Bacon's Rebellion

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Danville’s Bad $912,000 Loan — Isolated Case or Tip of the Iceberg?

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by

James A. Bacon
in ,

Danville City Council will decide next week whether to forgive $912,000 owed the city by its land purchasing arm, the Industrial Development Authority. The money represents the unpaid portion of a $1.6 million loan issued in 2015 to entice Telvista, a call center operator which closed its facility in 2018 and ceased making lease payments.

The city needs to clear the books on the Airside Industrial Park property to make way for a new investment by Norfolk-based PRA Group, which has promised to invest $15 million and bring 500 jobs. “The property can’t close until this is done,” said City Manager Ken Larking, as reported by the Danville Register & Bee.

City Council is likely to forgive the loan. The PRA operation — ironically, a debt collection center — will employ more people and pay better at $38,400 per year on average than the old Telvista operation.

Former Telvista facility. Photo credit: Danville Register & Bee.

I don’t question the decision to forgive the loan, or even to advance the loan to Telvista back in 2015 (as questionable as that might have been). But I do wonder how many other bad loans lurk on the books of Virginia industrial and economic development authorities, and how many of those loans represent unrecognized liabilities of their affiliated local governments.

Just a couple of weeks ago, we noted the filing of a $17.6 million lawsuit against the Front Royal-Warren County Economic Development Authority alleging all manner of financial irregularities. That controversy involves a very different set of issues, but it reinforces the idea that many local governments aren’t paying sufficient attention to their quasi-independent economic development arms.

The big question is how endemic these bad loans and irregularities are. Are they limited to Warren County and Danville? Or might these be just the problems that have bubbled to the surface? I know of no one — absolutely no one — who has made a systematic audit of local development authorities.

Many of the projects that local governments back are undoubtedly worthwhile. But the public — and I’ll bet most city councilmen and board supervisors — have no idea of how much risk they are exposed to. If local governments are getting hit with $900,000 liabilities now, a decade into an economic expansion, how many other loans will go bad? What will the exposure be when the next recession hits? And how much have local governments they set aside in financial reserves to weather the bad-debt crises?

Maybe someone should make it their business to find out.

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11 responses to “Danville’s Bad $912,000 Loan — Isolated Case or Tip of the Iceberg?”

  1. djrippert Avatar
    djrippert

    Here’s a hint for Virginia’s localities and the state … ask Alexa to tell you the future of centralized call center operations employing hundreds of people. I guess Danville struck out with their efforts to entice America’s slide rule manufacturers to move to town.

  2. LarrytheG Avatar
    LarrytheG

    Towns like Danville are desperate to bring back jobs and they will pin their hopes (and their money) on ED type folks who are good at “selling”.

    Think of a town that has lost much of it’s manufacturing base like you would a guy who has lost his manufacturing job and will do almost anything to try to find another “good” job. Individuals workers are desperate and it is individuals who run towns who are similarly desperate.

    But again, we have this dichotomy about the role and fitness of government in general. Why do we expect them to fix this problem and then blame them when they fail? If you don’t think the government is competent to do this – what is your alternative? What is the “fiscally responsible” – Conservative alternative?

    1. James A. Bacon Avatar
      James A. Bacon

      The fiscally responsible alternative is to make sure that local government officials understand the risks they are taking and the hidden liabilities of which they are unaware. Most don’t have a clue. Once they understand the pitfalls, we can hope they will make better decisions.

    2. djrippert Avatar
      djrippert

      “Danville City Council will decide next week whether to forgive $912,000 owed the city by its land purchasing arm, the Industrial Development Authority. The money represents the unpaid portion of a $1.6 million loan issued in 2015 to entice Telvista, a call center operator which closed its facility in 2018 and ceased making lease payments.”

      Apparently the Industrial Development Authority spent public money to entice a private company to add jobs in Danville without any guarantees that the jobs would stay in Danville. Now the jobs are gone and Danville is hold the bag on a million bucks.

