WASHINGTON — The Virginia Resources Authority withdrew a $46 million chunk of its nearly $400 million pool bond issue last month and is reissuing it in a stand-alone deal scheduled to close next week, after a group of citizens questioned the legality of the transaction.
The controversy centers on whether voters must approve the bonds.
The $46 million of bonds were to be issued by the VRA on behalf of the RSW Regional Jail Authority to finance a new jail for Shenandoah, Warren and Rappahannock counties.
VRA executive director Suzanne Long said the RSW portion of the pool was all set to go to the market when a group of Shenandoah County residents launched “an all-out assault.”
Brad Pollack, an attorney who represents those with traffic violations in Shenandoah County, was among several residents who communicated extensively with elected officials, the VRA and the press in alleging that the bonds are not legal because they were approved only by the county Board of Supervisors and not by the citizens.
The Virginia Constitution says that the commonwealth can’t authorize debt “unless in the general law authorizing the [debt there is a provision] … for approval or rejection by a majority vote of the qualified voters” before the debt is issued.
Because voters did not approve the bond issuance, it is not a legally enforceable debt and the county could refuse payment on it sometime down the road without fear of legal retribution, Pollack said.
The unanimous approval by the current Shenandoah County Board of Supervisors “should not give the VRA, nor any potential bond purchaser, any comfort,” Pollack said in a letter to the authority’s bond counsel, McGuireWoods LLP. “There are virtually no regular Shenandoah County citizens that support the regional jail. It has no constituency whatsoever.”
Arthur Anderson, a McGuireWoods attorney, responded that Pollack’s analysis is basically correct under a 1991 holding by the Virginia Supreme Court in Dykes v. Northern Virginia Transportation District Commission. The court ruled that a “moral obligation” to pay debt service is not legally enforceable. However, Anderson said the VRA believes the county takes the obligation seriously, and warned about the failure to do so.
“The lack of legal enforceability does not mean that the failure of a future Shenandoah County board to fulfill its moral obligation would not carry serious repercussions,” he wrote to Pollack. “The county’s credit would be impaired, if not destroyed, for years to come.”
Though Long said no lawsuits have been filed, the vague threats of litigation from some of the disgruntled citizens was enough to convince the VRA to pull the RSW bonds for fear that it could damage the entire pool deal. A parallel deal was subsequently put together, though, and the RSW bonds are scheduled to close along with the rest next Wednesday, she said.
“We were comfortable that there wasn’t a legal threat, a viable threat,” said Long, a former McGuireWoods attorney herself. The opponents of the debt are “sensationalizing” via “email bombs,” she said.
Pollack said the only threat of litigation he was aware of was by former Shenandoah County Jail captain Cindy Bailey, who wrote this week to a number of commonwealth officials and said that Shenandoah County citizens can go to court to stop unlawful debt.
Pollack said the real point is the lack of support for the jail in the community and the potential of that to harm other issuers who have nothing to do with it.
“Bottom line is that the RSW Regional Jail boondoggle is not worthy of any of the foregoing risks by the Virginia Resources Authority,” he said. “There may be hundreds of other localities that are legitimately using the VRA’s fine services. Don’t put them at jeopardy by supporting this very unpopular jail.”