WASHINGTON - Marcia Dykes, the Virginia taxpayer-activist who unsuccessfully challenged lease financing in a case that reached the state's Supreme Court last year, is now vowing to thwart the repayment of a proposed $111 million office building lease issue by Fairfax County.
Dykes' strategy, which draws some inspiration from the lease non-appropriation being contemplated by Brevard County, Fla., is to try to extend the logic of the ruling the Virginia high court issued last year. The court found that leases do not constitute debt because the government can decide not to appropriate the lease payments, Dykes said.
"If the court says it is not debt, then we will take them to court to stop payment" of the office building issue, which would be the country's first certificates of participation issue and is still in the planning stages, Dykes said. She and her husband, Ted Dykes, are the founders of the conservative Citizens for Sensible Taxation in Great Falls, Va.
"The only safeguard citizens have on this type of financing now is the subject-to-appropriation clause," which enables them to continue opposing the lease, she said.
"Otherwise, you can take the constitution of the state of Virginia and throw it out. It's not worth the paper it's printed on" under the high court ruling, she said. "The government has found a way to circumvent the law, the constitution, and the voters."
The citizens group is planning to warn potential buyers about the likely litigation. They have drafted an advertisement, which they say may be placed in The Bond Buyer or The Wall Street Journal saying "BEWARE. Fairfax Co., Va., intends to sell bonds without voter approval and with no obligation to repay. We will seek a court injunction to stop payments on such bonds."
"We want people to know they're buying bonds with a high risk," Ted Dykes said. "They should know there's a group of taxpayers in Fairfax County that believes this is close to fraud."
Leonard Wales, assistant director of the county's office of management and budget, which would issue the COPs under one option being studied by the county, said he was unaware of the threatened ad campaign.
"If they mount a legal challenge, we'll be prepared," he said.
Another official, who asked not to be identified, said the controversy may force the county to seek a court validation of the offering, but it is still planning to market it in the first quarter of 1993.
While the Dykes' earlier challenge ended in failure when the U.S. Supreme Court declined to renew the case, they did achieve a temporary and unexpected victory in April 1991. They initially convinced the Virginia Supreme Court that appropriation-backed financings were debt because they are viewed as binding by the issuers as well as the bond market.
The court, in a highly unusual move that the Dykes charge was politically motivated, reversed its April decision in November 1991, responding to pleas for reconsideration of the case from virtually all of the state's officialdom.
The state Supreme Court case revolved around a $330 million appropriation-backed parkway financing planned by Fairfax County. Despite the ultimate vindication in the courts, the county never went through with the deal because of the controversy it had generated. Instead, the county is using general obligation bonds to fund the roadway.
The $111 million lease issue that the large and fast-growing county is now preparing was approved unanimously by its Board of Supervisors on Dec. 7. The offering would finance the purchase of two office buildings adjacent to a lavish and controversial government center that the Dykes and other critics have dubbed the "Taj Mahal."
Built by the same developer who constructed the government center, the Charles E. Smith Co., the two buildings to be lease-purchased are currently being rented under a 10-year operating lease that includes the lease-purchase option and terms, Wales said.
The county sees the financing as a major cost-saving move, since it would save about $3 million a year from lower rent payments. But the Dykes say that savings is not enough, because the rent the county is paying, at $28 a square foot, is nearly three times current market rates of around $10 a square foot.
The couple also points out that the buildings have been appraised by the county's own tax assessors, as well as private appraisers, at around $50 million, or half the face value of the lease-purchase deal.
"The problem is the bottom has fallen out of the real estate market" since the building leases were negotiated in 1989, Wales said. "This would have been hard to foresee. We're facing today's realities with yesterday's deal."
The Dykes and a half dozen other opponents of the lease financing who spoke at a public hearing before the board's vote said the county should abandon the developer leases altogether, citing their non-appropriation feature, and find cheaper office space elsewhere.
But the county's financial adviser, George B. Pugh, managing director of Craigie Inc. in Richmond, warned at the meeting that walking away from the building leases might make the county lose its triple-A rating, Dykes said.
Pugh said Thursday that the rating agencies have not threatened a downgrade and would generally view a non-appropriation on a developer lease differently than one on a public lease security. But he said they indicated to him that any move by the county to renege on its 10-year "understanding" with the developer might reflect badly on the county's "willingness to pay" other obligations.
"That's not the way you behave if you're triple-A rated," he said.
An article in the Fairfax Journal on the lease controversy noted the potential for a downgrade and discussed how Brevard County is currently defying that threat.
In Brevard, Ted Dykes said, "The previous elected board used this type of debt financing and it was opposed so much by the voters that they voted in a new board that said it would put the issue on the ballot.
"That's absolutely legitimate, to have the voters rescind it, even after the financing is out there," he said. "That was part of the [lease] contract."
The anonymous official said the Dykes are trying to make it appear they have a lot of support by trumpeting their cause in the newspapers. However, they really represent "just a small band of folks" from a wealthy section of the county "who are against everything if it involves spending," he said.
At the hearing, 28 out of 36 speakers said they supported the financing, including representatives of local unions, civic associations, neighborhood groups, and the local chamber of commerce, he said.
Another official, who spoke on condition of anonymity, said the Dykes are "frustrated" because of their failure in the earlier court case.
"Dykes is like a hobo out on the street corner with a lunch pail, hoping the world will come along and take notice of him," he said.