorneys wrote in reply to the Town’s opposition filing on the EDA claim of institutional sovereign immunity.

However those arguments play out at a November 8 motions hearing and whether that “voluntary” waiver of its EDA oversight right was a bad decision or not, it has paid off for Town officials in an unexpected way.

Because by allowing the County to assume full EDA board appointment authority, that 2012 Council may have saved its 2015 to 2018 successors from legal liability for the absence of Council’s own due diligence in its oversight of its EDA affairs. And while like the County and EDA officials who were indicted, that misdemeanor liability would have only extended back a year and involve an estimated $309,000, it was a long-term failing the Town itself alleges led to the misdirection of up to $15 million in Town assets.

Regardless, unlike County and EDA officials, in the absence of direct authority to limit the EDA executive director’s conduct of her office over those last four months of 2018, the Front Royal Town Council appears poised to skate home free of any legal liability for its own lapses of judgment regarding its business dealings with the EDA in recent years.

And without “smoking gun” evidence of payoffs to look the other way or shared profiteering from the alleged EDA financial fraud under legal and civil scrutiny, it would appear the worst offense those not indicted for illegally moving or receiving EDA assets can be charged with is failed due diligent oversight, and that within that one-year misdemeanor statute of limitations. And for the above cited reasons it would appear that such charges could only come on the County and EDA sides of the equation, as it did on September 24.

So more than any proactive due diligence by elected Town officials generating “continued confidence”, legally on the failed municipal oversight front you might say it just pays to be lucky timing wise; not to mention have a voluntary withdrawal of EDA board appointment authority in your pocket. I guess you could also say that County generated initiative to acquire additional control of EDA board appointments for its added operational financial contribution kind of backfired long term – because misery loves company, right?

Criminal and non-criminal dereliction of public duty: Where might they apply in the EDA financial scandal?

Grand Jury indicts 14 County and EDA officials for lack of EDA oversight

Council divided on move toward second, Town-controlled EDA

Defense attorneys move to quash grand jury misdemeanor indictments

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Legal questions surround Town offer of one-time, recoverable FRPD payment

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Without accepting any responsibility for the nearly $9-million cost of its new police headquarters building, at a hastily called Tuesday evening Special Meeting to accommodate the turn of the fiscal year today, Wednesday, July 1st, the Front Royal Town Council unanimously approved a “Reservation of Rights Agreement” allowing the Town to pay a portion of the first debt service payment of Fiscal Year 2021 on that Town/EDA capital improvement project. The project was completed in October 2018 and the Town has yet to compensate the EDA for any of its costs in financing the project as will be elaborated on below.

Also approved during the eight-minute meeting prior to an adjournment to closed session for personnel matters believed to be the first of two town managers interviews scheduled this week, was an extension past June 30, and alteration to the contract payment terms of Interim Town Manager Matt Tederick. That will be covered in a separate Royal Examiner story.

Councilman Jake Meza says the Town saved about $50,000 by hiring Matt Tederick as a contractor, but as of July 1 that arrangement no longer exists. Royal Examiner photos and video by Mark Williams.

As to the Reservation of Rights Agreement with Warren County, the authorized one-time payment of $10,528.95 covers half of the Front Royal-Warren County Economic Development Authority’s interest-only payment of approximately $21,102 due at the July 1st start of FY-2021.

Contacted Wednesday morning, EDA Executive Director Doug Parson explained the EDA’s loan to facilitate construction of the Town Police headquarters have thus far been interest-only payments based on a 30-day month. That will change on November 1, when the United Bank loan moves to principal and interest payments. Parsons estimated that would take the monthly payments to about $50,000 from the $21,000 interest-only range.

The United Bank’s interest rate on the loan is 3%. However, the town council has taken the legal stance that it should only have to pay a 30-year, 1.5% interest rate it asserts was verbally promised to it by former EDA Executive Director Jennifer McDonald. As previously reported by Royal Examiner, that 1.5% rate was tied to the construction project qualifying for a 30-year New Market Tax Credit Program (NMTC) loan with a nine-year waiver of interest payments. However, the NMTC program loans are for municipal capital improvement projects that create new jobs, which the FRPD project did not.

Councilwoman Lori Athey Cockrell took the opportunity of council’s passage of the agreement facilitating a one-time, half monthly payment on the FRPD debt service as an indicator that the council and its staff are working proactively with the Warren County government to resolve outstanding legal and financial issues surrounding the EDA.

