The meeting of the Stafford County Purchase of Development Rights Committee for Tuesday, April 22, 2008, was called to order at 7:00 p.m. by Chairman Tom Coen in the County Administration Office Conference Room of the County Administration Center.

Members Present: Coen, Apicella, Clark, Silver, McClevey and Kurpiel

Members Absent: None

Staff Present: Baker, Schultis, Keyes, Lang, Knighting and Stinnette

Others Present: Karin DeMoors , Public Financial Management

Staff Update

Mrs. Baker stated Pam Hall had resigned. She introduced Karin DeMoors, Financial Advisor with the Public Financial Management, who would be giving a presentation later in the meeting.

Status of State Agreement

Mrs. Baker stated the State Agreement has been signed and Jon Schultis would be hand-delivering it tomorrow as it was due in Richmond on Friday.

Budget – Potential Bond

Mrs. Baker stated they would be going forward with the $300,000 matching funds. She stated she sent an email regarding the Board of Supervisors meeting actions from last week. She stated the Board of Supervisors did request the committee look at a bond referendum for the November 2009 ballot and that the Board discussed the 2008 ballots in conjunction with the Parks Bond as well as the Transportation Bond. She stated the majority felt there was too much going on and the recommendation was to hold off until 2009. She stated that Mike Neuhard recommended that they create a subcommittee which would work on getting information together. She stated on May 6, 2008 the Board of Supervisors will be having a work session item on this year’s referendum and she will know more after that.

Mr. Apicella asked if the $300,000 continues to roll over.

Mrs. Baker stated yes, they have it as a line item and it will be rolled over to the 2009 budget.

Mr. Apicella asked when Mr. Milde requested $300,000 that was additional.

Mrs. Baker stated yes and that they had discussed an extra $300,000-400,000 to make it an even $1 million with the State’s matching fund; however, there was no support for this budget cycle. She stated Karin DeMoors will discuss the bond.

Mr. McClevey asked what the Parks and Rec bond was related to.

Mrs. Baker stated that was what the Board of Supervisors would be discussing at the May 6 meeting. She stated there were a lot of upgrades to parks and park facilities and she thought also some land acquisition. She stated she will forward any information she receives. She stated she did ask whether or not it was strictly recreational facilities or whether there were any open space components to that and she was guessing that the way the Parks and Rec master plan was heading that their focus was more on the recreation aspect.

Ms. Clark stated she would think long and hard before placing PDRs in with parks.

Mrs. Baker stated it was not necessarily PDRs, but just an open space for active recreation facilities and trails.

Potential Board of Supervisors Work Session

Mrs. Baker stated hopefully they would get the report finalized and forward it to the Board of Supervisors for the potential work session in June on the PDR. She stated even though the Board was not looking at the funding right now, they still wanted to keep this in front of them and let them know there was still active work going on and be able to get some feedback from the Board.

Pilot Program

Mrs. Baker stated because of the budget issue they were thinking of possibly pushing back the program 2 or 3 months if they were going to go forward with the pilot program which would give everyone time to adjust to what happens with the budget.

Presentation and Discussion – Karin DeMoors, Public Financial Management

Ms. DeMoors passed around a hand-out. She stated she would start with an overview of the funding and financing approaches to PDR programs. She stated there were basically two approaches, Pay As You Go (PAYGO) just using cash and paying, or issuing debt, and there were variations within those. She stated pay as you go was where they get their money up front, there would be no ongoing payments, there would be no leveraging of county’s funds, and the landowner would be subject to the capital gains tax today. She stated that was not the ideal situation but it was the very basic level of what you could do with the funds that you have on hand. She stated the other variations will require some form of an ongoing source of revenue and that was something they should think about. She discussed the hand-out and gave examples of STRIPs. She stated if you add an Installment Purchase Agreement (IPA) to that basic PAYGO arrangement you basically create that ongoing revenue stream because through the IPA you would be promising the landowner to pay them semi-annual interest. She stated there would be a large balloon payment in the future. She stated generally when you do that it goes along with buying a STRIP or a zero coupon which would basically be an investment that does not pay interest but at the end it would be worth the value of the purchase price of the development right. She stated generally the most leverage you get was through a STRIP. She stated if you take a PAYGO approach and add an IPA to it and add a STRIP to it you have the need for ongoing revenue stream but you also have the interest payments to the landowner under the IPA. She stated you would have a little bit of a leverage because you are purchasing a STRIP and leveraging it as the future and an investment vehicle and then you also have the benefit to the landowner of them not incurring the capital gains tax today. She stated the other category was debt and when you issue debt you secure this in a future stream of revenues. She gave examples of leveraging. She stated you could look at capacity two ways, the amount of annual money that you think you would be able to get from the Board of Supervisors per year or you can say you want to preserve this much land and would cost this much money and she would be able to do a reverse analysis.

