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Colonial money stirs discord in South Hill / April 14, 2021

Funding for South Hill’s showcase entertainment venue, the Colonial Theatre, appears to be a sticking point in the preparations for this year’s town budget.

Town Manager Kim Callis unveiled a proposed $25 million budget that includes funding for the theater in the amount of $175,000 for fiscal year 2021-22, which commences July 1. That amount was later reduced to $155,000 at the recommendation of Council’s budget and finance committee.

Callis first shared his proposed budget with Council members Friday during an informal budget meeting attended by several members. Public notice of the meeting was never published, only posted on the door of Town Hall, which has been closed to the public for the past several months.

At that Friday meeting, Council and CDA (Community Development Authority) board member Shep Moss questioned why Callis had included a $175,000 funding request for the Colonial. Moss said the CDA board, as owners of the downtown building, had voted against including any monies for theater operations in the budget it submitted to the Town.

The reason for excluding the request was tied to the refusal of former mayor Earl Horne, the executive director of the Colonial, to provide any financial data regarding theater operations to the CDA.

Moss said he and others on the CDA board were not comfortable asking for public dollars to be given to a for-profit entity, particularly one that refused to show how it was spending those public dollars to benefit the public.

As part of this year’s budgeting process, the Colonial Theatre, through Horne, was asked to provide either a profit and loss statement or audited financials to Council’s budget and finance committee before the CDA would acquiesce to including money for the theater as part of the CDA budget request. Horne refused, according to a member of Council who was present at the meeting but asked not to be identified.

Council member Ben Taylor claimed that neither the town nor the CDA board had the right to request financial information from the Colonial since it operated as a private corporation.

In response, Moss said, “This stinks. Where is the fairness and transparency?” Moss called it a “slap in the face” to other businesses that seek funding through the town.

In 2007, then-mayor Horne established The Colonial Center for South Hill, LLC as the town was pursuing funding to restore the historic building in downtown.

According to Callis, the Town was advised by tax counsel to set up two entities, one to receive tax credits and a second to manage the building. This was done. In 2007, Horne as registered agent created The Colonial Center of South Hill, LLC and The Colonial Center of South Hill Manager, LLC.

The management LLC was converted in 2008 to a corporation known as The Colonial Center of South Hill Manager, Inc., according to documents filed with the State Corporation Commission. In 2020 the SCC inactivated the management company after its officers and agents failed to file an annual report, which was due in November.

Horne was designated as registered agent for all three entities and as the managing member for both LLC’s. He along with VCU Health Community Memorial Hospital CEO Scott Burnette and Stuart Taylor are the three named officers and directors of the now-inactive corporation.

Moss, in his quest for answers, asked for “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.” Moss said he confirmed this understanding with Callis.

Moss also sought answers to several other questions: “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 their funding?”

In response, Callis acknowledged that in 2008 members of South Hill Town Council voted to increase the local meals and lodging tax by one cent to pay off the debt service on a general obligation bond the Town issued for the Colonial Theater and other infrastructure projects.

While the initial plan was for the tax increase to remain in place until the debt was repaid, eight years later in 2016, Council, at the behest of Horne, agreed to keep the meals and lodging tax at its current rate even after the debt payments ended so long as the monies raised would go to support the Colonial Theater.

The one-cent increase raises about $400,000 per year, according to Callis, but the theater has never sought the full amount since the bond was repaid in 2018. It only asks for enough money to cover operating expenses.

Callis said the reason South Hill provides financial support to the Colonial is the same as the reason the town supports Parker Park, the softball and baseball complex owned by the Town of South Hill — to provide recreation opportunities for residents and visitors.

It was pointed out by a member of Council that while the Town owns Parker Park, it does not own the Colonial Theater.

Moss interjected, telling Callis his remarks were not responsive and asked again why a for-profit LLC was being funded by the Town.

“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,” Callis replied before continuing with his explanation of the history of the theater.

“There had been a plan to unwind the for-profit LLC [under which The Colonial Theater operates] into a non-profit organization earlier. 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. 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,” Callis concluded.

Moss then replied, “It’s as if they are taking the money and running with what they received for all of these years now that questions are being asked.”

As Moss continued to push for more information about the town’s relationship with the Colonial Theater, he was rebuffed, first by Callis who said, “That’s a conversation for outside of this meeting because I think that it would be informative to bring in legal counsel to speak to the CDA about the reason all of that was set up and why.” Taylor chimed in, repeatedly accusing Moss of trying to “gut” the Colonial’s budget.

While Council member Mike Moody tacitly agreed with Moss about the appropriateness of giving money to the Colonial, he seemed unwilling to withhold money from the local theater.

“Budget and finance looked at the entire situation,” said Moody. “I have to agree with you. I am not very keen on the idea of providing town funds for the operating cost of an LLC that is a private business. I tried to look at 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.

“We were looking at funding them for the coming fiscal year just to get them through the next fiscal year.”

Councilman Alex Graham sought assurances from Moody, Callis and Taylor that the Colonial Theater’s for-profit status “would unwind” before the end of the next calendar year. All three assured him saying, they were confident that it would be unwound.

Before moving on, Moss raised one additional issue about the Colonial. He wondered how an organization that had been shut down since March 2020 could accumulate $287,856 in reserves. He received no answer.

In the end, a funding request for the Colonial Theater remained in the budget though it was reduced from $175,000 to $155,000, the same amount the organization received for FY2021.

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