Prominent among those Town-County/EDA issues is what EDA officials have called “an undisputed” $8.4 million Town “moral obligation” debt on principal to the EDA on the police headquarters construction project. With interest, the balance on that debt is $8.8 million, EDA Director Parsons told Royal Examiner Wednesday.

EDA Board of Directors Chairman Ed Daley was present to watch Tuesday’s council action unfold. Asked for a reaction prior to having a chance to read the Reservation of Rights Agreement, Daley said, “Anything that moves it forward is positive.”

However, after a closer read, exactly how far forward Tuesday’s council action takes the Town-County-EDA discussion, remains a question.

$440,000 invoice – $10,500 (recoverable) payment

The opening paragraph of the Reservation of Rights Agreement notes that the Town had received a June 2 invoice “ostensibly setting out all costs incurred by the EDA in constructing and financing the construction of the Town of Front Royal Police Department (‘Costs’), including the costs and expenses associated with the loan from United Bank obtained to finance construction (‘Loan’)” and continues to note those costs and loan “are currently the subject of dispute” in the Town’s civil action against the EDA.

It is a civil action in which the Town’s contracted Damiani & Damiani law firm appears to have mirrored much of the language in the EDA’s initial civil litigation against Jennifer McDonald and 14 civil co-defendants and which seeks essentially all ($20 million-plus) of the $21.3 million the EDA alleges was misdirected by its former executive director and her first group of co-defendants. In April the EDA filed a second civil action, adding nine defendants and “not less than” $4.45 million in recoverable assets to its litigation.

But as to that June 2 invoice from the EDA, an invoice implying a request for payment on a debt, according to numbers in that invoice what the EDA presented to the Town was a bill for slightly over $441,300 spent thus far on the $8.8 million FRPD headquarters construction loan balance.

What the County and EDA got in response was the above-cited agreement facilitating a recoverable $10,529 payment that on a closer examination appears to try and legally tie the County and EDA’s hands in future court proceedings.

Legal ties that bind?

That agreement references ongoing “discussions” between the Town and County “which may result in amending the Town’s claims in the Litigation (against the EDA)”.

Contacted Wednesday, County Administrator Doug Stanley said county staff had not been involved in those discussions. Attempts to reach Board of Supervisors Chairman Walt Mabe, Vice-Chair Cheryl Cullers, and County Attorney Jason Ham for information on the referenced discussions and council proposal were unsuccessful prior to publication.

Reservation of Rights Agreement, Condition 1 states – “The Town denies that it owes any moral or legal obligation to repay the Loan”

So, referencing the “Reservation of Rights Agreement” passed 6-0 by council Monday, it states:

“WHEREAS, to facilitate the discussions, the County has asked the Town to make the disputed July 1, 2020, payment on the Loan and the Town has agreed, subject to the terms and conditions stated herein.” – As noted above, what was agreed to was a payment of $10,528.95, or half of the interest-only payment due for July, under the following conditions:

Condition 1 – “The Town denies that it owes any moral or legal obligation to repay the Loan” followed by Condition 2, noting that its payment is calculated on the unrealized New Market Tax Credit interest rate of 1.5%, rather than the actual 3% bank loan interest rate.

Condition 3 – “The County and the EDA acknowledge that this payment shall not be construed as, considered to be, or argued to be, in any forum, admission for any purpose, including but not limited to of liability of the Town for the Loan or the Costs.

Condition 4 – “The County and the EDA acknowledge that the Town’s payment is for a disputed debt, under a reservation of rights, and the Town reserves the right to continue to deny liability for the Loan or Costs and to recoup this payment should the discussions prove ultimately unsuccessful.

And drum roll, please, Condition 5 – “All parties agree that payment hereunder shall be inadmissible for any purpose except by the Town to recover this payment as damages in the Litigation.”

So, while Councilwoman Cockrell called the agreement a sign of good faith negotiations in the public interest by the Town, adding that news reports the Town is acting other than in good faith concerning the EDA as creating “a false narrative”, is she right?

Perhaps the EDA’s and County’s attorneys would be the best judge of that – hopefully prior to the signing of the “Reservation of Rights Agreement” by County and EDA officials. For at issue appears to be whose rights are being reserved, and in exactly what legal context regarding the Town’s civil litigation against the EDA and any related litigation over the Town’s responsibility to pay for its $9-million police station.

