Officials of Prince William County's industrial development authority have been hard at work luring new businesses to the Virginia suburbs. In recent months, the agency has helped arrange low-interest financing for a number of the newcomers.
a discount department store.
a colonial-style bank headquarters.
a $4 million motel near a major shopping mall.
a $6 million hotel-conference center.
That is the good news.
The bad news is that all of those businesses have located in Fairfax City and Fairfax County, Prince William's rivals to the north.
"We can't force people to locate in Prince William," says Robert A. Agnew, head of the industrial authority. So, he says, the authority does the next best thing: It helps finance companies that want to come to Virginia. In the process, the authorithy picks up enough money to finance its own operations because it gets a fee for each loan it endorses.
Although economic development authorities across the state have come under fire recently for the freedom with which they are approving low-interest loans, there is nothing illegal about the Prince William agency's financing schemes. Its sole purpose is to help the county, the fastest-growing jurisdiction in Northern Virginia, to broaden its tax base and underwrite the soaring cost of local government and schools.
Nothing in the authority's charter or Virginia law says the new industries it approves must be in the county. As a result, the Prince William authority has discovered it can make money by sanctioning low-interest loans for companies that want to build new facilities elsewhere in the state.
Since interest on the loans is free from state and federal income taxes, qualifying companies can save millions. Firms that have taken advantage of the tax-free financing include the Richmond-based Best Products Co., which received $6.2 million for a showroom now under construction in Fairfax City.
Barely two blocks away is the $1 million, colonial-style headquarters of the George Mason Bank, which also arranged its financing through Prince William.
The authority also is helping to finance low-interest loans for a $4 million motel near Springfield Mall and a $6 million hotel-conference center on Telegraph Road near the Captial Beltway, both in Fairfax County.
Although Agnew defends the agency's actions, others are troubled by it. David Dodd, a Prince William official involved in the county's industry-seeking efforts, is not sure it is a good idea for the authority to be so freewheeling. "I tend to be conservative, and I feel our authority is not," he says. "There are some interesting questions there."
Many say there are also interesting questions in neighboring Fairfax County, where a similar authority is under investigation by the county supervisors. Officials there have expressed concern about loans the authority arranged for direct mail specials Richard Viguerie and the Marlo Furniture Co. chain.
The Marlo loan, for what is advertised to be the largest retail furniture store in the Washington area, was approved despite a Virginia law expressly prohibiting Fairfax from assisting retail operation.
Patrick K. Arey, the Prince William authority's lawyer, defends the agency. "The purpose of industrial developemnt bonds is to promote industry and trade in the Commonwealth of Virgina, not just Prince William," he says.
He also points out that the authority gets a fee for each loan it places. When it closed yesterday on the $4 million deal involving the Springfield Econo-travel Motor Hotel, the authority picked up a fee equal to one-tenth of 1 percent on the outstanding balance of the loan. Over the 18-year life of the loan, that will amount to a little more than $35,000.
Since the loan is tax-free, the company is happy to pay the extra fee because it gets a favorable interest rate. In this case, the rate is 11 1/4 percent, compared to prevailing interest rates of 14-to-15 percent for such a deal.
The president of the authority, Robert A. Agnew, who is also vice president and general manager of Universal Dynamics Corp., says such fees will help the agency be self-sufficient. At present the agency has no office or paid staff but Agnew says that as it grows it will incur costs. "With the administrative fees, we feel we will be able to accommodate any future expenses."
The technique has been used elsewhere in the state, often provoking criticism. The Chesapeake City authority, for example, has financed a supermarket in suburban Richmond and th e Hopewell authority has financed nursing homes in Henrico County, a Richmond suburb.
State officials, including some legislators, fear that if local authorities in the state continue to dispense bonds so freely, the money pool for low-interest loans will dry up, hurting more authentic industrial ventures. They are also worried that Congress will react and put limitations on industrial bonds.
William C. Sims, a Virginia industrial development official, says: "We've been telling them [authorities throughout the state] they're going to kill the goose that laid the golden egg."