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Town notifies EDA of Afton Inn issues – opts out of discussing responsibility

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While there was no representative of the Front Royal Town government at Friday morning’s Front Royal-Warren County Economic Development Authority Board of Directors meeting despite the presence of a “Town Manager Update-Matt Tederick” on the agenda, the subject of town government interaction with the EDA did not take long to enter the February 28 meeting discussion.

“I thought you might want to know about this as soon as possible,” EDA Executive Director Doug Parsons told his board soon after the 8 a.m. convening of the meeting by Board Chairman Ed Daley.

EDA Board Chairman Ed Daley, left center, had a succinct reply to Executive Director Doug Parsons, white shirt upper left, recounting of the Town legal staff’s Thursday email on Facebook reports on the status of a windblown Afton Inn – ‘Have legal staff remind them they are responsible to pay for maintenance’ was the gist of that reply. Royal Examiner Photos/Roger Bianchini – Royal Examiner Video Mark Williams

“This” was a Thursday, February 27 email from Town Attorney Doug Napier to Afton Inn redeveloper 2 East Main Street LLC attorney Kelly Bundy, copied to Parsons, noting that Town Councilwoman Letasha Thompson had informed him “that she saw a few minutes ago on Facebook that the roof of the Afton Inn building next door to Town Hall and across Main Street from the Warren County Courthouse is flapping in the wind.”

Parsons continued to quote from the email, “The wind today is extremely gusty at times and strong, as you know pieces of wood soffit have already fallen onto the public sidewalk. The Town is worried that part of the roof, which appears to be metal, might be blown off onto the public streets.”

Parsons pointed out the town attorney continued to write “in parenthesis” that, “(The Afton Inn is at the intersection of the two busiest streets in Front Royal),” continuing that the situation had the potential of “highly dangerous results,” at which point the town attorney pivoted to the legal sphere.

“Because of the outstanding lease/contract to purchase status between 2 East Main and the EDA, the Town does not want to get in the middle of and opine a legal opinion as to who has the predominant obligation to repair and maintain the building; but the Town does want to draw this to your immediate attention.”

Daley responded that Parsons should work with EDA counsel Sharon Pandak, who was present for the meeting, “To respond to Mr. Napier and remind him of the Town’s responsibility.”

What roof? Well, it’s there – we’re just too low to see it, flapping in the wind or not flapping in the wind.

Legal obligations
That the Town has the legal responsibility to pay for maintenance and repair of the Afton Inn in the wake of its 2014 transfer of ownership to the EDA for marketing and redevelopment purposes has been a hot-button topic of discussion lately. That is due to the Town’s mid-December pivot from seeming agreement expressed in writing by Napier that it was the Town’s financial responsibility, as well as its province as a matter of public safety, to fund physically stabilizing winterization of the Afton Inn as a “priority”.

In fact, the town attorney included a copy of June 23, 2014, Afton Memorandum of Agreement (MOA) between the Town and EDA as part of his November-December 2019 correspondence with the EDA on the winterization project. That MOA reads in part, “The Town agrees that during ownership of the Afton Inn property by the EDA, the Town shall not require the EDA to perform any repairs, maintenance or demolition of any part of the Afton Inn building unless the Town agrees to bear the costs of such repairs, maintenance and/or demolition.”

In a December 6, 2019 email to EDA Executive Director Doug Parsons and EDA Asset Committee Chairman Greg Harold, Napier wrote, “Under the terms of the MOA … the EDA is responsible for repairs to the Afton Inn, at the expense of the Town. Regardless of any contract, the Town has an overriding duty as a municipal government, to the public to prevent injury and loss of life or limb. The Afton Inn is literally falling to pieces as I write this. It is not a defense in the public’s eye whether or not the Town can assert ‘sovereign immunity’ if a person’s vehicle, or far worse, a person’s body, is injured by something falling or collapsing from the building – the public will demand to know why the Town did not take immediate steps to secure the building, and rightfully so.”

On Dec. 13, EDA Asset Committee Chairman Greg Harold displayed November-December communications from the town attorney indicating a financial and moral responsibility for the Town to fund maintenance and repair costs for the Afton Inn.

Best laid plans
However, in that December 6 message, Napier also notes that an inspection by one of the Town’s “most experienced and responsible workers” revealed complications, and likely added expense, that could impact the Town’s original plan to perform the winterization work in-house.

