Former governor Doug Wilder called for the firing of VCU President Michael Rao and a state investigation in light of a $73 million payment VCU Health System quietly made in February to back out of a downtown development project.
In a press conference Tuesday at the State Capitol, Wilder called on the Joint Legislative Audit & Review Commission (JLARC) to to investigate the payment that was made to allow VCU Health to buy its way out of its lease as the master tenant for a $325 million development that would have replaced the city’s Public Safety Building at 500 N. 10th St.
Wilder, a VCU professor and namesake of its L. Douglas Wilder School of Government and Public Affairs, also called for the VCU Board of Visitors to dismiss Michael Rao, president of VCU and VCU Health.
“I can’t see how the Board of Visitors can justify him staying,” Wilder said when asked to clarify his position. Asked if he was saying that the board or Gov. Glenn Youngkin should fire Rao, Wilder replied, “Yes.”
“I want the Board of Visitors to explain how they can justify $73 million being wasted and spent. I want the Board of Visitors to explain how this sort of thing can continue,” he said.
“With this amount, how many students are robbed of attending VCU in scholarships? How many programs and resources will be cut out of deserving budgets? Most importantly, what actions are being taken to ensure that enormous wastes like these are prevented in the future?”
A request to Rao’s office for comment was returned by a spokesperson for VCU and VCU Health, who provided a statement on behalf of the university.
“We agree with Gov. Wilder that this financial outcome is disappointing. But by late 2021, construction and other challenges made it simply impossible to build the original project,” the statement read.
“Moving forward would have caused dire long-term financial repercussions. The one-time payment was funded by VCU Health operating funds and represents less than 2.5 percent of the health system’s annual operating budget.”
The statement added that neither university funds nor state revenues were used to make the payment, which it said “allowed VCU Health to avoid far greater financial obligations and problems in the future.”
At the press conference, Wilder questioned the explanation of operating funds being used and maintained that the payment represents a cost to state taxpayers.
“What are health system operating funds? Nobody knows where the money came from. No explanation has been given. Spell it out,” he said. “Let there be an investigation. JLARC can do it.”
The payment was revealed Friday in response to a Freedom of Information Act request to VCU Health from Richmond BizSense.
“I couldn’t believe it when I read and heard about it, that $73 million being wasted right under the governor’s and the legislature’s nose,” Wilder said Tuesday.
Calling on JLARC to immediately investigate what he described as a “misappropriation of VCU spending,” Wilder added, “I further call on Gov. Youngkin to employ the resources of his office to provide transparency to the taxpayers on how and why this financial misbehavior can be tolerated.”
The payment – required as part of a defeasance agreement that allowed the parties to walk away from the project free from litigation – was made Feb. 1 to the project’s would-be landlord, an LLC tied to Oak Street Real Estate Capital that purchased the 3-acre property from the city in 2021 for $3.5 million. VCU Health has said the payment was needed to end the health system’s obligations on the site.
Oak Street, now a division of New York-based investment firm Blue Owl Capital, was handling financing for the project for developer Capital City Partners.
The defeasance agreement included a clause restricting VCU Health or the other parties from making a public statement disclosing the payment without consent from all parties. The statement, included as an exhibit in the Feb. 3 agreement, does not specify the payment amount and mirrors the statement provided to BizSense when it reported Feb. 10 that the city had taken back the property.
Wilder said VCU Health should have disclosed the payment sooner and voluntarily.
“It’s not their money,” Wilder said.
The 25-year lease, signed in July 2020, put the health system on the hook to pay more than a half billion dollars in monthly rent over the life the deal, with the overall lease totaling more than $617 million.
The city took back the property after determining that the project had not progressed according to a development agreement between the city and CCP. The transfer back to the city involved zero dollars.
At the same time, about a dozen legal documents were terminated as part of the defeasance process to wind down the project, and to unwind a $425 million loan that the landlord LLC had secured from UMB Bank. It had secured that loan in 2021 to finance the project, which had been expected to take nearly four years to complete.
Referring to the payment and “many previous shortcomings in VCU leadership,” Wilder said Tuesday, “I cannot contemplate how Michael Rao can continue in his role as president of Virginia Commonwealth University.
Wilder also noted that VCU is currently proposing tuition increases for the upcoming school year, and said Rao is requesting a leave of absence and a bonus at the same time of the VCU Health payment.
Contending that the Public Safety Building project’s developer threatened a lawsuit when VCU Health wanted out of the project, Wilder said, “To avoid the lawsuit – saving somebody some embarrassment, I guess – President Michael Rao agreed to pay $73 million, according to a Freedom of Information request.
“The taxpayers of Virginia paid $73 million, for what? What did they get?”
It isn’t clear whether any state investigations into the payment are currently underway. Attempts to reach the Virginia Attorney General’s office were unsuccessful this week.
The VCU Board of Visitors is scheduled to meet this Thursday and Friday. The meetings’ agendas include a closed session to review Rao’s contract and compensation.