Project Clover’s Worth

In a letter received yesterday by the Page County Board of Supervisors, Page County resident Phillip Rainwater has retained the legal services of Alexandria attorney Michael Lieberman of DiMuroGinsberg, P.C. and a certified general appraiser, Barry L. Pugh of the Colonial Appraisal Service, Harrisonburg Va., who has assessed the value of Project Clover, in highest and best use as industrial property, to be $2,525,000. On the basis of this value, the USDA would be extremely unlikely to loan the county $4.5M, and the consortium of banks an additional $2.0M, to fund the purchase of Project Clover.

Here is the Appraisal Letter  on Project Clover and the Lawyer’s Letter to the BoS.

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View this document on Scribd

The letter from Mr. Rainwater’s attorney cites major concerns and possible legal action over the following points:

– the financial impact of Page County funding a deal valued at more than three times market value

– lack of public hearing

– improper use of closed sessions

– conflict of interest

Here is the entire letter, dated May 12th, 2010:

Dear Mr. Woodward,

The law firm of DiMuroGinsberg, P.C. (“DiMuro”) represents Charles Philip Rainwater (“Rainwater”), a Page County resident. Mr. Rainwater is extremely upset and angered with Project Clover. Consequently, he has asked DiMuro to advise him what he can do to address his concerns.

Included are four of the topics which cause Rainwater concern. In addition, an appraisal of the Project Clover property by a certified general appraiser accompanies this letter.

One major concern of Rainwater’s is the fInancial impact that Project Clover will have on Page County. Rainwater would like to see the Board of Supervisors (“Board”) take appropriate action for the benefit and welfare of the majority of the citizens of Page County in dealing with Project Clover and the EDA revenue bond financing relating thereto. Rainwater has authorized the DiMuro law firm to take any and all legal means available, through the judicial system and otherwise, to ensure that the current Board of Supervisors act for the benefit and welfare of the majority of the citizens of Page County. Rainwater also wants to ensure that the business of governing Page County is done in a transparent manner and in compliance with all applicable laws, rules and regulations. Rainwater does not seek to settle his grievances in a court of law, but he is willing to pursue such actions, quickly and vigorously, if necessary.

DiMuro has labored hard in dealing with these issues. Therefore, we have copious facts and documents in our possession. Over the past several months we have reviewed the actions of the Board and the Page County Economic Development Authority (“EDA”) over the last several years, as reflected in the Minutes and other documents made available to us in regard to Project Clover, to the extent such actions have been made public. We are very concerned about several actions taken and contemplated to be taken regarding the Project.

First, Rainwater (and we conclude many citizens in Page County) believe that the purchase of the 210.313 acres of land from Mrs. Hudson (the “Hudson Property”) for use as an industrial park was at an excessive price. Accordingly, this enormous cost could cause the Page County taxpayers to have a severe increase in their property taxes and harm the Page County budget for years to come. From the paperwork we have reviewed, it is difficult to understand how the EDA can justify its purchase of the “Hudson Property” for $7,500,000 (U.S.), (which equates to $35,661.13 per acre).

In an effort to understand the market value of this property, DiMuro authorized an appraisal from a certified general real estate appraiser who practices in Page County. His name is Barry L. Pugh of the Colonial Appraisal Service in Harrisonburg. (Mr. Pugh’s appraisal is enclosed as exhibit A).  As you may know, Mr. Pugh has worked on behalf of Page County in the past as well as many other municipalities, banks and businesses in Virginia.

In making his appraisal, Mr. Pugh determined that the highest and best use of the subject property as of the date of value is for general industrial development and he determined that the market value of the subject property as of April 29, 2010 is $2,525,000 (two million five hundred twenty five thousand dollars) or $12.005.91 per acre. To be clear, based on Mr. Pugh’s appraisal, it appears that the EDA purchased the “Hudson Property” for almost three times its current appraised value. Rainwater wants to know: how can that happen and what can the current Board
do about it? Specifically, exactly who is responsible for a purchase price so far in excess of appraised value?

