City may avoid upfront cost for WSH

Though Staunton is required by the state to put forth an “irrevocable pledge” of $15 million to sign a development agreement for 266 acres of the current Western State Hospital campus, city Finance Director Jeanne Colvin told the City Council at its Thursday meeting that last-minute talks with attorneys could mean the city would not have to put forth any money up front.

The state of Virginia has asked the city to provide a letter of credit for $15 million to go forward with the Western State Hospital development agreement, in which the city is providing land for a new, smaller hospital in exchange for the state giving up 266 acres of the current hospital campus – considered prime real estate for future mixed-use development.

To secure the letter of credit, Colvin said the city has to issue general obligation debt to provide “an irrevocable pledge” that the city will contribute the $15 million it agreed to for the project. She has also discussed with attorneys coming up with a written agreement instead of the line or letter of credit “that would save the taxpayers this cost,” she said.

If the city does have to secure a line or letter of credit, depending on the interest rate and financing terms, Colvin said it would cost the city about $250,000 per year.

“We’re still working with the state to settle the issue of whether it can be a line of credit, a letter of credit, or as of this evening ... trying to develop a written agreement with the state that won’t cost the city anything,” Colvin said.

The city otherwise would need to secure the letter of credit by Aug. 31 and currently has a request for proposal out with financial institutions. The council will receive an update at its July 23 meeting.

“Not that we’re issuing bonds this year,” Colvin told the council. “This is basically a pledge of the city’s full faith and credit that we will honor our commitment and agreement with the state to help the state rebuild the Western State Hospital site and develop the existing property.”

Colvin said she hopes the city will be able to work out a written agreement.

“Hopefully we won’t need it, but even if we don’t have to get a financial instrument such as a line of credit or a letter of credit, this legally obligates you to carry forward with your legal agreement with the state,” Colvin said.

If the city ends up having to go forward with the line or letter of credit – with the council’s adopting a bond resolution in August – the council will need to authorize City Manager Steve Owen to transfer money from the Capital Improvement Fund undesignated account to the Western State Development Project account.

The council in June unanimously adopted a memorandum of understanding of the basic terms of a deal to locate the new Western State Hospital on 70 acres within the state’s Crossroads Business Park. The deal to build the smaller hospital will free up more than 250 acres along Interstate 81 and Route 250 for the city to develop.

In exchange for the city’s Industrial Development Authority deeding the city property in the business park, the Virginia Department of Mental Health, Mental Retardation and Substance Abuse Services will deed 266 acres of the existing hospital campus – excluding 31 acres now occupied by the Commonwealth Center for Children and Adolescents – to the IDA for future redevelopment.

Council members voted unanimously to introduce the ordinance authorizing the issuing of the general obligation bonds.