Ms. Kurpiel stated she would like Ms. DeMoors to speak to the Commission about the benefits to the owner of being able to defer the capital gains. She stated in her opinion it was an incredible aspect of the program and she thought this was how you would bring people into the program. She stated if they use the PAYGO method she thought there would be a potential of pushing people away from the program once they run their own numbers and see how much would be coming out of their pockets to pay that capital gains.

Ms. DeMoors stated basically they would have to compensate the landowner for the value of that today.

Ms. Kurpiel asked Ms. DeMoors if she found that was the impact when people were faced with the PAYGO.

Ms. DeMoors stated that was not where they focus their work. She stated that they help people set up programs.

Ms. Kurpiel asked if these programs work with a payment of the full value. She stated as an example, one thing they have discussed in the Commission was paying $30,000 for a development right and it seemed to her that that was a PAYGO strategy. She stated if they were going to fold in an IPA and they were using STRIPs or debt, then they would not be talking about a fixed amount per development unit.

Ms. DeMoors asked Ms. Kurpiel how she was defining a development right.

Ms. Kurpiel stated their staff had given them a methodology for calculating that. She gave an example. She stated the program they had been talking about relies on the fact that the donor will get well in two ways, their payment which would be a partial payment and the Federal tax benefits and the State tax credit.

Ms. DeMoors stated they were taking a plot of land and dividing it into a number of development rights based on the quality of the land. She stated it did not preclude the use of an IPA. She stated an installment purchase agreement was basically a legal document that was drawn up and states that over the course of 30 years we will pay you 5 percent semi-annually and then 30 years down the road you have the value of that PDR at the end of that. She stated the value was set based on whether or not you are going to value the $30,000 which was obviously influenced by how you value that property.

Ms. Clark asked if there were options between lump sum right now and interest for 30 years and a lump at the end of 30, because if you are 75 years old you probably would not be waiting for that 30 years.

Ms. DeMoors stated the IPA would transfer to heirs.

Ms. Clark stated some older people may need that money now.

Ms. DeMoors stated the type of things they were talking about increase the complexity of the program and it was things that staff would have to consider, because if you try to tailor an individual situation for every person that you are dealing with it would make it very complex. She stated it would be difficult to issue bonds and develop agreements because you would basically be developing a separate IPA for each individual.

Mrs. Baker asked if they could use a combination of letting the owner decide if they were to be paid up front or long term.

Mr. Apicella stated if somebody wanted their money up front then maybe they get less per development lot.

Ms. Kurpiel stated under the Virginia Beach program the semi-annual interest paid to the donor was tax free. She stated under the simplest methodology, which would just be a $30,000 payment with an IPA with semi-annual interest, and asked if that would qualify.

Ms. DeMoors stated that was a legal opinion and they would have to ask Bond Council (McGuire Woods) or Tax Council on that.

Ms. Kurpiel stated she thought it was somehow tied to the use of STRIPs.

Ms. DeMoors stated a STRIP was just a treasury security which was a zero coupon and it would not pay interest during the interim. She stated in terms of how they get the tax free status, she could not answer that.

Mrs. Baker stated she thought they had received some differing opinions on the use of IPAs.

Ms. DeMoors stated you need to go to the source or you may want to have a bond council involved.

Ms. Kurpiel asked where they were in the discussion of whether Stafford can use an IPA.