Napier asks the EDA for immediate contact with Interim Town Manager Tederick to arrange a mutual inspection by all three involved parties “to determine what can be done to secure the building to ensure its integrity and ensure the safety of the public …It is a violation of Town Code to obstruct or place an obstruction, which would include the permitting of an obstruction, upon a Town street or sidewalk.”

Napier then added, “The Town would be derelict in the extreme in its responsibilities to the public if the Town knowingly allowed a violation or violations of its own Code, in addition to allowing a public safety hazard.”

Then, in perhaps a hint of things to come, Napier concluded that December 6 correspondence by stating, “If the Town, the EDA, and 2 East Main are unable to reach a very prompt mutual resolution of this pressing problem, the Town will have no choice but to take such legal measures, without limitation, as are necessary to protect the rights of the public safety.”

As the wind blows, the Afton totters – it said so on Facebook.

On December 13, 2019, as part of his report on Town business at the EDA Board meeting, Tederick informed the EDA that any previous correspondence indicating the Town’s willingness to fund the winterization costs was a “mistake”.

And as noted above, the Town-EDA MOA on Afton maintenance notes the EDA is not required to perform any repairs, maintenance or demolition “UNLESS the Town agrees to bear the costs of such repairs, maintenance and/or demolition.” One is left to ponder the reason funding stabilizing maintenance of the Afton Inn went from a Town public safety “priority” to NOT a priority within a month as winter approached.

As the Afton turns
Following the February 28 EDA morning meeting, we asked Harold what the EDA’s response was to that December 6 request for the mutual inspection by the three involved parties. He said he contacted Tederick to inform him he would be out of town on business that week, and suggested a meeting the following week with two representatives from each party, the Town, the EDA and 2 East Main, but without attorneys.

There was no response from the interim town manager, Harold said.

As Ed Daley, seated right, and his EDA Board listen, Matt Tederick explained on Dec. 13 that earlier communications indicating the Town would cover winterization costs for the Afton Inn were a ‘mistake’.

In response to a FOIA request, the Royal Examiner received documents indicating a January 8 letter from EDA Board Chairman Ed Daley to Tederick providing an estimate of $13,200 to $15,700 from 2 East Main Street for winterization costs it would contract for. Daley asked the interim town manager to seek town council approval of covering those winterization costs.

In a January 16 response, Tederick informed the EDA Board Chairman that council took the matter up at its January 13 meeting and instructed the town attorney to reach out to the EDA attorney “to determine the best path forward”.

“Like you, we all hope to find an expedient resolution to the former Afton Inn and the safety hazard it has become,” Tederick wrote Daley.

According to Harold, the gist of that subsequent conversation between the Town and EDA attorneys was that the Town would accept ownership of the Afton property back at no cost.

But with no guarantees on a final outcome of such a transfer and the EDA still in negotiations with 2 East Main Street to resurrect a highly desired renovation project, the EDA declined that offer.

And now the Front Royal Town Council is a second vote of approval away from implementing a Dilapidated Property Abatement Code that would force property owners to develop a structural repair plan or accept the Town’s abatement plan to be implemented, at the owner’s cost. Failure to comply would result in the Town’s legal right to seize the property as they would if a back-tax lien had been issued.

A marriage made in lawyer heaven – why didn’t some Afton Inn stabilization work occur this winter? Let’s go across the street to the courthouse and talk about it. Royal Examiner Feb. 2019 File Photo

Wonder how the lawyers will be able to bat that one around the civil courtroom – and at what cost to town taxpayers, who again will face the double jeopardy of funding both sides of that legal battle, were it to occur.

Other business
Following an almost two-hour closed session, the EDA readjourned to open session and unanimously approved three motions. Those motions were:

1 – approval of an agreement for the reacquisition of the 3.5-acre workforce housing parcel from the Aikens Group for $26,722.54. EDA board members explained the difference in the reacquisition price from the $10 the property was transferred to the Cornerstone LLC branch of Aikens as covering preliminary engineering and other costs incurred by the Aikens Group since the late November 2019 transfer of the property. The EDA purchased the parcel for $445,000 following its initial gifting to the EDA for $10 by relatives of former EDA Executive Director Jennifer McDonald. The purchase decision was made after an undisclosed tax credit deadline for the gift was missed.

2 – acceptance of a tentative agreement for the sale of the apartment building at 514 East Main Street on the Stokes Mart property for a price of $130,000.

3 – and approval of filing an FOIA (Freedom of Information Act) request to the Front Royal Town government for all communications with the Virginia Department of Historic Resources related to the Community Development Block Grant or the Afton Inn.