Because according to the document approved unanimously Tuesday night by the Front Royal Town Council, the Town has no “moral or legal” obligation to pay the EDA-undertaken $8.8-million loan that financed the construction of the Front Royal Police headquarters.

Is that something EDA and Warren County officials really want to sign off on in exchange for a one-time, recoverable, half monthly debt service payment?

Let’s see, a total of $20 million or more at stake versus a “recoverable” $10,500 payment – what do you think?

Ed Daley – File Photo.

We asked EDA Board Chairman Daley his opinion on Wednesday after he had a chance to review the Reservation of Rights documents more closely.

“The first the EDA heard of this was last night, which seems odd in that we are asked to sign off on it. But we’ll need to consult with our attorney first,” Daley reasoned.

Of the contention on a lack of Town liability to pay for its police station included in the document, Daley observed, “The EDA was happy to facilitate a project like that. But it was their (the Town’s) contract, their design, we just helped finance it. I think they need to get their financing together and pay for their police station.”

After we read the conditions in the agreement to her over the phone, EDA Attorney Sharon Pandak lauded the opportunity for further communications on Town-EDA/County issues but was skeptical as to a recommendation on the EDA signing off on the Reservation of Rights Agreement as worded.

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Sleeping with the enemy? After long closed session, EDA wonders if it should make 2 year-end reports

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The Front Royal-Warren County Economic Development Authority had an end of the fiscal year report from its committees at the regular monthly meeting on Friday morning, June 26. In addition to the status of its finances, assets, communications with related agencies, and executive committee business, the board elected officers for FY-2021. See the EDA office’s press release describing details of various actions taken regarding those reports in the related story below.

As for its officers, the EDA Board of Directors decided to stay the course for another year. On a motion by Tom Pattison, seconded by Jeff Brown after a check with EDA attorney Sharon Pandak that he could vote as one of the nominees, by a 5-0 vote, Gordon absent and Gray Blanton’s seat vacant, the board re-elected its sitting officers: Ed Daley chairman, Browne vice-chair, Jorie Martin treasurer, and Greg Harold secretary.

It was still a virtually conducted meeting for the EDA, which is fine with the media at 8 a.m. Royal Examiner Photos/Roger Bianchini

But before those reports, officer elections and new business are taken care of, five minutes after convening the 8 a.m. meeting the EDA board moved into closed session to discuss “the disposition of publicly held real property” including the Royal Lane so-called “Workforce Housing” parcel recently reacquired without the necessity of additional litigation, as well as discussion of the EDA’s resurrected small business loan program, and its two-pronged civil litigation.

As you “indoor sports fans” know, the first prong of that litigation is against its former Executive Director Jennifer McDonald and 24 co-defendants alleged to have conspired with her to misdirect, fraudulently obtain and/or embezzle $21.3 million of EDA assets. The second prong is the Town of Front Royal’s suit against the EDA. That suit alleges lost assets of over $20 million as a consequence of the EDA financial scandal. After three-hours-and-20 minutes behind closed doors, the board emerged without action or announcement and moved to the open meeting agenda.

The virtual presence of Sands Anderson civil case lead attorney Cullen Seltzer and his colleague Dan Siegel may have offered a clue as to which topic may have accounted for the largest time slot behind closed doors.

The re-tooled EDA board and staff at work in December 2019. From left at table are Tom Pattison, Chair Ed Daley, Greg Harold, Executive Director Doug Parsons, Vice-Chair Jeff Browne, Gray Blanton, and Jorie Martin, the latter two around the table from Browne. The board continues to morph with the addition of Melissa Gordon replacing Mark Baker and Gray Blanton’s recent departure.

“Without the necessity of additional litigation” – what a novel concept. Wonder if anyone in Town Hall has considered such an idea in lieu of an “all in” rather expensive legal gamble that every asset the EDA recovers is somehow owed to you – despite their lack of work on your behalf for over a decade publicly verbalized as justification to pull away from them toward the creation of a second EDA the Town would have full operational funding responsibility for, as opposed to none with the existing EDA?

The irony of still working for a town government that is claiming that essentially every penny the EDA is out to recover in its civil litigation should come to it directly or indirectly despite the above-referenced public claim by Councilman Gary Gillespie, undisputed by his colleagues, that the EDA hasn’t really worked on the Town’s behalf in 15 years, was apparent as the board discussed a fiscal year-end presentation to its sponsoring municipalities.

