Categorized | News

A Financial Chernobyl: Front Royal EDA Scandal Could Have Been Prevented!

By NOT Having This Sort of Crony Capitalism!

April 26, 1986 – Chernobyl, Eastern Ukraine: A simple low-power test, with assurances from arrogant bureaucrats that safety protections could be ignored turned into the worst nuclear accident in history. The effects were felt for years to come.

Virginia has had a financial Chernobyl in Warren County. This post is just the tip of the iceberg. It is the Warren County (Front Royal) Economic Development Authority scandal and all I can say is: Is there a Libertarian in the house? These EDAs ought not be established and if in existence already (like Hanover County) . Millions are at stake.

There’s enough blame to go around: Start with the General Assembly when it established yet another “political subdivision” within the commonwealth and gave it power to issue bonds that the EDA will have to pay out of revenue raised by the sale and development of properties:

§ 15.2-4908. Issuance of bonds, notes and other obligations of authority.

A. Subject to the limitations of Chapter 50 (§ 15.2-5000 et seq.) of this title, the authority may issue bonds from time to time in its discretion, for any of its purposes, including the payment of all or any part of the cost of authority facilities and including the payment or retirement of bonds previously issued by it. All bonds issued by the authority shall be payable solely from the revenues and receipts derived from the leasing or sale by the authority of its facilities or any part thereof or from payments received by the authority in connection with its loans, and the authority may issue such types of bonds as it may determine,…

I have decided that If I am elected delegate or state senator (Lord Jesus help the Commonwealth!) I will simply vote NO for all these schemes. Most of them should be repealed.

Here’s what you have with an EDA: An unelected board can issue bonds based upon the “leasing or sale” by the EDA “of its facilities or any part thereof” or funds from.

Question Number One: HOW does the EDA obtain properties to lease or sell? Or to borrow against?

The answer appears to be (from the Hanover County EDA’s website:

Purpose

The Industrial Development Authority (now Economic Development Authority) was established by ordinance of the Hanover County Board of Supervisors pursuant to the Industrial Development and Revenue Bond Act (Chapter 33, Title 15.1, Code of Virginia of 1950, as amended) so that such authorities may acquire, own, lease and dispose of properties to the end that such authorities may be able to promote industry and develop trade by inducing manufacturing, industrial, governmental and commercial enterprises to locate in or remain in the commonwealth.

Scope

The board has the power to acquire, own, lease, and dispose of properties and make loans to the end that such authority may be able to: promote industry; protect and promote the health of its citizens; to assist in the acquisition, construction, equipping, expansion, enlargement and improvement of medical facilities; to assist organizations (other than religious or educational purposes) to provide operations, recreational, activity centers, and other facilities for the use of the citizens; assist facilities for private, accredited and nonprofit institutions of collegiate education; assist localities, the commonwealth and its agencies, and governmental and nonprofit organizations with their facilities; assist museums and historical education, demonstration and interpretation for use to promote tourism and economic development in the commonwealth; stage equine events and activities; and acquisition and development of, ownership of and operation of industrial park and any utilities that are intended primarily to serve the park and to issue bonds for such purposes; provide for housing authorities to develop safe and affordable housing.

These EDAs are a bit like nuclear power: We have it, it does some good, BUT it has potential for a financial Chernobyl.

But aren’t there financial protections to stop this kind of fraud and financial loss? Yes. Audits annually are one thing. Some independence between politicians and EDA officials perhaps.

I researched this issue with some diligence. I think that when they investigate Warren County they’ll find the paperwork was right but the fraud still occurred. It’s like Chernobyl WITH the safety protections in place. When you place politicians and EDA board members and EDA executives together wheeling-dealing with businesses – there is bound to be at the very least temptation. (If you add guy-girl interactions, the temptations are multiplied!)

Now the Warren County Front Royal EDA has a budget and the funds are NOWHERE NEAR what was allegedly embezzled by at this time unknown parties. It is about $1.2 million dollars in fiscal year 2016-2017.

Question Number Two: What is the total loss? It has been hard to determine exactly, but it is millions of dollars. There was a lawsuit filed by the EDA against several persons in the sum of $17.6 million (Let’s write that out for effect: $17,600,000!) It is hard to get firm numbers. Probably no one knows really. Like the radiation emitted at Chernobyl, there will be financial fallout for years to come.

