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Wayne Independent - Honesdale, PA
  • Developers blast borough for financial 'dysfunction'

  • The developers of a building in the borough say they are fed up with "dysfunction" coming out of borough hall.
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  • The developers of a building in the borough say they are fed up with "dysfunction" coming out of borough hall.
    "I honestly think it is dysfunction," said Steven Smith, co-owner of Smith & Morris which is developing a building in the borough through the state's anchor building program.
    They also claim the borough solicitor has a conflict of interest and should not have handled the anchor building loan documents.
    Smith & Morris are developing the building in the downtown area through the Pennsylvania Department of Economic Development (DECD) and the borough.
    The borough agreed to be the sponsor of the $255,000 loan and there was an agreement in place with The Dime Bank for a "bridge loan" to get the building in working condition.
    Smith said the bank has honored that bridge loan but he is frustrated there have still been no funds turned over from DECD.
    "The borough has not released any funds yet," said Smith, "because they are incapable of doing their jobs."
    Smith said they have "gotten fed up" with all of the recent news stories about the project and felt it was time to "share" their story with the public.
    One issue was a controversy over the length of the loan. The borough council voted to make it a 20-year loan, however, the documents were apparently changed by borough finance committee chairman Scott Smith to 30 years.
    Smith said he did change the documents but said he thought the terms were 30 years.
    Borough solicitor Rich Henry has said he was unaware of any changes to the documents and eventually, the council changed it back.
    Steven Smith said he felt it was an "honest mistake" by Scott Smith.
    He also claims that Henry dragged his feet in completing the documents, saying Henry is the attorney for someone who is suing Smith & Morris over work done at the building.
    Page 2 of 5 - Henry does represent Duffy Heating & Plumbing, which is involved in a suit with Smith & Morris.
    The Duffys recently spoke to The Wayne Independent about their lawsuit, saying it has been tied up in court for over a year. They claim they are owed the money for the work which was completed.
    Smith believes part of the reason Henry delayed the paperwork was because he represented them. He also thinks that's why Scott Smith sought an alternate solicitor.
    But Henry said that just isn't the case.
    In fact, he points right back to Smith & Morris and the confusion over the terms of the loan.
    Henry said he prepared the paperwork on behalf of the borough.
    "My documents were ready," said Henry.
    However, he said that is the "first time" the issue came up about the terms of the loan.
    When that happened. Henry said he told them they "can't sign" the documents because of the problem.
    He did say that Scott Smith came to his office and picked up the documents. About a week later, said Henry, he got them back "but they had ben altered." He said they were altered in longhand.
    That meant the documents had to once again be changed.
    "There was a gap of three to four weeks," said Henry, but he added it "was them trying to work things out between themselves."
    He said when the documents were finally finished, he "accommodated" Smith & Morris by having them come to his office where he had it notarized free of charge.
    Henry said he told them they would have to provide the money to get the documents recorded but they did not do that at the time.
    Page 3 of 5 - He said he was "adamant" about having them pay that fee because he was not going to "dig in my own pocket" or ask the borough because the party getting the loan is responsible for the fee.
    That fee ended up being $294.50. He said as soon as they paid that fee, which was sometime later, the documents were recorded that day.
    As for the Duffy case, Stephen Smith did acknowledge they have been ruled against twice in court, once by a magistrate and once by a panel of three attorneys who heard the evidence.
    He said if the magistrate or panel of attorneys would have known about Henry representing the Duffys and doing the borough paperwork, they might have ruled differently. He also said that's why they are appealing the decision to the next level.
    Henry disagreed.
    He called such an allegation "absolutely absurd."
    Henry said he was representing the borough in preparing the paperwork.
    Stephen Smith also says that only the Duffys have not been paid for work completed at the building.
    "They are all paid," he said of the other contractors, "100 percent."
    Smith further stated he believes because of all the delays, the borough is in "breach of contract" because they signed legal documents about the project.
    He said the borough is "threatening" the "livelihood" of himself and Morris and "also our families. We've got our lives invested in this."
    He further stated the borough council did approve $108,000 in payments, however, those have not been submitted to the state for approval.
    Smith said they have been asked to come back to the borough to review the invoices, something he said is unnecessary because they have already been approved.
    Page 4 of 5 - Because of this, he said they will "seek legal advice" when it comes to the next steps with the borough.
    "They are playing with fire and eventually they are going to get burned," said Smith.
    He had high praise for The Dime Bank, saying they have allowed them to move forward by honoring the bridge loan, which is the full amount of the anchor loan.
    Smith did say they "have enough" funds to complete this phase of the project, hopefully by the end of October.
    But, he said, because of the borough the project is "eight to 10 months" behind. He also said they have had to pay interest on the bridge loan because of the delays caused by the borough. The bridge loan is at a higher interest rate than the state loan.
    He said they agreed to take out the loan "predicated on getting" the grant from the state to the borough which is then loaned to their company. Smith said that grant was approved but it is the borough which has caused the delays.
    Moving forward, he said this part of the project needs to get completed so they can then attempt to find financing for the rest of the work, which totals nearly $1.7 million. He said they have already invested $500,000 in the project.
    He said until the basic work is completed in the building, it is difficult to secure the necessary financing.
    One of the main purposes of the business, according to the executive summary prepared by Smith & Morris, is to "provide data recovery and business grade services for customers requiring private storage space, and services for corporate data and service related data processing."
    The plan also calls for the installation of a wind turbine which is "expected to supply 30 percent of the facility's energy needs."
    Smith said that part of the project can't be completed until there is additional financing, which depends on getting the building completed. He said they plan to do it "if we have enough funds."
    Page 5 of 5 - The executive summary states that the state of Pennsylvania is investing $25,000 "from the Renewable Energy Grant Program towards the purchase of the wind turbine."
    As for the data storage business, he said the large servers have already been purchased, which was done prior to the rest of the project.
    To get those up and running, he said the building has to be finished.
    To get that business needed for the company, Smith said his business partner has "spoken to a lot of people" who have shown interest but they need the building done in order to show the clients how the system will work.
    He said they "can't keep going back to people until you have something viable."
    Once that is done, he said, they can then bring in potential clients to see the operation. Many of those clients will likely be from New York City, he said. The executive summary says one of the factors is "proximity to customers, particularly Manhattan."
    According to the executive summary, Offsite Data Backups Services (ODBS) "has been building and testing its software at an R&D facility in Beach Lake" since mid-2009 and the next phase is establishing the headquarters at the building in the 500 block of Main Street in Honesdale.
    "It will be the nicest building on Main Street," said Smith.
    He also said that Honesdale Borough "has a gift by the state" because when they start paying back the funds, they can be loaned out to other businesses at low interest to make more downtown improvements.
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