Mrs. Baker stated that was what she was trying to determine that, and maybe they need to contact McGuire Woods.

Ms. Lang stated she had heard we could not because we are not a city.

Ms. DeMoors stated she could give McGuire Woods a call.

Mr. Apicella asked Ms. DeMoors since she could run an analysis based on different levels of funding, if it would be useful to do an analysis on $1 million a year, $2 million and $5 million.

Ms. Kurpiel asked under which scenarios.

Ms. DeMoors stated the ones being looked at are debt issuance without an IPA, and to get your maximum leverage it would be debt issuance with an IPA and STRIPs.

Ms. Kurpiel asked when Ms. DeMoors runs the numbers does she pay the debt service out of the proceeds every year.

Ms. DeMoors stated it was paid from county funds every year. She stated if you were getting $1 million every year, you have to subtract $200,000 for the service and another $200,000 for interest which leaves $600,000. She gave examples.

Ms. Kurpiel asked if she runs $1, $3 and $5 million, if they could just double $1 million to get what $2 million would be.

Ms. DeMoors stated it would depend on the type of debt issuance you would use but it would roughly be about the same. She stated she could set up a model and asked if they had a goal in mind of how much they wanted to conserve county wide.

Mr. Apicella stated the goal would be driven by the amount of money they have.

Ms. Kurpiel stated she calculated there were about 13,000 to 14,000 development rights and using the PAYGO method she thought 5 percent would be a good number.

Mrs. Baker stated if they use state money, they would need to actually set out goals and target areas.

Mr. Coen asked if there was anything else they would like Ms. DeMoors to look in to.

Mr. McClevey stated most of this was way over his head. However, he asked what form of bond programs the county would use if they desire to do these other bond referendums to raise money through bonds.

Ms. DeMoors stated it was different whether you were a state or a county and in the State of Virginia, if you are a county, in order to issue general obligation bonds you have to do a referendum. She stated there were other means of doing finances other than general obligation bonds but they are not as simple or an inexpensive. She gave examples. She stated she was hearing from the Board of Supervisors that they want to move more towards doing a regular referendum and do more general obligation bonds on a regular basis for the majority of their capital program. She stated Stafford has run into some obstacles in doing that and the committee should be aware that if a specific project was put out for referendum and voted down they could not just turn around and six months later do a lease revenue bond issue from that. She stated the project would be dead until the county could get voter approval for that.

Ms. Kurpiel stated that was a good question as it could also apply to the PDR program.

Ms. Lang stated Isle of Wight was the county that told her they thought all counties could do IPAs.

Mr. Apicella stated there was a capacity issue as they can issue only so much debt service over a period of time.

Ms. DeMoors stated that was another good point and the county obviously has a lot of capital needs and that the county has to stay within the debt affordability guidelines. She stated in order for the county to issue debt and fund any project like the PDR program it has to fit within those guidelines and it has to be part of the CIP that was adopted.

Mrs. Baker asked how the PDR fits into a CIP.

Ms. DeMoors gave an example. She stated the way you look at debt affordability was total debt outstanding compared to the county’s assessed value.

Ms. Kurpiel stated there was a more restrictive measure which was the affordability.

Ms. DeMoors stated yes, the rolling average of the past five years keeps within those two ratios.

Mr. Coen asked how close they were to those various thresholds.

Ms. DeMoors stated very close. She stated the county staff who monitor those ratios now more than ever were going to be very careful about maintaining those because the county’s credit rating in the current financial market was more important than ever. She stated due to the subprime mortgage crisis, many of the bond insurers have been unable to maintain their AAA ratings and bond insurance was harder to come by. She stated it use to be that bond insurance was incredibly cheap and you would sell it at AAA or a very good credit rating and have the low interest associated with that. She stated these days that was not a guarantee.

Mr. Apicella stated they were going to be competing for debt service with other county programs.

Mr. Coen stated he would like to know how that would impact this committee.