And there are taxpayers’ money involved – it was admitted in recent press on this. Here’s one story on how the Front Royal Town Council was basically apologizing to a whistleblower former member who tried to reveal it:

“The report of the mayor: Bébhinn, please accept my sincere apology. I was never under the intention of quieting you or putting words in your mouth. But as we moved along we were told different things that sounded great – and we took it and drank the Kool-Aid. Thank you again for everything you did for the council. And thank your dad, Mr. Egger for coming and speaking to the council – please accept my apologies also.”

And so began and ended Front Royal Mayor Hollis Tharpe’s “Report of the Mayor” at the March 25, 2019, town council meeting.

“Bébhinn”, which is a Irish name meaning melodious lady, is the first name of former Town Council member Bébhinn Egger Rowland and Rowland did sing a melody to her fellows about issues and she was basically ignored. Try this little gem:

Both of those projects remain on hold, with construction not having begun on the workforce housing. Town Manager Joe Waltz recently said that project is in the hands of the developer.

Meanwhile, Curt Tran, ITFederal developer, said the company will not open but there are plans for another firm at the location.

Egger Rowland was on the council that unanimously approved a $10 million loan to the EDA, which was in turn given to ITFederal. She said that she voted in favor of the loan because she was excited about good paying jobs coming to town.

“But in the back of my mind, I was also thinking: If this is an established company…why do they need the Town of Front Royal to loan them $10 million?” she said.

Although Egger Rowland voted in favor of the loan, she said the first item that raised a red flag was ITFederal’s website, which “looked like it had been put together by a high schooler.” Although the website listed Tran’s phone number and email address, Egger Rowland said former EDA director Jennifer McDonald said the company did not have a website.

Now I can’t call Rowland (At the time not married and her maiden name is Egger so I will call her Egger for clarity) a hero because she should have voted no until she understood it better BUT she became heroic in her questions that were largely ignored by other pols.

NOW Let’s not forget the little gem in the little gem: The TEN MILLION DOLLAR LOAN that the Town of Front Royal gave to the EDA! And they don’t have any say in the selection of the directors of the EDA – only Warren County Supervisors appoint the EDA board – even though Front Royal is in the official title of the agency! WAT were they thinking? The Mayor had it right – they were indeed drinking kool-aid!

But let’s give credit where credit is due: Egger tried to warn her colleagues:

In 2015, Rowland was new to the Front Royal Town Council. When she looked into the company further on USAspending.gov, she said she discovered that the figures presented by former EDA executive director Jennifer McDonald, were slightly off.

“So I looked up IT Federal and they have zero, there was nothing. Nothing came up,” said Rowland.

Rowland also searched their parent company VDN Systems, and they’ve had a total of four government contracts that add up to $345,000.

“After I found all this out, I emailed all the rest of the councilman and nobody cared,” said Rowland.

Nobody cared! Too bad there is not a libertarian in the house! I hope the voters care at the next election. But it gets worse – other council members basically bullied Egger (according to Egger’s father):

“John Connolly’s shameless arrogance towards Bébhinn knows no bounds,” her father began of the now-retired councilman. “At the May 8 and May 22, 2017 Council meetings, he accused her of grandstanding, airing personal grievances, having a personal vendetta, unprofessional behavior, disrespecting public officials, disgraceful behavior, and publicly shaming people. Talk about the pot calling the kettle black. If anyone wants to hear a disgusting tirade of Mr. Connolly, go to the Royal Examiner YouTube video of May 22, 2017.

“Mr. Connolly, you owe her an apology,” Mark Egger concluded.

And of Hrbek he added, “At the November 28, 2016 Council meeting, Bret Hrbek, in disparaging remarks directed towards Bébhinn for daring to ask questions, said, ‘It seems that ITFederal, the owner specifically, Mr. Curt Tran, has become highly offended by the hostility that he feels directed towards him and the accusations that have been made in his direction.’

I have not been able to find this May 22, 2017 video at the Royal Examiner You Tube page. Nor have I received any comment from Egger now Rowland although we have communicated by email. But neither Connolly nor Hrbek apologized to Egger or her father according to the Royal Examiner article.

I did find this little gem in support of Connolly’s bullying of Egger:

According to previous reports, when Egger Rowland posed a series of questions during a meeting about the project, Mayor Hollis Tharpe suggested the questions be sent directly to the EDA. Then-councilman John Connolly said the meeting was not for grandstanding.

