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Bond. Invalid Bond
by Ron Davis

A sweet deal offered to a Virginia shopping center developer has suddenly turned sour.

The developer, Short Pump Town Center L.L.C., has proposed building a 1.1-million-square-feet shopping center on 147 acres in suburban Richmond. And the deal at issue would provide public-supported financing for "infrastructure improvements" for the center.

Specifically, those improvements would include the extension of a sewer truck line and water main line, storm-water management facilities, traffic and road projects, lighting, landscaping, a plaza, parking, and excavation.

The money to pay for those improvements would come from bonds issued by a newly created agency known as the Short Pump Community Development Authority. Special assessments on the properties within the area would secure payment of the bonds for the five years until they mature. The developer would, however, have to repay the special assessments for debt service on the bonds.

As expected, such a deal did not sit well with competing shopping center owners in the area. They pointed out that in the past, developers were required by local law to provide, at their expense, the parking, lighting, landscaping, entrance roads, sidewalks, and pedestrian areas for their developments.

Moreover, they added, the incentive payments and financing structure offered the developer in this case are not only unlawful, but also in violation of the state and federal constitutions.

A county court concluded that the infrastructure improvements to be financed by the proposed bond issue "do not satisfy the requirements of law." In fact, the court added, only certain traffic improvements meet all legal requirements, and all the other improvements "are instead for the developerís benefit." In so ruling, the court declared the bond issue invalid.

The Community Development Authority responded by suing to have the courts reverse that decision.

The Virginia Supreme Court ruled, however, that the Community Development Authority could not, by law, sue in such a case. The justices explained that state law declares that a Community Development Authority has no legal standing in a court of law in a bond-validation case, "since that Authority is not a locality or other political subdivision, agency or instrumentality of the state."

Decision: November 2001
Published: April 2002



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