See the meeting’s opening Afton Inn condition discussion, and various EDA committee reports on the marketing of properties, pending property closings, the status of the Town’s $8.4 million debt to the EDA for construction of the new town police headquarters, and other EDA business in this exclusive Royal Examiner video:

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EDA civil case judge considers more defense motions to remove defendants

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Several more Economic Development Authority civil defendants were in court Thursday morning, July 30, to hear their attorneys echo past EDA defendant counsel arguments on dismissal of their clients from one or the other of the EDA’s two civil litigations now totaling at least $26 million.

Present from the nine-defendant list of people and companies named in the April 14, 2020, filing of a civil action seeking “not less than $4.45-million” in actual damages and $350,000 in punitive damages were William T. Vaught Jr. and Rappawan Inc. principal Stuart R. Vaught and Walter and Jeannette Campbell of Century 21 Realty. Dismissal motions were also argued for Tracy L. Bowers of TLC Settlements LLC, though she did not appear to be present for those arguments. Not having motions before the court were Service Title of Front Royal LLC and agent Victoria L. Williams.

Chief 26th Judicial Circuit Court Judge Bruce D. Albertson of Harrisonburg presided over the 8:30 a.m. hearing that ended a 11 a.m. with the judge taking the various defense motions under consideration.

More motions in the EDA civil litigation against a second set of defendants were heard Thursday morning in the Warren County Courthouse.

Those motions began with Robert Light and Joseph Silek Jr. representing William T. Vaught Jr. and Rappawan Inc. Other than Silek and Light, the latter who presented the Vaught-Rappawan motions case, and EDA attorneys Vivian Giles and Sean Hutson of Sands Anderson who countered the defense motions, all other attorneys were present by remote telephone connections to the courtroom. Those remotely connected attorneys generally cited agreement with Light’s initial presentation for Vaught/Rappawan, adding specifics of the allegations against their clients, to call for their removal from the civil suit list of defendants.

At issue for all defense attorneys was an alleged lack of specific actions in the EDA complaints against their clients that proved they were aware of being part of an alleged conspiracy to defraud and misdirect EDA assets in conjunction with central civil suit defendant, former EDA Executive Director Jennifer McDonald. Also contended for all defendants were arguments that the nature of those allegations indicated that Statute of Limitations timelines on bringing charges had expired by the time the EDA civil litigation against their clients was filed.

Plaintiff attorneys Giles and Hutson countered that there was, indeed, detail of the participation of the defendants in alleged schemes utilizing real estate transactions to move EDA funds through McDonald companies in order to “launder” stolen EDA money and give it the appearance of legitimacy through those real estate transactions from which all involved parties allegedly saw profit from.

According to the EDA Complaint, the Vaught-Rappawan case utilized TLC Settlements to move $2-million of EDA money into McDonald’s DaBoyz real estate company to purchase several parcels from Rappawan with that money, which was then sold back from DaBoyz to Rappawan at a $600,000 loss a month later.

While not present with no motions before the court, the shadow of primary EDA civil defendant Jennifer McDonald was present in the courtroom Thursday. ‘They were duped,’ EDA attorney Vivian Giles said of the past EDA board, pictured here with McDonald on the job in Sept. 2018. On Thursday Defense attorneys argued the same for their EDA civil case clients, to which plaintiff counsel countered – BUT they profited, the EDA lost assets.

“Through these transactions over just a month’s time, Defendant Rappawan and Jennifer McDonald effectively laundered stolen money from the EDA. McDonald put $650,000 of the EDA’s cash in her pocket; Rappawan got back all the land originally sold and put $250,000 in stolen EDA cash in its pocket. The EDA, of course, got neither land nor its money back,” paragraph 75 on page 15 of the 30-page complaint states.

Of moving money through a bank into a real estate deal for someone other than the source of the money (in this case the EDA), Giles told the court, “Transactions like this just don’t happen when you pocket $600,000 in one month. Money in the bank makes it clean? – It’s a drug dealer’s dream – but it doesn’t work like that. Were they unjustly enriched? – Absolutely. If we’re wrong let a jury decide,” Giles told the court.

She told Judge Albertson that the defendants were essentially trying to make evidentiary arguments best suited for trial, during pre-trial motions. – “This is Discovery,” she said of defense arguments seeking additional clarity on the plaintiff’s case against their clients.

The statute of limitations arguments largely revolved around a debate on the nature of the charges and when the EDA actually became award of the alleged theft, embezzlement, and misdirection of their assets.