Now before that, here was a “deal” for relatives of the now charged EDA Executive Director Jennifer McDonald:

Egger Rowland also questioned the EDA’s workforce housing project. The EDA was supposed to receive land for the project as a gift from McDonald’s aunt and uncle, Walter and Jeanette Campbell. However, a construction deadline that would have granted the Campbells a tax break was missed and the land was eventually purchased for $445,000.

Back to taxpayers; here is what is in effect an apology from Warren County:

County Board Chairman Dan Murray: “On behalf of the Board of Supervisors and County staff, I wanted to express our thoughts on the allegations that have been made public regarding the operations of the Front Royal-Warren County Economic Development Authority and its former Executive Director…”

First let me say that we are all shocked at the breadth of the allegations. Every year the EDA has a professional audit performed by a CPA to provide a level of comfort to the EDA Board of Directors, the Board of Supervisors, the Town Council, and the citizens of Warren County that the financial operations of the Authority are handled appropriately. We have relied on those audits to ensure that the EDA was, in fact, using taxpayer dollars for the purposes intended.

***

We know over the past few years that citizens have raised issues to the Board of Supervisors and staff. Please know that while citizens may not have seen any visible or public response to those concerns, the issues were certainly noted and looked into. When additional information was brought forward, including the concerns raised by the Town relative to the debt service payments, this ultimately led to the Board’s encouragement and financial support for the County Attorney’s hiring of a forensic auditor to perform a thorough and complete review of the EDA finances for the past 13 years.

Now I am not sure how “professional” the yearly audit was. But if it is professional and if it turned up nothing, when there was something, then why have an EDA?

There is a deeper concern: Why should government pick winners and losers? Why should government buy and sell properties and wheel and deal with potential investors? Now I get it: Everybody does it. Few investors will be impressed solely with education and way of life.

And there is a place for targeted tax abatements for limited periods. BUT Existing businesses get mad when you do that! Nobody helped me!

So the best thing to do is be as chary as possible. If your county or city does not have an EDA, don’t get one. If you have one like Hanover County – find a way to claw it back. Get out of the business gradually.

Check out that last paragraph: I read this as an apology for blowing off concerns in the past.

Another little gem or two:

Hanover County has over $700 million in bonds issued (from their website and they wrote it out for us quite nicely and I bolded it):

The County’s seven-member Economic Development Authority (EDA) was created in 1967 to provide creative financing alternatives to assist businesses in land acquisition, building construction and equipment acquisition. More than 123 bonds have been issued by the EDA, for a total value of more than $716,521,909.

What if a county the size of Hanover had this issue arise: Millions lost? The taxpayers would likely have to bail out the EDA to protect the financial good name of the county. It’s the “too big to fail” argument the liberals always argue in the private sector. Can’t have big banks because they are too big to fail. These EDAs are too big to fail. Somebody will bail them out. Or no decent investment money for schools and roads. Where’s Senator Elizabeth Warren when you need her?

This also seems self-perpetrating: How do you pay off the first bonds? You have no tax base. Your obligations are not ensured by tax dollars (directly at least). Seems to me the EDA has to wheel and deal more land and issue more bonds to pay off the older ones. It’s a dangerous unfunded perpetual obligation right at our doorstep.

The people near Chernobyl thought they would be safe, too. (This analogy is not to condemn the proper and prudent use of nuclear power. I believe in it and it could help reduce carbon for those concerned about that.) But they lived near a nightmare. April 26, 1986, their nightmare came true.

The people of Warren County and Front Royal thought they too would be safe. But now there is genuine uncertainty about their community’s finances and good name. I doubt many investors will buy the bonds of the Warren County Front Royal EDA unless they are offered at a higher interest rate. And the existing bonds have to be serviced! It’s a financial Chernobyl.

King William County is considering expanding their EDA right now. I’d say NO. And Hanover? $716,521,919.00 could be a financial nightmare for years to come. Too big to fail. Could county taxpayers be asked to bail this out?

My fellow Hanoverians: How you like living next to Chernobyl?

Now if a community wants to have a tiny agency that, with proper transparency, to promote why business should come to that community, I cannot argue with that. But this EDA concept is way, way more than that. Counties and cities around Virginia ought to rein this in and abolish or substantially reform EDAs. The best advice is like advice about smoking: Don’t start. If you started: Quit today.

Prevent a financial Chernobyl in your community.