Should they present to the Town, as well as the County, Chairman Daley, and his board wonder? There appeared little enthusiasm for a presentation to town officials who have repeatedly rejected EDA offers of “good faith negotiations” to determine exactly what the EDA may owe the Town in misdirected assets. Once again the scheduled interim town manager’s monthly update to the EDA board on Town business was neither presented nor even submitted in writing despite the Town’s maintaining its co-founding EDA connection on a legally advised chance for asset distribution was the EDA to somehow fail, despite state codes that prevent EDA’s from declaring bankruptcy.

The Warren County Courthouse is casting a long shadow over relations between, not only the Town and EDA, but potentially between the Town and County, the latter of which has full operational funding responsibility for the existing EDA due to negotiations on double taxation responsibilities of town citizen. However, many including several council candidates are wondering if it is a necessary legal shadow.

And what might such a presentation to a municipal body that is claiming no oversight responsibility of the EDA despite enabling the largest single item in the EDA’s civil suit, the $10-million ITFederal loan, by issuing a three-month $10-million “bridge loan” at McDonald’s request to convince a bank to make that loan despite serious asset questions about the eventual recipient, sound like?

“Mr. Mayor and Council, the EDA ends the fiscal year with $85,089 in its operational checking account and another $62,936 in its rental income account ($148,025 combined) – BUT we’d have a lot more if the Town would make good on its undisputed $8.4 million principal debt to us on the construction of the new town police headquarters, not to mention the $701 of daily interest on that FRPD project debt, though a disputed portion based on verbal promises of the former EDA executive director, that is accumulating as the civil litigation creeps forward.

Also noted during the financial report of board Treasurer Jorie Martin, was a $64,439 balance in the EDA’s Rural Business Enterprise Loan (RBEL) account and a $307,043 balance in its Intermediary Relending Program (IRP) account.

Chances are some of those loan balances will find their way into the hands of businesses located inside the Front Royal town limits.

EDA’s June 26 meeting action agenda

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EDA’s June 26 meeting action agenda

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The Front Royal/Warren County EDA Board of Directors held their regular monthly board meeting today:

Finance Committee

Finance Chair Jorie Martin reported that the EDA will end the fiscal year with a positive bank balance. Additionally, the FY 2018 and FY 2019 audits and solar panel removal are all proceeding on schedule.

EDA Chair Ed Daley took the opportunity to point out that the EDA has reduced its total loan balance during FY2020 by approximately $2,000,000. Factors that contributed to this success included the EDA completing the sale of three properties-two to a private developer in the town and one to a small business in the county.

Proceeds then went toward other loans which reduced principal amounts. Additionally, the EDA negotiated an interest rate reduction on a line of credit. These decisions translate into savings to the taxpayers.

Small Business Loan program-Mrs. Martin reported considerable improvement in payments and collections in the Rural Business Enterprise Loan (RBEL) program during FY20. In May 2019, only 56% of loan clients were up-to-date on their payments. As of June 2020, 70% of clients were on time. Additionally, as Executive Director Doug Parsons reported, the USDA Small Business Loan committee is currently reviewing applications from two new borrowers. They are vetting these applicants and look forward to supporting these small businesses in the Front Royal and Warren County areas. Finally, the board approved a Pay Agreement with Steve Ontiveros, of Fireball Arcade, for repayment of his RBEL loan.

Other Actions from Finance-The board approved Mrs. Martin’s motion to cancel the EDA insurance policy covering the Avtex property and EDA office building at 400 Kendrick Lane currently held by Stoneburner-Carter Insurance. The motion also approved the EDA to enter into a policy with Grange offered through McGreevy Insurance. The new annual policy provides more in-depth coverage at a lower cost, saving taxpayers approximately $1,000.

Finally, the board approved a motion for Phil Rexrode to complete electrical work on the solar panel removal. He will disconnect the solar panels from the current electrical system and connect the EDA office building back to Town electric.

Asset Management Committee

Chair Greg Harold shared an overview of the committee’s activities and accomplishments during FY20. Highlights included:

Afton Inn-The negotiations and sales agreement of the Afton Inn will be the fourth property sale by the EDA and the third in the Town of Front Royal. Seeing this property in the hands of private development is a real win for the community and will contribute in a major way to the revitalization of East Main St., Front Royal.