Of the defendant counsel assertion then EDA Board of Directors Chairman Greg Drescher had signed off on one of the enabling transactions, legitimizing it as EDA business, Giles told the court, “Mr. Drescher was duped, like the EDA was. What was happening was not discovered till much, much later.” – Which is essentially what defense attorneys are arguing for their clients.

How much later we will find out the result of Thursday morning’s legal arguments is unknown. Judge Albertson did not give a hint as to a timeframe for his ruling. To this reporter’s knowledge, thus far no EDA civil case defendant removal motion has been successful.

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EDA monthly meeting report; solar panels gone; Afton Inn sale moving forward

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The Board of Directors held their regular monthly board meeting today. Two motions were passed:

-Finance Committee Chair Jorie Martin made a motion, seconded by Tom Patteson, to award a $2,500 bonus to Administrative Assistant Gretchen Henderson for exemplary performance. The Board also will also pursue a reclassification of her job position based on new duties and responsibilities. The board voted unanimously in favor.

-Ms. Martin also made a motion, seconded again by Dr. Patteson, to approve United Sprinkler to provide the annual inspection for 426 Baugh Dr. for a fee not to exceed $600. This inspection is required for the insurance policy. The board voted unanimously in favor.

Finance

Finance Chair Jorie Martin reported that the EDA will be modifying its budget. The EDA had issued bonds for Christendom College and Royal Arms housing complex renovations. Once per year, they owe the EDA administrative fees. Those fees were not previously invoiced. Current EDA staff has resumed that task so the budget will be updated to reflect these two new sources of revenue.

Sunlight Properties, LLC has paid in full and removed the solar panels from the roof of the EDA office building at 400 Kendrick Lane. Executive Director Doug Parsons proposed that the Board of Directors work on a plan for repairing the roof. He noted that he’s been in contact with individuals looking to lease commercial office space and that the revenue it would generate would support making the commitment to the repair project.

Finally, Doug Parsons reported that the FY 2018 and 2019 audits by Brown Edwards continues to move forward. Auditors completed their preliminary fieldwork in early July. He projects completion by August/September.

Asset Management Committee

Royal Lane “Workforce Housing” property-Committee Chair Harold and EDA Chair Ed Daley met with Front Royal Mayor Tewalt and Vice-Mayor Sealock on the EDA’s plans for the property. He reported a positive and constructive meeting and appreciated their input. Multi-family housing will be a welcomed addition to the Front Royal area.

Afton Inn-Mr. Harold was pleased to report that the sale of Afton Inn continues to move forward and projects closing this Fall. The EDA will be glad to see this property in the hands of private developers. The goal of the buyers/developers, 2 East Main, LLC will be to bring this downtown Front Royal landmark back to life. The EDA is looking forward to finalizing this sale.

Finally, the EDA will undertake signage projects for the Kelly Drive Industrial Park and the LFCC Tractor Trailer Training facility in the Avtex parking lot.

Other News
EDA staff and the Board of Directors welcomed Doug Stanley as he gave his final report as County Administrator. He has been an invaluable asset to the EDA and the Front Royal Warren County community. He will surely be missed. The Board recognized that EDA Chair Ed Daley will be stepping down to become Interim County Administrator. Vice-Chair Jeff Browne will assume the duties of Chair.

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Two supervisors questioned about ‘back channel’ dealings with Town on EDA issues

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On Tuesday, July 21, Happy Creek Supervisor Tony Carter’s call to add board discussion and a vote of “formal approval” of an informally negotiated “Reservation of Rights Agreement” with the Front Royal Town Council led to the evening’s most surprising and most contentious discussion.

During that discussion, Carter asked if informal County “Reservation of Rights” negotiators Delores Oates and Cheryl Cullers should be made an official board committee. When County Administrator Doug Stanley noted that once formed as a formal municipal committee, further meetings would require public notice of, and minutes to be taken at future meetings.

‘I would like to disagree with that,’ Cullers said of Carter’s formalized committee idea, adding, ‘simply because I feel like we’re making some headway – not that I’m trying not to be transparent.’ Royal Examiner Photos/Roger Bianchini – Royal Examiner Video/Mark Williams

“I know, that was my intent,” Carter replied, indicating he thought a formal committee a better path than the undocumented, unsupervised way those unofficial meetings between Cullers and Oates and Lori Cockrell and Chis Holloway on the Town side were being conducted. Carter called the meetings similar to the Town-County Liaison Committee meetings, which are formal and documented. Perhaps oddly or not, the Reservation of Rights Agreement discussion was NOT part of last week’s Liaison Committee meeting agenda.