      Televista isn’t bankrupt. They just decided they’d rather have these jobs in Dallas than Danville.

      https://www.richmond.com/news/virginia/danville-telvista-to-close-in-march-leaving-workers-jobless/article_02bfbe6b-6a12-5274-a580-e61402e1f5cf.html

  3. LarrytheG Avatar
    LarrytheG

    re: local officials understanding “risk”.

    I’m NOT going to MOCK this sentiment but point out that the State
    also has it’s share of “oops” on ED AND even when the state does succeed, the boo birds come out in force to say we gave away more than
    we should have, blah, blah, etc…

    We should ask Mr. Moret about the “risk” because that’s a part of what his job is about.. there are no guarantees … even entrepreneurs and companies have to engage in risk – and sometimes they do fail.

    Today’s business environment is all about NOT investing long term in a location nor in human capital. The strongest performers turn on a dime – they move from one location to another – at will – and they shed employees at will. Competition has a way of getting to the essentials and they’re not in anyone’s favor except the company and it’s investors.

    Ask Norfolk Southern, Motorola, Richmond Banking and some famous companies who left NoVa in a heartbeat. The difference is that Richmond and NoVa are diverse enough to take the hit and Danville hangs by a string and Roanoke not much better.

    1. djrippert Avatar
      djrippert

      How does a “city” of 41,000 have an economic development program at all? Do they also have a Navy? Just more egomaniacal politicians playing masters of the universe. The next time Danville gets a “good idea” for another deal they should call Moret and promise to buy him a nice dinner at Bookbinders if he’ll read the proposed deal and provide advice. My guess is that Mr. Moret would never have done this deal. That would have saved Danville $912,000 less the cost of the dinner at Bookbinders.

      1. LarrytheG Avatar
        LarrytheG

        DJ – gawd guy. Fredericksburg City has an ED department and it has done wonders for the city in bringing in tax-producing businesses!

        Spotsylvania also and it has brought in some major employers also.

        In Danville’s case – they have two directions they can go in. They can slowly degrade and not be able to maintain their infrastructure, services,and schools or they can try to attract businesses …….

        and YOU should want them to – because if they fail – you’re going to pay for their needs!!! at least until you break away and form an independent State! You WANT RoVa to do better economically!

        1. djrippert Avatar
          djrippert

          How does losing almost a million dollars on a bad deal help Danville? I’d like to see someone add up all the costs of all the economic development programs throughout the state. Not just the corporate bribes but the costs of the ED people, their benefits, office space, etc. Fredricksburg has a population of 24,000 and an 8 person Department of Economic Development & Tourism. That’s 1 ED person for every 3,000 residents. At that ratio there would be 2,700 economic development people in Virginia. If the burdened cost (salary, pension, medical, office space, etc) is $100,000 per year that would be $270m per year.

          Your guys may be great but some things should be handled above the town level.

          How much time do you think one local Virginia ED department spends trying to outsell some other local Virginia ED department for the same opportunity?

          Jim is right. This seems like government sprawl.

  4. LarrytheG Avatar
    LarrytheG

    I think you need the ED but I admit it’s loosey-goosey across the board, local and state and am hoping that Mr. Moret rehabilitates the State and also helps localities.

    Tourism is a big deal down our way – it’s a direct part of ED, Civil War, Battlefields, etc…

    We want more of the Defense Dept companies that you have!

  5. LarrytheG Avatar
    LarrytheG

    re: ” Your guys may be great but some things should be handled above the town level.

    How much time do you think one local Virginia ED department spends trying to outsell some other local Virginia ED department for the same opportunity?”

    HEY! Aren’t you the one who rails against the Dillion law and the Clown show in Richmond? EGADS guy!

    1. djrippert Avatar
      djrippert

      Given the choice I believe that the government that governs closest to the people governs best. So, I wonder why the federal government can’t seem to respect the 10th Amendment. I wonder why the state government wants to be a nanny state. However, Virginia does not need its own carrier battle group. That’s a legitimate federal issue. And I wonder if every county, city, town and hamlet in Virginia needs its own ED organization.

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