The EDA is looking forward to 2 E. Main, LLC realizing their vision for the property.

Royal Lane “Workforce Housing” property-Mr. Harold completed considerable research on this parcel, also located in the Town. The Board of Directors approved his motion to sell the property through a Request for Development Proposal (RFDP) process. That proposal is under attorney review and is projected to be published by mid-July. This is an opportunity to bring to Front Royal the first multi-tenant housing development in 22 years.

Communications Committee

Litigation Update-EDA Vice-Chair and Communications Committee Chair Jeff Browne gave an update on the civil suit EDA v. Jennifer McDonald, et al. and the Town v. EDA suit. The board approved a resolution appointing Mr. Browne as Designated Representative of the EDA for interrogatories and depositions in the suit EDA v. Jennifer McDonald, et al. Mr. Browne will work with EDA counsel from Sands Anderson as the civil case continues through the judicial process.

Existing Business Listening Groups-Mr. Browne is working with the Front Royal Chamber of Commerce on creating business listening groups. Any business leaders, finance professionals, and anyone interested in the local tourism industry is encouraged to participate.

Other EDA Business

Annual Report-EDA Staff and the Board of Directors are preparing an annual report for presentation to the Warren County Board of Supervisors in July. Dr. Daley expressed an interest in presenting this report to the Front Royal Town Council as well.

Annual Officer Elections

The board approved each of the current officers-Chair, Vice-Chair, Treasurer and Secretary-to serve another one-year term.

As of May 2020, the Town of Front Royal owes the EDA $8,444,797.16 for the construction of the Front Royal Police Department headquarters. This loan costs Town taxpayers $703.39 per day in interest expense. In April 2019, the Town Council approved a resolution to issue a bond for permanent financing of the project but has not followed through on its commitment. The EDA welcomes community support in encouraging the Town Council to follow through and secure permanent financing in order to retire the EDA construction debt.

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EDA in Focus

Still working for the Town – EDA announces sale of 514 E. Main apartments

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Both gone now – the market and adjacent apartment building. Royal Examiner File Photos/Roger Bianchini

In a late-afternoon press release from the office of Executive Director Doug Parsons, the Front Royal-Warren County EDA announced the sale of another in-town parcel. Here is that release in its entirety:

The Front Royal/Warren County Economic Development Authority (FRWCEDA) is pleased to announce the sale of their apartments at 514 East Main Street to East Main Apartments II, LLC, owned by Jim and Dawn Weber of Front Royal. The property sold for $127,500.00 and the proceeds of the sale will pay off one of the FRWCEDA’s loans for the apartments and the old Stokes Market, which also sold recently.

“We’re pleased that Jim and Dawn Weber have purchased this property. They are experienced developers, and we know the property and tenants will be in good hands”, said Doug Parsons, Executive Director, for FRWCEDA.

“These properties weren’t congruent with our economic development mission and goals, and we’re excited to see them return to the private sector to generate more tax revenue while reducing the taxpayer’s debt and future expenses.”

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EDA in Focus

EDA Asset Committee reviews status of Royal Lane property in open and closed session

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At the open portion of a Front Royal-Warren County Economic Development Authority Asset Committee meeting, Friday morning, June 19, Committee Chairman Greg Harold took his recently altered committee lineup through a review of the recently re-acquired Royal Lane “workforce housing” property.

As readers will recall, the property written off as a $640,000 loss in the EDA’s original civil complaint was inexplicably let go at the end of November 2018 about 11 weeks prior to that March 26, 2019 civil filing at a sale price of ten dollars. Then EDA Board Chairman Gray Blanton later told Royal Examiner that he had only seen the signature page of the deed of sale. And acting EDA attorney Joe Silek Jr. – then EDA/County Attorney Dan Whitten had recused himself from the transaction – told Royal Examiner that the deed had been sent to the Winchester attorneys for the purchaser without a sales price filled in, though he declined to elaborate on how or why that had occurred.

However, the buyer, the Cornerstone LLC branch of regional developer the Aikens Group, returned the property to the EDA earlier this year at a cost of about $26,000. The price was explained as the stated value of in-house legal or other preparatory work done during the Aikens Group purchase and ownership.