“I think everybody wants to be transparent. And it seems like that would be the best way to be transparent – notify the media, notify the public about having these discussions,” Carter said of formalizing such an important matter involving the County, Town, and EDA.

However, Cullers and Oates countered that their un-monitored meetings with the Town representatives were being made in good faith to move a stagnated process forward.

“I would like to disagree with that,” Culler said of Carter’s formalized committee idea, adding, “simply because I feel like we’re making some headway – not that I’m trying not to be transparent. But at some point, you have to sit down with people in a room, shut the door and get down to business without too many people in the room. I think the Reservation of Rights that we came to here is a step in that direction. I don’t know if we would have got there if we had more people in the room.”

“I understand what you’re saying, that you prefer to conduct public business without the public,” Carter retorted of Cullers’ rationale for continuing her and Oates meetings as they have thus far been conducted without public and media scrutiny.

As previously reported, the original “Reservation of Rights Agreement” was a late June, Town-drafted quasi-legal document agreeing to a one-time, recoverable $10,528.95 payment covering half the $21,102 interest-only July payment on the new Front Royal Police Headquarters debt service. The agreement was first revealed during a June 30 Town Special Meeting called to approve the initial draft. However, due to excessive conditional language included in that document, first EDA officials who were being asked to sign off on the agreement they had no previous knowledge of, and then apparently County officials as well, rejected moving forward with it.

Last week a revised and severely paired back, one paragraph “Reservation of Rights Agreement” was brought forward by North River District Supervisor Oates and Board Vice-Chair Cullers for reconsideration by the supervisors. While the intent remained the same, a one-month, recoverable half-interest Town payment on the July FRPD debt service that the Town was admitting no obligation to make, virtually all the excessive verbiage that would have had the EDA and County signing a document stating the Town has “no legal or moral obligation” to pay for its EDA-financed police station and preventing any future EDA or County use of the payment and its documentation in court or “any forum” was gone.

It was replaced with the Town’s acknowledgment that the payment was being made “with no admission of obligation and reserving all rights to continue to contest this and other matters in pending litigation between the Town and EDA. The EDA accepts this payment acknowledging this reservation of rights.” See Royal Examiner’s coverage of evolution of the draft proposals in previous stories “Legal questions surround Town offer of one-time, recoverable FRPD payment” and “Pared back FRPD payment ‘Reservation of Rights Agreement’ revealed by County”.

As for the asserted “good faith” aspect of the secretive Reservation of Rights Agreement discussion, Carter said, as EDA Board Chairman Daley would soon agree to during his comments on the matter, “Wouldn’t it be good faith if the Town paid their obligations? Wouldn’t it be good faith if the Town, County, and EDA worked together, instead of against each other in legal procedures?”

Both Cullers and Oates responded that was their ultimate goal, adding that the non-publicly acknowledged meetings allowed the conversation to be undertaken “without the undermining going on”. Contacted later, Cullers said that was not a reference to any media coverage of Town-County issues.

Carter continued his “show of good faith” questions, asking, “Is it a show of good faith that the Town is starting its own EDA, thus duplicating costs to the town taxpayers, instead of working together? After all, most of the EDA projects are located in the town.”

Carter also questioned the advisability of the supervisors as the county’s governing body, signing off on a document that Oates admitted had not been what she and Cullers had hoped to achieve on behalf of the County and EDA, which was the full July payment acknowledging the bank-financed 3% interest rate on the FRPD debt service.

Part of the Town of Front Royal’s $20-million-plus civil litigation against the EDA is the claim it was promised a 1.5%, 30-year debt service interest rate on the FRPD project by former EDA Executive Director Jennifer McDonald.

EDA Board Chairman Daley provides details to the Board of Supervisors regarding the FRPD project.

Called to the podium to comment for the EDA Tuesday night, still EDA Board Chairman Daley told the supervisors the EDA has documentation dating to 2017 and 2018 indicating the Town knew the FRPD project interest rate would be no lower than 3%.

Daley also was fairly pointed in indicating to the supervisors that he believed the Town was not dealing in good faith with the EDA regarding any financial issues. He observed that Town legal attacks or refusals to meet financial obligations with the EDA were also attacks on the County since the County has taken on sole financial responsibility in support of the EDA.