Based on our review of the documentation, it is our understanding that the EDA paid for this land purchase by making an initial payment of a little over $1,000,000 that was appropriated to it by the Board, and by issuing a bond (a note) in the amount of $6,500,000 to Ms. Hudson, secured by a Purchase Money Deed of Trust. The bond is a non-recourse obligation (e.g. the County and EDA cannot be sued for non-payment ofthe note), and it specifically states that the payment ofthe note is subject to appropriations by the Board.

Furthermore, the bond specifies clearly that it does not constitute a debt or pledge of the full faith and credit of Page County or the EDA. In other words, the Bond is not a “legal debt or obligation” ofthe County under the teachings of Dykes v. Northern Virginia Transportation District Commission, 242 Va. 357 (1991). Since this debt is not secured by the general credit of Page County, there is no legal obligation for the County to pay this note, and indeed, the note itself contemplates that in the event of non-payment, the sole remedy that may be sought by Mrs. Hudson is that the land purchased by the EDA would be foreclosed upon, and Mrs. Hudson would receive the remainder of her land back. It is clear that the current Board is under no legal obligation to appropriate any additional funds to pay for the EDA’s folly. This conclusion is a position we will defend vigorously, and we urge the Board not to be intimidated or influenced by other counselor government officials that propose otherwise.

If the County wanted to legally incur this debt and pledge the full faith and credit of the County, the Virginia Constitution sets out the mechanism for doing so in Art. VII, section 1DCb), which states, in pertinent part:

No debt shall be contracted by or on behalf of any county or district thereof. .. except by authority conferred by the General Assembly by general law. The General Assembly shall not authorize any such debt … unless … provision be made for the submission to the qualified voters of the county or district thereof… for approval or rejection by a majority vote of the qualified voters voting in an election on the question of contracting such debt. Such approval shall be a prerequisite to contracting such debt.

Quite simply, the Virginia Constitution requires that before incurring this type of legal debt, a majority vote of the qualified voters of Page County had to approve this obligation. The choice was made not to place the matter on the ballot for the voters to decide, and as such, all of the parties to the purchase of the Hudson Property were on notice that neither the EDA nor Page County was incurring a legal obligation when entering into that transaction. A “moral obligation” is not a legal obligation, although we have heard from citizens of Page County that arguments to the contrary are being made to the current Board. As a matter of law, such an argument is erroneous, as shown by the Dykes case.

If the County wants to take this obligation on as a legal obligation, which Rainwater urges the Board to resist, then Rainwater believes, as the Constitution requires, that the matter be placed on the ballot for the voters of Page County to decide.

A second major concern of Rainwater, in addition to the exorbitant cost that the EDA incurred in purchasing this land, is the process used by the EDA in conducting the EDA’s business. We believe there are substantial grounds for legal action based on these EDA practices. For instance, if this bond was intended to be a Private Activity Bond as contemplated under IRC §141(a) then it must meet the public approval requirements ofIRC §147(1). We have been informed that there was no published public notice of the hearing at which the bond was approved by the EDA in
accordance with Virginia Code § 15.2-4906 (A)(B). If so, the EDA failed to follow procedures set out in the Virginia Industrial Development and Revenue Bond Act which requires approval of the bond at a public hearing that is held after public notice of such meeting is published in a newspaper having general circulation.

In addition, as these members of the EDA are appointed by the Board, we feel that the Board should be aware that the procedures used by the EDA to go into closed session throughout the past few years to discuss matters related to Project Clover appear to have violated the Virginia Freedom of Information Act and perhaps some other statutory provisions as well.

In particular, we believe that subsection A of Virginia Code §2.2-3712 has apparently been violated on numerous occasions by the EDA. Subsection A reads:

No closed meeting shall be held unless the public body proposing to convene such meeting has taken an affirmative recorded vote in an open meeting approving a motion that (i) identifies the subject matter, (ii) states the purpose of the meeting and (iii) makes specific reference to the applicable exemption from open meeting requirements provided in section 2.2-3707 or subsection A of section 2.2-3711. The matters contained in such motion shall be set forth in detail in the minutes of the open meeting. A general reference to the provisions of this chapter, the authorized exemptions from open meeting requirements, or the subject matter of the closed meeting shall not be sufficient to satisfy the requirements for holding a closed meeting. (emphasis added).