Unfinished Business

Draft Committee Report to Board of Supervisors

Mr. Coen stated events have shifted and changed. He stated when they first talked about the report and trying to go forward with it, it was to get revenue for this budget year. He stated several people offered good input and the idea now was to see where it was as a status report so that they can take it to the Board of Supervisors in June. He asked if there were any questions, comments or ideas.

Mrs. Baker stated the biggest reason this did not go to the Board of Supervisors was that there were still some outstanding issues and not everybody was in agreement with all of the suggestions in there. She stated she wanted to get everyone’s input on finalizing this and she thought it would be a good educational tool for the Board as well as just a request for funding.

The committee discussed the draft and the members and staff each added their input.

Mr. Coen stated Mrs. Baker would make the revisions and Ms. Kurpiel would put together the footnotes.

Other Business

Mrs. Baker stated she forgot to mention there was a workshop coming up at the end of May.

Ms. Lang stated it was May 30 in Charlottesville at the Department of Forestry and it would be mostly attorneys speaking but based on the agenda it seems fairly basic. She stated she would forward the information to the committee. She stated a couple people from the State are speaking on conservation easements and the cost was $40.00.

Mrs. Baker stated it would be a good introductory meeting.

Mr. Coen stated Mr. Neuhard had suggested that there be a subcommittee on the bond and asked if they wanted to wait to form that, and all agreed.

Next Meeting

Mr. McClevey stated he and Ms. Kurpiel attended the Merrimac Farm dedication in Prince William County and that it was an interesting program. He stated Governor Kaine had set a goal of 600,000 acres of preservation land and was working towards that goal. He stated he did not know how that goal came into play with PDR programs considering they were now going to cut the farm preservation program, and asked Mrs. Baker if she had heard about this initiative that the Governor has.

Mrs. Baker stated it had been on the books for a while, and since he came into office this was his goal.

Mr. McClevey stated they also spoke with a lady from A.P. Hill who was working with Caroline County to take Federal Army funds to do PDR adjacent to A.P. Hill to preserve their interest in utilizing A.P. Hill as a maneuvering area just as Quantico was doing. He stated she was very encouraging about counties tapping into DoD funding on PDR adjoining military bases and tapping into those funds that they have.

Ms. Clark asked if anyone knew the particulars of Quantico’s program.

Mrs. Baker stated they had a program established, however, the problem was they had no one leading the program and they were trying to get someone to assume that leadership roll.

Ms. Clark asked what they were paying, or if they were appraising.

Mrs. Baker stated she believed they were appraising.

Ms. Clark said that when the Ag Commission met, it was stated that they were not going to go to the landowners, but the landowners had to go to them.

Mrs. Baker stated they did not have an outreach program and they were looking for someone to spearhead that. She stated they just want to give the money and they do not really want to be involved in the process.

Mr. Apicella stated they would do it for us but they would not do it for Uncle Sam who probably has deeper pockets than they have.

Ms. Kurpiel stated they do not have the staff.

Mrs. Baker said that they stated outright at that meeting that they would not take the lead.

Mr. Apicella stated they also have a BRAC committee that is made up of many of the jurisdictions that were involved. He stated there were a lot of important people on this committee who could reach out to the military side and to the private sector and the non-profit sector who might have some contacts and who might be able to get this together.

Ms. Kurpiel stated the Board members were aware of this and were working on it.

Mrs. Baker stated she would try to get the Power Point from them.

Mr. McClevey stated they had indicated there was an attorney, Mr. John McBride, who was the lawyer for the transaction between them getting Merrimac Farm transferred from the family to the State and he thought it would be worthwhile to look him up and ask him some questions about these programs.

Mr. Apicella stated they had talked early on about looking at Federal opportunities but they did not have enough information at this point in time. He stated one bullet they needed to add was Federal programs and they would continue to explore that as they find out more information.

Mr. Coen asked Ms. DeMoors how long would she need.

Ms. DeMoors stated a couple weeks.

Mr. Coen stated May 27 would be the next meeting.

Ms. Kurpiel stated they needed to have a presentation on tax benefits.

Mr. Coen asked Mrs. Baker to work on that and she agreed.

Adjournment

With no further business to discuss, the meeting was adjourned at 8:58 p.m.