By Faith Isbell
Buena Vista is in danger of losing several of its municipal buildings to foreclosure – for the second time in a year – after the city failed to pay a multimillion-dollar debt for its golf course.
On Feb. 10, ACA Financial Guaranty Corporation, the New York firm that insured the bonds to finance the city’s Vista Links Golf Course, filed a lawsuit against Buena Vista in U.S. District Court in Lynchburg.
Buena Vista walked away from its $9.2 million debt two years ago. Since then, ACA has been making the payments of $660,000 a year.
The ACA lawsuit says, in part: “However, for political or other reasons—perhaps recognizing, in retrospect, that the entire Project was a bad idea—the City now refuses to make the appropriations and payments that it originally agreed to make.”
When the bonds were issued in 2005, the city offered the golf course, the police department building and the city hall building as collateral.
Now, the lawsuit is asking for a federal judge to appoint a neutral party to maintain those properties. The lawsuit also asks the judge to order the city to find a new location for its court operations, which, as a function of the state, cannot be halted and must continue to be performed.
“Foreclosure would be a last resort to allow the bondholders some recovery, but would not free the Defendants from the obligation to pay the bonds and other amounts due in full,” ACA spokesman Mark B. Hubbard said in a statement.
Buena Vista has 90 days to respond to the lawsuit.
Last June, ACA filed a lawsuit against the city in Buena Vista Circuit Court that made many of the same allegations. ACA recently dropped that lawsuit to file in federal court, where the firm believes the issue will be appropriately resolved. The state lawsuit also threatened to foreclose the properties.
“There’s nothing new in the suit that we haven’t thought about,” City Attorney Brian Kearney said. “At the time, we’re in no different a position than we were in. We’re just in a different court.”
The city decided to build the golf course in the early 2000s to provide an economic boost. The plan was to pay off the bonds through revenue from the golf course—along with the residential and commercial development it was expected to produce.
But the golf course was not as lucrative as the city hoped. According to Buena Vista’s Annual Financial Report in 2015, the golf course has lost $3.2 million since opening in 2004.
“Buena Vista is not the only government-involved entity that got into these bad deals in the 2000s,” City Manager Jay Scudder said, mentioning cities in other states where capital investments had failed to pay off.
In July 2011, the city entered into a forbearance agreement with ACA. The firm allowed the city to halve its debt payments for five years and to remit the unpaid balance at the end of the bonds’ life span, which was set between 2035 and 2040.
But the Buena Vista City Council voted in December 2014 to discontinue all debt payments to ACA, violating that agreement.
Instead, the city offered in 2015 to settle the debt for $2 million—the combined fair market value of the golf course, the police department building and the city hall building. ACA declined the offer.
“I think [the agreement] was a big mistake for the city,” Scudder said. “It was just another agreement that was entered into. The city should’ve walked away.”
According to the lawsuit, Buena Vista is currently in better financial shape than when the agreement was made, and thus can afford to settle its debt.
Scudder, however, believes the city still does not have the ability to pay the debt.
“If, all of a sudden, the city was paying even $300,000 a year, that would destroy the city’s budget and the ability for the city to maintain the city,” Scudder said.
“It’s not like ACA didn’t know the risks,” Kearney said. “They took the risk.”