Following the 35-minute far-ranging, sometimes pointed conversation, on a motion by Carter, seconded by Fox, the board voted 4-1 to table action on the Reservation of Rights Agreement. Oates cast the lone negative vote. After a long pause when her name was called for the roll call vote, Cullers voted with the majority to table.

See all the drama of your local government in action, including discussion with County Attorney Jason Ham on the advisability of formal versus informal meetings of this magnitude, Chairman Mabe’s observations in the middle of the debate, and Daley’s full observation from the EDA perspective in this Royal Examiner video segment:

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Pared back FRPD payment ‘Reservation of Rights Agreement’ revealed by County

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In an unexpected and somewhat stunning development in an added agenda item to conclude Tuesday’s Warren County Board of Supervisors Work Session, it was revealed that a revised “Reservation of Rights Agreement” has been negotiated between members of the county board and the Front Royal Town Council. Following the discussion about the new agreement on making the July FRPD construction debt service payment, a board consensus was reached to place a vote on approval of the revised agreement on the board’s July 21st meeting agenda.

The new agreement is a radically pared-back version of the one the town council unanimously approved at a June 30 Special Meeting to cover half the July FRPD headquarters debt service payment, as will be explored in detail below.

FRPD building at Ground Zero of a legal, financial, and ethical dispute between two municipalities and their joint Economic Development Authority. What’s confusing is this is one project that was not implicated in the alleged misdirection of EDA, Town, or County assets – better not be, the occupants are packing heat. Royal Examiner Photos/Roger Bianchini, Video by Mark Williams.

Board Vice-Chairman Cheryl Cullers made the motion to add the item to Tuesday’s work session. Delores Oates then noted she and Cullers “met, I think you guys know, with Ms. Cockrell and Chris (Holloway)” on the matter, observing that the supervisors had not appropriated funding to continue covering the EDA FRPD debt service payments into the new fiscal year.

It seems the County and Town are on the verge of taking a high-stakes gamble on whose credit rating will suffer the worst if the EDA’s FRPD debt service payments are not covered this fiscal year.

The pared-back Reservation of Rights Agreement appears to be a compromise to avoid that gamble being played into the commercial banking community as of July 16.

It was revealed during the subsequent discussion that today, Wednesday, July 15, is the last day before the $21,102 interest-only payment to United Bank goes overdue. If the agreement to keep the loan current is realized before either elected body votes to sign off on the method by which it will be done, at least for July, the Town will still only pay half of the monthly amount due, or $10,529.

That half interest-only payment is based on council’s contention that verbal assurances by former EDA Executive Director Jennifer McDonald of a New Market Tax Credit-based 30-year, 1.5% interest rate on the FRPD construction project that it did not even qualify for, is somehow legally binding. The EDA is paying United Bank 3% interest on the debt service.

The new EDA Board of Directors and staff left to clean up the financial mess inherited from predecessors finds itself under fire from one of its supporting municipalities, well previously ‘supporting’.

And while it is the EDA’s loan, supported by the County’s operational funding, both municipalities have traditionally and continue to be responsible for covering the debt service on their capital improvement projects funded through the EDA. It seems clear outside of Town Hall that precedent indicates the intent was for the town government to assume the Town Police Station construction debt service upon completion of the project, dating to October 2018.

But that was before the previous EDA administration financial scandal began unraveling in 2018. That unraveling led to the EDA’s initial March 2019 $21.3 million civil litigation against former EDA Executive Director Jennifer McDonald and 14 co-defendants alleged to have conspired with her to misdirect or embezzle EDA assets to their own benefit. It was followed by the Town’s filing of escalating litigation against the EDA, now seeking recovery of “at least $20 million” of allegedly misdirected or promised Town assets.

Delores Oates explains her perception of the evolution of negotiations to head off a potential financial disaster for both the county and town governments’ financial ratings and ability to acquire preferred financing terms on future capital improvement projects.

But on Tuesday, Oates asserted that the new agreement, which removes the conditional legal language that would have had the County and EDA signing a document that stated the Town had “no moral or legal obligation” to pay for its police station, indicates ongoing “good faith” negotiations between the two municipalities to resolve the FRPD debt service impasse; and perhaps other issues related to the Town’s $20-million-plus civil litigation against the half-century-old joint County-Town EDA. That litigation relates to the previous EDA administration’s financial scandal, details of which were revealed by a 2018 forensic audit commissioned by the EDA and County.