The undeveloped, rolling-hilled 3.5-acre parcel at the end of Royal Lane on the town’s southeast side is also at play in the April addition of Century 21 Campbell Realty, and proprietors Walter and Jeannette Campbell as defendants in the EDA’s civil litigation case seeking the return of a total of over $21-million dollars from what has climbed to a total of 24 defendants.

But the property’s legal history wasn’t the topic of Harold’s presentation to his committee. Rather, it was an outline of the property’s originally planned use for development as a 36-unit, three-building “workforce housing” rental apartment complex; its potential versus any competitive properties for such development; and the zoning and permitting status of the property.

A look at single-family homes along Royal Ln. – the treed workforce housing parcel adjacent to existing development ‘curbside utilities’ is partially visible at the end of the road. Royal Examiner File Photos/Roger Bianchini

Artist’s rendering of one of three, initially-planned 12-unit Workforce Housing apartment buildings.

That status, Harold said, is C-1 zoning with extensive Special Use Permitting; nearby access to Town electric, water, and sewer central utilities extended to adjacent residential and commercial development; and a lack of comparably permitted C-1 zoned properties in Front Royal near shopping and other commercial amenities desirable to potential renters.

Harold pointed to a “robust need” for quality and affordable rental units in Front Royal, but also noted that federal Housing and Urban Development (HUD) guidelines didn’t specifically qualify the type of professional employment that affordable “workforce housing” projects could rent to. Discussion following the EDA purchase of the parcel from the Campbells, Jennifer McDonald’s aunt and uncle, initially for $10 as a gifted property said to qualify the Campbells for federal tax credits which later fell through due to delays in the development of the property, had targeted a “young professional” tenant base of law enforcement, teaching and emergency services personnel.

Questions about the EDA or anyone’s ability to limit rentals to such specific professional networks were raised by some, including former Councilwoman Bebhinn Egger, early in the purchase, zoning, and permitting process in 2016-17.

Another question raised by Egger, the Town Council’s then lone voice in the EDA oversight wilderness, was why with so many questions attached to the property and its residential development potential, the EDA Board of Directors had agreed to purchase the parcel for $440,000, over $100,000 above its assessed value of a little over $300,000, after the Campbell’s tax credit opportunity fell through.

Remember these days – above, Bebhinn Egger goes head to head with Jennifer McDonald in 2017, as her colleagues remained silent, unquestioning and even belittling of Egger for her questions on EDA projects now at issue in dueling civil litigations; below, McDonald far left and the EDA Board of Directors listen to report on County business from the county administrator, circa April 2017.

The explanation then forwarded by McDonald and then EDA Board Chair Patty Wines that the EDA had already spent nearly half a million dollars on pre-development costs turned out not to be true. McDonald later told Royal Examiner that only about $16,000 for a VDOT traffic study had been unrecoverable money at the time of the EDA’s $440,000 purchase decision.

But whether any of these variables played into the Asset Committee’s exploration of the property is unknown. Because after Harold’s presentation during the 48-minute open session, EDA Attorney Sharon Pandak read a motion to go into a closed session that was moved and seconded by committee members and unanimously approved by those members, Harold, Ed Daley, Jorie Martin, and Melissa Gordon.

That motion included discussion of the “disposition of public real property where discussion in an open meeting would adversely affect the bargaining position and negotiating strategy of the EDA; and consultation with legal counsel regarding related legal matters for the Royal Lane property …”

There was no announcement following the half-hour closed session and the Asset Committee meeting was adjourned to so quickly that by the time this reporter re-logged into the virtually-conducted meeting, he found himself a lonely “participant” of one.

But considering the late afternoon press release on the sale of the 514 East Main Street apartments – Still working for the Town – EDA announces the sale of 514 E. Main apartments – it may be debatable whether both of those closed session topics related to Royal Lane. But with the previous discussion of residential development not being the natural province of EDA’s, this reporter votes “probably both”.

Still working for the Town – EDA announces sale of 514 E. Main apartments

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Crime/Court

Rappawan, Campbell Realty civil hearing date set; April Petty, Jesse Poe pre-trial hearing request under consideration by court

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Although neither she nor her attorney was present live or virtually for scheduled Economic Development Authority civil case hearings Thursday morning, June 18, Jennifer McDonald’s presence was apparent throughout defense motion’s hearing arguments in the cases of defendants April Petty and Jesse Poe.

