At the April 9 South Hill Town Council budget meeting Councilman Shep Moss raised questions about the funding being provided to the Colonial Theater from the Town. The Colonial Theater requested $155,000 from the Town this Fiscal Year and $175,000 for the next. The Budget and Finance Committee recommended leaving the funding at $155,000.
Councilman Moss then asked someone to explain the “whole Colonial situation”. “According to the town minutes that funding was set up until the debt service was paid off. It’s my understanding that the debt service was paid off in 2018.” He then pointed out the Town Manager Kim Callis had confirmed that information.
“If that agreement has expired and funding is going to continue why has no new agreement been set up? Why has the old agreement continued to be followed when it should have expired? How are we funding a for profit LLC that to my understanding refuses to provide financials when we are requiring other organizations to provide audited financials for there funding?” asked Moss.
Callis referred to the June 9, 2008 Town Council meeting minutes in which a public hearing was held to vote for or against a Meal and Lodging Tax increase from 4.5% to 5.5%. The purpose of this increase is to pay off the debt service on the GO Bond for the Colonial Theater and other infrastructures. Then Councilwoman Bracey stated that the tax increase would remain intact after the debt service was paid off for “other infrastructure expenses”.
According to the April 11, 2016 Town Council meeting minutes former Mayor Earl Horne stated that he had talked with “all the local restaurants and hotels” and that they “had no problem” with the tax increase. Callis said that each year the Colonial Theater only requests the amounts that were needed to meet their expenses.
“It was set up as an LLC by the attorneys and the tax credit people because that’s the way it had to be done and I'm not a tax credit lawyer so I don't know. It was set up that way to get the funding. A private investor purchased it and didn’t want his or her name out there and while they are an LLC, that theater functions to provide performing arts and entertainment opportunities for the general public,” said Callis.
Councilman Moss interjected and explained that he appreciated the information but did not think that his question was being answered. Moss explained that his question was why a for profit LLC was being funded by the Town even though, according to Moss, they refused to provide financial reports to the Budget and Finance Committee when asked. “I’m just confused as to how we continue to fund under those situations while other organizations are required to do it. Where is the fairness and the transparency in that? It is also my understanding that now they want to unwind the LLC and make it a non-profit and on the surface, that really stinks to a lot of people. It is as if they are taking the money and running what they have received for all of these years now that questions are being asked.”
Councilman Moss then referred to the Community Development Association meeting held on March 23. “My intentions were not reflected in the way the motion is written but I have discussed with other committee members that were in that meeting that we as a committee removed that request from our funding request because we didn’t want to have anything to do with it.” He continued, “We were not comfortable with having that in our budget.”
An unapproved draft of the CDA meeting minutes states that a “discussion ensued regarding the budget for the Colonial and the Chamber and whether they should be included in the CDA’s budget as they are not items that the CDA has a say about. Discussion ensued about dissolving the Colonial LLCs and funding of the Colonial. There was discussion about the desire to retain ownership of the Colonial building. Motion by Shep to submit the CDA’s budget in the amount of $113,650 to Town Council with funding for the Colonial and the Chamber subject to approval by Town Council and second by L J. All approved.”
“That’s a conversation for outside of this meeting because I think that it would be informative to bring in legal council to speak to the CDA about the reason all of that was set up and why,” answered Callis. He said that members that currently sit on the CDA Board are not responsible for what happened in the past.
Callis said that there had been a plan to unwind the for profit LLC into a non-profit organization earlier. “Again this is not the place to discuss it but the CDA would have been responsible for both the Colonial and the Chamber of Commerce. The Chamber of Commerce wanted to spin off and be independent of the CDA and they have done a wonderful job with that.” He continued, “When that happened the plans to hire an Executive to oversee both of those organizations changed. There was no longer a need to do that so there was a wait and see approach. The Colonial was ready to be unwound at that time. Earl Horne wanted to go ahead and do it but we went to him and said the Chamber wants to do this, can we put a hold on it for a little bit and that’s what we did.”
The South Hill Chamber of Commerce has continued to grow and be successful since separating from the CDA and has decreased their budget request by $160,000 according to Callis. “So it makes the most since to unwind the Colonial now instead of two years earlier.”
According to a Memorandum of Understanding dated for June 3, 2020, between the Chamber and the CDA, The Chamber of Commerce submits a budget requested to the CDA and the CDA submits it to the Town. Once approved the CDA then allocates the funding. The Chamber of Commerce is required to provide on an annual basis a copy of the audit performed by a licensed Certified Public Accountant.
