Mayor Avula: ‘Not in the city’s best interest to burn bridges’ over VCU Health tax payments

As another year’s due date comes and goes, the City of Richmond is throwing in the towel in its fight with VCU Health over $56 million in real estate tax payments that were tied to a failed downtown development.

June 5 was supposed to be the deadline for the annual payments that the health system agreed to make over 25 years when it signed on to anchor the ill-fated redevelopment of the city’s old Public Safety Building site.

But the city is no longer looking to collect. Mayor Danny Avula, who took office in January, said Richmond will not continue to pursue the payments in light of the Virginia General Assembly’s budget language this year that allowed VCU Health to not make further payments.

In an interview with BizSense, Avula said he also is not interested in pursuing litigation against the health system – an option his predecessor, Levar Stoney, had threatened before leaving office last year.

Mayor Danny Avula

“The General Assembly has made clear how they feel about it. I think that it is not in the city’s best interest to burn bridges with either the General Assembly or VCU,” Avula said. “I think we can have productive conversations with VCU about how we can co-invest in things that are mutually beneficial, and that’s the route that we’re pursuing.”

Asked if the litigation option remains on the table, Avula added: “It’s not my preference to go the legal route here. It’s not what’s going to yield the best outcome for Richmond.”

Avula’s position appears to close a final chapter in the yearslong fallout from the aborted Public Safety Building project, which collapsed three years ago and ended up costing VCU Health at least $80 million in exit fees and other costs.

Through agreements with the city and the project’s development group, the health system had signed on as a master tenant and agreed to make the annual real estate tax payments – called general obligations or payments in lieu of taxes – to ensure that the property remained tax-generating for the city. Real estate owned by VCU Health or Virginia Commonwealth University is typically tax-exempt.

The agreements required the payments from VCU Health regardless of how promptly, or successfully, the property was developed. But in language worked into last year’s state budget, Virginia legislators directed the health system to find a way to stop the annual payments, which if paid over the full 25-year period would have totaled nearly $56 million.

The first three of the scheduled payments, which were to increase incrementally, were made before and after VCU Health pulled out of the project in late 2022. But the health system did not make a roughly $2 million payment due last year, in light of the state directive. The same $2 million amount would have been due this year.

Demolition of the old Public Safety Building was underway last year, with VCU Health footing the $5 million bill. (BizSense file photos)

The payments were worked into the development plan that was structured for the property at 500 N. 10th St. to generate revenue for the city, in light of the amount of downtown real estate that is tax-exempt because of state, federal or nonprofit ownership.

Avula has said that of the city’s 62 square miles, 23% of that land is tax-exempt, due in large part to the amount of state and federal government-owned property. In a budget presentation to City Council in March, Avula said Richmond misses out on $63 million in annual revenue because of the amount of state and federal tax-exempt property, in particular.

The question over whether Avula’s administration would continue to pursue the payments was at the center of a Q&A event with Avula in March hosted by VCU’s L. Douglas Wilder School of Government and Public Affairs, whose namesake – former Virginia governor and Richmond Mayor Doug Wilder – has been a vocal critic of VCU’s handling of the project.

Bill Leighty, who moderated the forum, said he was fired from his role as a senior adviser and teacher at the school for not broaching the payments topic with Avula. Leighty said he was pressed to do so by the school’s dean and others on behalf of Wilder, who has not spoken publicly about the payments issue since.

A request for an interview with Wilder was not granted for this story.

Avula responding to questions at Councilmember Sarah Abubaker’s district meeting in April.

At a constituent meeting in April hosted by City Councilmember Sarah Abubaker, Avula stressed that the city needs to maintain a strong relationship with VCU and VCU Health, which he said are willing to work with the city on the issue of tax-exempt properties.

Responding to a question from the audience, Avula told attendees, “VCU has been an amazing partner to the city in many ways. I’ve been here for 24 years, and we are a different city because of VCU’s massive investments over that time.

“I have great relationships with both (VCU) President (Michael) Rao and Dr. (Marlon) Levy, who runs the health system, and they understand the challenge that we’re facing,” Avula said. “I think we are at or even past the point where VCU continuing to buy up land and not replace that with some other kind of investment is not only not doing the city any good, but that’s impacting VCU as well.

“I think we’ve reached a place where we are talking about what co-investments that are mutually beneficial to both VCU and the city look like,” Avula said, offering Richmond’s City Center project as an example of “opportunities I think we have to use leverage to get VCU to invest a significant amount of money in things that are mutually beneficial for us.”

Grant Heston, a spokesman for VCU and VCU Health, said the university and health system welcome such collaborations with Richmond.

“VCU and VCU Health are deeply committed to being outstanding partners with the City,” Heston said in an email. “When working together, we create more educational, healthcare and economic well-being for the people of Richmond and the greater region. We are delighted to work with Mayor Avula and his team.”

Print Article