Prior to those arguments a hearing date of July 30, beginning at 8:30 a.m. was set for pre-trial motions in the cases of Rappawan Inc., and principal William Vaught Jr. and Century 21, Campbell Realty Inc., and principals Walter and Jeannette Campbell. Attorneys for those defendants were among the few physically present in the older, larger Warren County Circuit Courtroom with Judge Bruce D. Albertson Thursday morning.

The Campbells were represented by Warrenton attorney Peter Hansen; Rappawan and Vaught by local real estate attorney Joseph Silek Jr., though it appeared Hansen might also have a hand in the Rappawan case. However, he said he would defer to Silek on the availability of the July 30 date for that client.

It was noted that coming motions reply dates were July 10 for a plaintiff response to defense motions, and July 24 for a defense reply to the plaintiff’s assertions in their reply.

‘They didn’t know’
In arguing for a pre-trial plea in bar hearing for his clients, April Petty and Jesse Poe – the latter not to be confused with fellow civil defendant Donald Poe – attorney William Shmidheiser III repeatedly told the court he was not disputing lead civil defendant Jennifer McDonald’s embezzlement of the amounts of money cited in real estate home purchases McDonald achieved for his clients, rather he was asserting his clients had no knowledge that that money (totaling $410,000) had been embezzled.

While not directly involved in Thursday’s EDA civil hearings, Jennifer McDonald, left with then EDA Board Chair Patty Wines, cast a long shadow over two defendants’ arguments for a pre-trial hearing chance to plead their innocence. Their arguments, who would have suspected a successful local real estate agent and Economic Development executive of criminal embezzlement? Royal Examiner File Photo/Roger Bianchini

So, Shmidheiser told Judge Albertson his clients should have the right to present their cases to him at a plea and bar hearing prior to the primary civil trial alleging a conspiracy among all 15 defendants to benefit from McDonald crimes, admitted or alleged, in an amount totaling over $21 million dollars.

The amount of embezzled money he cited involving his clients was $125,000 in Petty’s transaction and $285,000 in Jesse Poe’s. Their attorney said his clients recruited McDonald to be their real estate agent for home purchases from knowing her through family connections. Poe dated a niece of McDonald’s at the time, his attorney said; and Petty knew McDonald as the successful “golden child” of relatives she knew socially.

Shmidheiser said that if his clients could be proven to not have been involved in the larger conspiracy alleged by the plaintiff in a pre-trial plea and bar hearing, it would serve the “judicial economy” in simplifying and speeding up the primary case.

Arguing for the plaintiff EDA after being introduced to the court over phone connection by lead Sands Anderson/EDA attorney Cullen Seltzer, was Sean Hudson. Hudson countered the defense “judicial economy” argument, noting that Schmidheiser’s clients weren’t denying that embezzled funds had been used in their real estate transaction, only that they weren’t aware it was embezzled at the time of their home purchases with former EDA Executive Director McDonald acting as their real estate agent.

EDA attorney Hudson also noted that neither Petty nor Poe had offered to return the embezzled money utilized in their home purchases; adding his firm had not yet been able to depose either defendant, a conversation between plaintiff and defendants that could lead to a pre-trial settlement offer.

Defense counsel Shmidheiser countered that once involved, he had offered multiple dates for depositions of his clients but that an impasse with Sands Anderson over a location for those depositions – the law firm’s Richmond home base or Warren County where the case will be heard – had occurred.

Their attorney also noted that neither April Petty nor Jesse Poe had been indicted by the EDA Criminal Case Special Grand Jury after testifying before it, in Petty’s case at least, multiple times. That indicated the grand jury believed his clients’ stories, Schmidheiser asserted to the court.

The Warren County Courthouse is cranking back up toward a late-pandemic caseload, though still partly by remote hook up and masked, social distancing inside.

“She would like some closure. She has a lot at stake,” her attorney said, pointing to her federal emergency management job.

As the arguments concluded, Judge Albertson returned to the oft-touched topic of “fairness” and asked plaintiff counsel if he thought it “fair” that the court is allowed to at least “consider a pre-trial resolution for two or more defendants”.

After a long pause, Hansen offered that he thought keeping the defendants in the primary civil action would achieve the best chance of a pre-trial settlement, ultimately serving to streamline the case to the desired “judicial economy”.

Judge Albertson then took the arguments under advisement.

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