Councilman Moss then said that not requiring certain information from the Colonial is a slap in the face to all of the other businesses and organizations that are required to provide the information. “All I can tell you is that it is an LLC and was done that way to get financing that would otherwise cost the taxpayers a lot more money,” answered Callis.
Moss then asked Callis if he was aware that there were two LLC’s listed on the Virginia State Corporation Commission Website. “This is not the…I’m not aware of the whole set up,” said Callis. Moss pointed out that the Budget and Finance Committee should be made aware of it since they approve the financial requests. Councilman Joseph Taylor asked if Moss had gotten the information from the State Corporation Commission and requested a print out. Councilman Mike Moody, who sits on the Budget and Finance Committee, said that if there were two LLC’s he was not aware of it.
The Colonial Center was set up as a private Limited Liability Company on May 24, 2007 and lists Earl Horne as the Managing Member. The Virginia State Corporation Commission also lists a business entity under the name The Colonial Center of South Hill Manager, Inc. This corporation was set up on November 3, 2008 and lists the account as “automatically terminated- annual report and/or fees-can reinstate” making it invalid. Earl Horne is named as the Director of this Corporation with VCU Health CMH President Scott Burnette as the Secretary and Stuart Taylor as the Treasurer.
“Budget and Finance looked at the entire situation. I have to agree with you. I am not very keen on the idea of providing town funds for operating cost of a LLC that is a private business. I tried to look as the overall process. We have been assured that the LLC is now in the process of working towards non-profit status. Hopefully that will happen by the end of the calendar year,” said Moody.
He went on to point out that the Budget and Finance Committee also took into consideration the length of the process to become a non-profit and also the fact that the Colonial cannot receive non-profit funding until it is considered a nonprofit organization. “We were looking at funding them for the coming fiscal year just to get them through the next fiscal year.”
Councilman Ben Taylor stated that he understood why not being able to look at the books raises concerns, but it is a private LLC. He told Councilman Moss that he would not expect to look at the books for the private business that he owns. Moss replied that his business was not receiving funding from the Town and that is a big difference. Mr. Taylor answered, “No it’s not because of how these LLC’s with historic tax credits are set up. We heard that Douglas Freeman High School, Henrico County, Washington and Lee University, so they’re out there. While it does go against the grain, I can’t argue that.”
Councilman Moss then asked if any research was done by the Budget and Finance Committee as to what expenses the Colonial Theater accumulated in 2020 since, “through no fault of their own”, they were unable to operate. Mike Moody said that they had submitted an expenditures list.
According to the expenditures list provided by the Town, The Colonial Center accumulated $287,856 in expenses in 2020 including $113,400 in salaries and $19,000 in C.A.T.S. shows expense.
“Even if there was a lack of consistency, if it was, it now has transitioned to a point of accountability with a charitable organization and that the mission has been accomplished. That to me is an important benchmark,” added Joseph Taylor. “It’s particularly encouraging to hear that that transition to a charitable organization can be done in this calendar year which makes budgeting a lot more consistent.”
As Moss continued to ask questions Councilman Ben Taylor interjected asking Moss if he wanted to gut the Colonial Center from the Town’s budget. Moss answered that he was not saying that.
“Well then what are you saying other than throwing darts and see what will stick on the wall?” asked Taylor. “Are you proposing to gut the financial situation with the Colonial? That is my question to you.” Moss replied, “Yes sir I do. Under the current situation and the way it is being funded as a for profit LLC that is not currently operating and will not provide financial information as other organizations that you (pointing to Ben Taylor) have requested information from then absolutely I’m suggesting that we gut that.”
Joseph Taylor pointed out that it was only supposed to be for profit for one more year and suggested that the funding continue to get the Colonial through the transitional period.
“Again, I’m not saying that I don’t support the Colonial Theater. I am questioning the method. I don’t want anybody to put words in my mouth, I know some people in here are good at doing that. I am questioning the method of how it’s being done. It’s not the funding, it’s the method.”
There was a general agreement between Mike Moody, Joseph Taylor, and Ben Taylor, that not being able to look at the financial reports for the Colonial does not sit well but that the funding needed to be provided for one more year until the LLC becomes not profit.
Councilman Alex Graham questioned how confident the Budget and Finance Committee was that the LLC would unwind before the end of the next calendar year. Kim Callis, Mike Moody, and Ben Taylor both explained that they asked detailed questions about the process and they were confident that it would be unwound.