SPSA 'blatantly' hid financial straits, lending agency says

SPSA "blatantly and recklessly misrepresented" its financial condition, says a state lending agency owed more than $129 million by the troubled regional waste authority.

In a blistering letter dated Wednesday, the executive director of the Virginia Resources Authority called the fiscal crisis at SPSA "a grave matter" and said the waste authority serving South Hampton Roads failed to disclose the status of other bank loans, even when asked point-blank about them.

The VRA, based in Richmond, will dispatch an accounting team "to sort out and get a handle on SPSA's true financial status," the executive director, Sheryl D. Bailey, wrote in her letter to SPSA's executive director, Bucky Taylor.

While the VRA still is willing to seek a solution to the debt crisis, "such a positive way forward will absolutely require full disclosure and accurate information regarding every single item encountered, both large and small," Bailey wrote.

A Hampton Roads native, Bailey has overseen the VRA for three years, lending more than a billion dollars to local governments for public projects, including taxpayer-backed bonds to help clean up the Chesapeake Bay.

She said in an interview earlier this week that this is the first time during her long career in public lending that such problems have surfaced with a government client in this way.

"Obviously you have concerns when you cannot get full information," she said. "You can't have that and still do business."

Tom Kreidel, a spokesman for Taylor and the Southeastern Public Service Authority, said the trash agency received the letter Thursday and was in contact with Bailey to clear up what he called "misunderstandings."

"We agree that working with the VRA on this matter is in the best interest of SPSA and our member communities" - Virginia Beach, Norfolk, Chesapeake, Portsmouth, Suffolk, Franklin, Isle of Wight County and Southampton County, Kreidel said.

Bailey met Monday with the chief administrative officers from the eight communities to discuss SPSA and its ability to repay $129.4 million in outstanding VRA debts. Overall, SPSA owes more than $230 million and faces a $16 million budget shortfall this budget year.

Few of the local officers would comment on the closed-door meeting other than to say Bailey was clearly upset and concerned about SPSA's future and how that might affect municipal bond ratings and government lending.

Chesapeake Councilwoman Debbie Ritter, who did not attend the meeting but read the VRA letter, said it was "unforgivable" that SPSA did not share the intricacies of its financial problems with its member cities and the state lending institution.

She said it reflects a long history of poor communication and a lack of transparency at the waste agency.

"When business is not conducted publicly, often there's a reason," Ritter said. "Perhaps, this was the reason" - meaning, SPSA's deep financial peril.

In her letter, Bailey said she and her staff were most distressed by three loans and lines of credit from Wachovia Bank to SPSA, worth a combined $29 million.

Two lines of credit were omitted from a SPSA debt spreadsheet during a sit-down meeting with VRA officials last month, and a repayment schedule showed a big loan being repaid slowly between 2012 and 2017.

However, VRA staff later discovered papers that showed how $12.1 million would be paid back in one lump sum in 2011.

In addition, SPSA initially said that little money had been used from a $13.2 million line of credit. But in late January, VRA officials learned that almost half was withdrawn or obligated, and they were stunned to read newspaper articles describing how SPSA had wanted to use the remaining $7 million to pay its operational expenses to keep the agency afloat.

VRA thought that less than $2 million had been drawn from another $4 million line of credit, and that this money was SPSA's source of "daily cash," the letter said.

But VRA learned 10 days later that it actually was "tapped out," according to the letter.

"VRA found it quite disturbing that this information was not volunteered, but provided only with the greatest apparent reluctance after persistent questioning," the letter said.

VRA also was surprised to read in the newspaper that SPSA's board, on Jan. 28, wanted to restructure its debts, including VRA bonds, in order to avoid a massive rate increase for trash disposal, to $245 per ton of garbage from $104.

But, the letter said, the way in which SPSA proposed to restructure its payments was "in blatant contravention of the understanding between VRA and SPSA."

"This series of experiences has left VRA deeply disappointed in how its good will has been blatantly and recklessly misrepresented and misused by SPSA officials and representatives," Bailey wrote.

Scott Harper, (757) 446-2340, scott.harper@pilotonline.com