That audit was commissioned in the wake of Town Finance Director B. J. Wilson and Town auditors discovery of financial irregularities in some of the Town’s debt service arrangements with the EDA, though the police station project was not one of those.

It is against this legal backdrop our community financial drama is unfolding.

Pared-back legal verbiage

As opposed to the convoluted legalese we described in our story “Legal questions surround Town offer of one-time, recoverable FRPD payment”, the new, one-paragraph draft “Reservation of Rights Agreement” is brief and to the point, at least comparatively.

It reads: “The Town of Front Royal (‘Town’) tenders $10,528.95 to the Industrial Development Authority of the Town of Front Royal and County of Warren, Virginia a/k/a Economic Development Authority of the County of Warren (‘EDA’) for the July 2020 payment on the loan by United Bank for the Town Police Department with no admission of obligation and reserving all rights to continue to contest this and other matters in pending litigation between the Town and EDA. The EDA accepts this payment acknowledging this reservation of rights.”

A view of FRPD headquarters from the EDA Kendrick Lane office complex at left – so close and yet so far away, at least to a resolution of a nebulous legal dispute on financing its construction.

Gone are the “Conditions” that led EDA attorney Sharon Pandak to tell Royal Examiner upon our reading them to her over the phone, that she would be reluctant to advise the EDA to sign off on the initial agreement. Those deleted passages include:

“The Town denies that it owes any moral or legal obligation to repay the Loan”;

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

“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,” among other legally qualifying passages.

So, good-faith negotiations perhaps – just in small steps, VERY small steps with a very large credit rating gamble looming in the balance that could impact this community’s financial future on both sides of the Town-County boundary.

Thus far the EDA, with County support has been making what have been interest-only payments on the $9-million FRPD project. That will change on November 1, when the United Bank loan moves to principal and interest payments. EDA Executive Director Doug Parsons estimated that would take the monthly payments to about $50,000 from the $21,000 interest-only range.
According to Parsons the balance on the United Bank FRPD headquarters loan as of June 1, when the EDA submitted an invoice to the Town for slightly over $441,300 paid thus far by the EDA, is $8.44 million.

How not only this month’s payment but also coming ones will be handled by both municipalities appears to be hinted at by the new one-paragraph Reservation of Rights Agreement spitting the FRPD debt service down the middle with minimal additional legal verbiage. Letting the EDA’s FRPD debt service go delinquent may not be a gamble in either involved municipality’s best interest.

Delinquent debt service payment – what do we have to lose, it’s not our responsibility, or is it? The county board, above, and town council, below, appear to be trying to fold on that gamble – for now.

At issue now appears to be will July’s $21,102 payment be made by somebody, somehow before the end of the July 15th banking day; and will majorities of both the Town and County’s elected bodies to agree to this arrangement on an ongoing basis to prevent that rather large credit-rating gamble being played on the municipal-banking poker table??

Stay tuned for the next thrilling episode of “As the FRPD Debt Service – and EDA, Town and County Credit Ratings – Turn”. But while you wait for that next episode, see Tuesday night’s episode unfold over the last 10 minutes or so of Tuesday’s meeting in this Royal Examiner video:

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Town authorizes new EDA; Chamber as CARES administrator; and FRPD equipment upgrades

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On Monday, July 13, the Front Royal Town Council took several actions, for better or worse, that will shape several key future functions in coming months and years. At the top of the list was second and final reading approval – 4-1, Thompson dissenting as she did at the June 22 first reading – of creation of a new Economic Development Authority solely overseen and funded by the town government and its taxpayers.

The Town will become the first municipality in Virginia to concurrently be a part of two EDA’s. In an unprecedented example of attempting to “have your cake and sue it too”, the Town has maintained its half-century-plus, co-founding membership in the half-century-old joint County-Town EDA while civil litigating for virtually all the money the EDA is trying to recover in its initial $21.3 million civil action against its former executive director and 14 co-defendants accused of conspiring to misdirect or embezzle EDA assets.

The Town’s legal and administrative department heads may now be pondering what’s next after final approval of a new unilateral EDA to counterbalance the one the Town is suing. We know, appointment of a board of directors – they’re volunteers, so that won’t cost anything. Royal Examiner Photos/Roger Bianchini – Royal Examiner Video/Mark Williams

But at least the Town does not have to fund operational costs of the old EDA, as in EDA legal fees to fight the Town litigation, while figuring out where its operational costs for it new unilateral EDA will come from, if not a successful civil litigation against its old EDA. For as previously reported, the County took over the Town’s share of joint EDA operational funding several years ago as part of ongoing negotiations about the double taxation of town citizens. So, while the town government doesn’t have to fund the EDA’s legal defense against it, its citizens do as county taxpayers.