About Elwood Sanders

Elwood "Sandy" Sanders is a Hanover attorney who is an Appellate Procedure Consultant for Lantagne Legal Printing and has written ten scholarly legal articles. Sandy was also Virginia's first Appellate Defender and also helped bring curling in VA! (None of these titles imply any endorsement of Sanders’ views)

2 Responses to “A Financial Chernobyl: Front Royal EDA Scandal Could Have Been Prevented!”

  1. Bob Shannon says:

    Thank you Sandy for the time and energy you spent unraveling the twisted pretzel these EDA’s have become and the myriad of mistakes that always ultimately lead to local tax payers being on the hook–holding the bag after these clowns do their thing

    Capitalism is the most beneficial economic system ever created, While not perfect it dwarfs every other economic system man has ever devised. The fools in the political arena , many of whom have no business experience whatsoever , and often driven by nefarious motives, get their clutches on the public’s money and this is the inevitable result, they ” play capitalist” using others money.
    In the realm of the financial world business start ups have traditionally had banks and venture capitalist loan these folks money for their business ideas. When the business start up approaches the banks and venture capitalists the whole business plan is put through a rigorous underwriting process to determine how viable the business idea/plan is. If the plan can not stand up to the underwriting scrutiny –they do not get the money. That is how it works.
    In these EDA schemes ( and they are often schemes) the rigorous underwriting is absent. The money is given to these EDA Boards/Agencies often by a local governing body ( town councils–Board of Supervisors) and therein lies the PROBLEM. Feel good , noble sounding titles are assigned to these projects with grandiose promises of lots of new development and new jobs…….which more often than not do not materialize.

    In 2010 a Grant ( 10 million of other peoples money) was given to construct a Natural Gas Pipeline that was run over to a Purina plant with the same grandiose promises that it was and I quote ” going to open up all kinds of new development along the 360 corridor”………10 years later that 1 politically connected business is the only one benefiting by this. One can trace back through campaign finance records the generous campaign donations made to members of the G.A who in turn helped arrange this Grant for the 10 million.

    Your presentation last night laid the groundwork for our King William T.E.A Party meeting on Thursday September 12 when Virginia Senator Amanda Chase will speak on this specific topic that night. Chase ( R ) Chesterfield has been an open & vocal critic of these EDA’s and will share with our audience the perils /dangers of these unaccountable groups of which is now playing out in front of our eyes in Warren County. The legal costs ( born by local taxpayers in Warren County) is now alone running into the millions. The lack of oversight alone is staggering. The ease with which this money was embezzled should sound a clarion call for any locality setting these EDA’s up.

    Here in King William the Board of Supervisors in a budget set aside 2 million of our hard working citizens tax dollars for the EDA here . To date only Supervisor Dave Hansen has said NO, displaying the wisdom and courage necessary to stop this madness. The County Administrator Bobby Tassanari went so far as to propose all county owned property and any revenue generated by county owned property be turned over to the total control of the local EDA. It is a incredibly foolish idea and again Hansen & Supervisor Bob Ehrhart raised objections to this very bad idea.

    When one examines the make up of the people serving on these EDA’s, one often finds they individually have no business experience of their own—an incredible fact that should be highlighted. Imagine turning over control of millions of dollars to people who have never ran a snow cone stand, believing they somehow possess the wisdom of directing millions of dollars to viable economic development , with not a bit of experience of having ran a business or investing a single dollar of their own money in a ongoing enterprise.

    The benefactors are limited to some real estate sale people , perhaps a few politically connected contractors who get some work out of these projects, with often times the promise of new jobs and economic prospects fading into memory.
    If a project is economically viable it will get done—without these EDA’s These bodies should be shut down and the G.A should pass legislation to do just that before more Warren County nightmares are visited upon other communities.
    Bob Shannon King William

Trackbacks/Pingbacks

  1. […] articulate, a progressive (But agrees that the COPN must go and also more transparency concerning EDAs!) and I am glad he is running to give voters in the Fourth Senate District a choice. I expect to […]


Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge

Tom White Says:

Nothing is more conservative than a republican wanting to get their majority back. And nothing is more liberal than a republican WITH a majority.

Sign up for Virginia Right Once Daily Email Digest

No Spam - ever! We send a daily email with the posts of the previous day. Unsubscribe at any time.
* = required field

Follow Us Anywhere!

Archives