The Virginia Code authorizes a citizen, such as Rainwater, to bring suit to enforce these provisions and if successful, the “petitioner shall be entitled to recover reasonable costs and attorneys’ fees from the public body if the petitioner substantially prevails on the merits of the case, unless special circumstances would make an award unjust.” See Section 2.2-3713 (A) and (D).

We enclose for your review two advisory opinions, dated December 17, 2009 and March 17, 2010, from the Freedom of Information Advisory Council that reiterate that it is well established that a general reference to the subject matter of a closed session is not sufficient to meet the statutory requirements of §2.2-37l2. (See Exhibits B & C attached hereto.) Our review of the EDA Minutes throughout 2008-2009 pertaining to Project Clover (as well as other matters) leads us to conclude that the EDA has failed to satisfy the requirements of §2.2-3712 virtually every time they have gone into closed session. If the Courts agree, then the citizens of Page County have been deprived of their rights to transparent governance.

A third major concern of Rainwater, besides the EDA not properly complying with the notice provisions of §2.2-3712, is whether there was a proper need for certain of the closed sessions at all after the purchase agreement was entered into in early December 2008. See e.g. White Dog Publishing, Inc. v. Culpeper County Board of Supervisors, 272 Va. 377 (2006). For example, it seems quite suspicious and unusual for the EDA to go into closed session on December 18, 2008 “for the discussion of acquisition of real property for public purpose pursuant to Virginia Code §2.2-371 I(A)(3)” when the Chair and Secretary of the EDA had executed and delivered the Purchase Agreement on behalf of the EDA on December 10, 2008.

There are other similar examples in the EDA Minutes.

However, until a legal complaint is filed, followed up by depositions of the EDA members, we will not know the scope of such actions. See e.g. Media General Operations, Inc. v. City Council ofthe City of Richmond, 64 Va. Cir. 406 (Richmond, 2004)(meeting previously voted closed was ordered open to allow public access to the depositions transcribed regarding the closed meeting).

Continuing, a fourth major concern of Rainwater is that, based on the Minutes of the EDA, it appears that certain members ofthe EDA who may have had a conflict of interest regarding Project Clover actually attended the closed sessions. Rainwater is extremely concerned about this issue as it implicates the integrity of the entire proceedings. Weare told that issues regarding conflicts of interest have arisen in public meetings and during the recent Board elections, but as far as we can tell, nothing-not even an investigation– has been undertaken regarding this critical issue. Rainwater would like to know what, if anything, has been done to ensure that members of the EDA do not participate in closed sessions or open sessions regarding matters upon which there may be a conflict of interest. We believe there are statutory provisions in Virginia that can be invoked to prevent such occurrences and Rainwater currently looks to the Board for leadership in this regard.

The DiMuro law firm sends you this letter and the enclosed materials in an effort to inform the Board that Rainwater, (and, it seems, a majority of the residents of Page County), believe that further appropriations for the EDA for Project Clover is misguided and detrimental to the financial well being of Page County. Likewise, Rainwater feels that significant grounds exist for legal intervention, if necessary.

Rainwater is hopeful that this Board will not be bullied or pressured to continue the mistakes of the EDA and the previous Board. It is clear that there is no legal obligation for the current Board to do so, and as the enclosed appraisal emonstrates, there is no good fmancial justification to do so.

By this letter, Rainwater specifically asks the Board to answer the questions posed herein. He is willing to meet with the Chairman of the Board to discuss these matters further. Rainwater is acting as a concerned resident. He is not the enemy. He is an ally, and seeks what we assume all of you seek— the better good for Page County and fmancial accountability for all Page County residents. Rainwater asks why deep cuts are necessary in institutions such as schools, yet appropriations for Project Clover remain under consideration when it is now clear that the property’s value is less than a third of what is sought to be financed through additional appropriations. It just does not make sense.

In the interim, Rainwater will consider his options in taking whatever legal actions are available to him as a taxpayer of Page County. Such actions are not to be construed as a threat; instead, Rainwater is only preparing for circumstances if the issues outlined in this letter are not adequately addressed.

Mr. Rainwater requests that any response to this letter be sent to him through his undersigned counsel.