Alright, enough of that dizzying legal scenario.

Also approved Monday were a Fiscal Year-2021 budget amendment authorizing receipt of $1,276,558 of the County’s $3.5 million in CARES (Coronavirus Assistance, Relief Equities and Securities) Act federal funding for COVID-19 relief for private-sector economic losses incurred due to the Coronavirus pandemic emergency management response restrictions; as well as an agreement with the Front Royal-Warren County Chamber of Commerce to manage distribution of the Town’s CARES Act funds.

The amount of money authorized to be put under the Chamber’s control was $1,176,558, $100,000 less than the total amount being transferred to Town control. According to the staff summary, that $100,000 is being put into the General Fund Contingency account to cover “COVID-19 expenses”.

‘How much is that going to cost?’ Lori Cockrell asked of administering $1.2 million of CARES Act federal COVID-19 relief funding received through the County. The interim town manager said costs should be ‘minimal’.

Questioned about those expenses by Councilwoman Lori Athey Cockrell, Interim Town Manager Matt Tederick said those costs were an “unknown” at this time, so no amount was being cited at this point in the process.

However, Tederick said he was “confident” those costs would be “minimal”.

Also approved in a series of 5-0 votes, Holloway absent, as were the CARES Act related items, were three appropriations totaling $256,981.72 for equipment upgrade purchases for the Front Royal Police Department. FRPD Chief Kahle Magalis made a detailed presentation on the need for the equipment upgrades at council’s previous work session.

Those equipment purchase authorizations were:

  • $82,159.72 for a VESTA 911 phone system;
  • $162,000 for replacement of 10 WatchGuard 4Re In-car WIFI camera systems, and 24 VISTA body cameras, and;
  • $12,822 for Avtec-Motorola radio console equipment to replace existing equipment termed at its “end of life” stage of service.

As Chief Magalis told council at his work session presentation, these equipment upgrades are the cost of doing law enforcement work at an optimum of communications efficiency; and self-monitoring standards that protect both the public and the department’s personnel legally.

It’s always good to be packing a little heat when you’re asking this group for a quarter million dollars in operational funding, FRPD Chief Magalis may have been thinking as he dressed for Monday’s meeting.

The agenda summary noted that the Town will pay for the car and body cameras at $32,440 annually over a five-year period. Funding for all three purchases were cited as available through existing FY-2021 FRPD budget line items.

A scheduled Closed Session to discuss unspecified “Personnel” matters was deleted from the agenda at Councilman Meza’s suggestion, due to the absence of one member, Chris Holloway.

Lori Cockrell’s request to then add a Closed Session to discuss the Town’s litigation against the County-Town Economic Development Authority was rejected for not receiving the required unanimous vote to alter the advertised agenda. Councilwoman Letasha Thompson explained she would oppose the addition on the same grounds council had agreed to remove the scheduled Closed Session, Holloway’s absence preventing consideration by the full council.

E.J. Swindell and Jorge Guerrero are recognized by the Town Manager as Town ‘Stars of the Month’ for work ‘above and beyond’ in gathering up wind-blown recycling in the Ay-View Estates subdivision.

The final agenda item was unanimous approval of a Resolution of support for a Town “Employee Appreciation Day” to be this Wednesday, July 15. The resolution cited the ongoing contributions of the Town’s remaining 168 part and full-time employees, particularly during upheavals in normal service resulting from the COVID-19 Coronavirus pandemic emergency management response. Staff will be honored with a Town-hosted luncheon tomorrow to mark Employee Appreciation Day.

As his children and new chief watch, Scott Baker is introduced and pinned – carefully – by his wife as FRPD’s newest officer. Baker came over from the WC Sheriff’s Office investigations division.

See the staff summaries, discussion and votes on these matters, as well as Stars of the Month Employee recognitions to the Solid Waste Department’s EJ Swindell and Jorge Guerrero for work “above and beyond”; and the departmental “pinning” by his wife, of FRPD’s newest Officer Scott Baker; and public presentations on town road infrastructure/pothole issues (Mike McCool), trash accumulation and overflow at the County Dog Park in town (Betty Showers), and another 2nd Amendment Sanctuary initiative seeking to shield citizens from State-enacted gun laws presented to council (Paul Aldridge) in this Royal Examiner video:

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EDA in Focus

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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