Op-Ed: Speculating With a Credit Card

by RestonNow.com March 25, 2015 at 11:00 am 10 Comments

Tetra BuildingThis is an op-ed by Reston resident John Farrell. It does not necessarily reflect the views of Reston Now.

As was properly described by the first commentator to last week’s letter on Reston Association’s planned purchase of the Tetra building, the RA Board is speculating in land.

A definition of speculation is: “to form a theory or conjecture about a subject with no firm evidence.”

The first reason listed in President Ken Knueven’s powerpoint to justify borrowing $2.65 million is essentially “something bad might happen.” How? What? When? At best, we get vague answers.

Another definition of speculation is: to invest in property with the hope of gain but the risk of loss. We all know what the risk of loss is: at least $2.65 million. What is the quantifiable gain that the RA Board is hoping for?

But wait there’s more.

The second bullet on the powerpoint is that RA would revegetate the property, i.e., plant trees. Except Fairfax County will not allow vegetation to be place in the emergency spillway which covers most of the property because vegetation would block the floodwaters and force the flood levels in Lake Newport and upstream even higher.

The whole point of an emergency spillway is to give the floodwaters from very large storms a way to escape Lake Newport without blowing out the dam as happened to Lake Ilsa (now Audubon) in 1972 during Hurricane Agnes. That’s why the property is covered mostly by parking lot.

But to top it all off (pun intended), there’s this:

I hear our leaders have already secured a loan to buy the land! That’s right, before the referendum even opens for voting in April, someone at RA has been out shopping for a loan. And they got one. From whom? That’s a secret. At what interest rate? That too is a secret. But one term is known and should send shivers down the back of every RA member.

First, the principal and interest payment will equal 8-9 percent of the $15 million budget. That means either our assessment will increase or the services and programs offered by RA will have to be cut.  How many life guards camp counselors and grounds maintenance people does this sum represent?

It’s not a mortgage on the property. It’s a pledge of our assessment payments.

What that means is, if there were to be a default, the lender doesn’t take the land and building, they take our RA assessments payments. This is significant on four counts.

First, RA is planning to buy the land on the equivalent of a credit card. The loan is secured by RA’s income, just like your credit card issuer decides the limit on your credit card based, in part, on your income. Would you buy stocks or your house on your credit card?

Second, the lender apparently doesn’t believe the property is adequate security for the loan. Translation: even the lender doesn’t think the land and building is worth $2.6 million.

Third, the amount of money available to pay for lifeguards and cut the grass in the medians will be reduced because the lender will get paid out of our assessments first.

Fourth, RA’s credit capacity will be reduced by the full amount of the $2.6 million, thus reducing borrowing capacity that might be used for other essential capital expenses like replacing a dam or spillway at one of Reston’s lakes or buying the Reston National Golf Course.

It’s like taking your kid’s college savings account and buying Yugoslavian war bonds.

I asked Knueven at the first District/Community Meeting at North Point if someone at RA knew what RA’s borrowing capacity was. They didn’t know and haven’t answered that question in the two weeks since that meeting. Maybe that’s why no questions were taken during the next District/Community Meeting at Lake Anne.

How does any of this make any sense? Who or what is the driving force behind this scheme? I’ve been asking everyone I can find since I first heard about this idea and it too is a closely guarded secret.

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