Governor calls for changes after VCU Health’s costly downtown development exit

Public Safety old rendering Cropped

A rendering of the VCU Health-anchored office tower and complex that would have replaced the Public Safety Building. (BizSense file)

VCU Health’s costly exit from an ill-fated downtown development project has prompted calls for organizational and procedural change from Gov. Glenn Youngkin.

In a letter dated Sept. 19 to House Speaker Todd Gilbert and Senate Rules Committee Chairwoman Mamie Locke, Youngkin urges the Virginia General Assembly to make changes to the VCU Health System Authority’s governance structure, including the replacement of VCU President Michael Rao as chairman of the authority’s Board of Directors.

Youngkin also recommends changes to how the authority reviews and evaluates significant capital projects, in light of the health system’s exit from a $325 million development that would have replaced Richmond’s old Public Safety Building with a multi-building complex that VCU Health would have anchored.

VCU Health ended up paying $73 million to back out of its 25-year lease for that project, referred to by administrators as the Clay Street Project, and continues to pay additional costs that Youngkin said could end up totaling $100 million.

youngkin glenn governor portrait

Gov. Glenn Youngkin

“While some commentators have pointed out that no state funding was at risk with the Clay Street Project’s failure, I reject the notion that because VCU Health System is a separate authority there is nothing the Governor and the General Assembly can, or should, do in response,” Youngkin says in the letter, which was first reported by the Times-Dispatch.

“The widely publicized cancellation of the Clay Street development project in downtown Richmond, which could cost up to $100 million, should serve as a wake-up call to the significant flaws in the current governance of the University and the Authority, particularly related to the planning, approval, and implementation of sophisticated and costly capital projects.”

Youngkin’s letter includes eight recommendations, including a “restructuring and professionalizing” of VCU Health’s Board of Directors, which includes appointments made by the governor and legislators, as well as a revision to the board chairmanship currently filled by Rao, who also serves as president of the health system as well as the university.

“Because the two institutions will remain affiliated but also remain separate legal entities, the VCUHSA Board should not be chaired by the President of VCU, but by another individual with the experience and time commitment necessary to lead the board,” Youngkin said in the letter, adding that the president should continue serving on the board as an ex officio member.

“VCUHSA’s Board should also be populated with individuals who have the professional background and experience necessary to run a large, complex medical enterprise with annual operating revenue of nearly $3 billion,” the letter reads, adding that board members should have demonstrated experience in academic medical center administration, commercial real estate, business and risk management, and capital finance.

Noting that state code requires the appointment of five teaching physicians to the board, Youngkin adds, “Some physician representation is appropriate, but this level of representation seems arbitrary, and our focus should be on appointing individuals who not only can represent this constituency, but who also have other necessary skills for the Board.”

Youngkin also calls for a “reimagining” of the relationship between the health system and VCU, reducing the number of members and their terms on the health system board, and requiring transparency and outside review of complex or capital-intensive projects.

PublicSafetyBldg1

The 3-acre Public Safety Building property at 500 N. 10th St. (BizSense file photo)

Referring to the Clay Street Project, Youngkin says in the letter, “Outside financial advisors were not consulted on this complex deal which involved multiple parties and other stakeholders, and a detailed risk analysis was only conducted immediately prior to closing. This analysis reportedly outlined serious risks with the proposal and did not point favorably towards approval. Yet despite the repeated warning signs, VCU Health pressed forward and approved the Project.”

In his recommendation for transparency between the VCU and VCUHS boards, Youngkin adds, “The artificial wall present between the two Boards throughout the Clay Street Project did not serve the public interest and must be eliminated moving forward. Additionally, a more robust internal review and approval process must be instituted.

“Board members must be provided full information, have a healthy skepticism, and be encouraged to ask questions about all critical business issues, particularly those related to significant contractual and capital commitments. In all capital projects, the Board should be presented with a comprehensive financial and risk analysis and should not vote on a project until members are comfortable with the potential impact to the Health System and the Commonwealth.”

In a prepared statement Wednesday, Rao said he “fully” supports Youngkin’s “thinking about board governance and VCU Health.”

herd1101 Michael Rao

Michael Rao

“These are best practices that will strengthen the leadership of the university and health system boards, as well as that of the president,” Rao said. “The Governor’s statement echoes the recommendations VCU Health received in June from the independent law firm hired to review the Clay Street project. I recommended the review to the board, and VCU Health has implemented those recommendations. VCU is adopting them as well.”

Rao added that The Chartis Group, a healthcare consulting firm, has been working since May on a “final report” about the project that is expected to be presented to the boards soon.

“Both boards met last week, and I shared then my belief that healthcare has changed so much, and so rapidly, that the VCU Health board of directors requires a chair 100 percent devoted to the health system, similar to how the president of the University of Virginia is not chair of its health system board/committee,” Rao said. “I support this evolution of the role of the VCU Health board chair.”

VCU also released a joint statement from Rector Todd Haymore and Vice Rector Andy Florance expressing their commitment to work with Youngkin and Rao to make the changes to governance structures.

“VCU and VCU Health are two of Virginia’s most indispensable institutions of student learning and patient care. For the Commonwealth to meet its critical education and healthcare goals, VCU and VCU Health must focus on innovation, impact and accountability. Changes to board governance will reinforce the work VCU and VCU Health began this spring,” their statement said.

In addition to Rao and Haymore, the VCUHSA board’s current membership includes state Sen. Lamont Bagby, physician Hem Bhardwaj, attorney Joel Bieber, investment manager Diana Cantor, physician Laurence DiNardo, developer George Emerson, private equity firm manager Peter Farrell, Truist executive Ellen Fitzsimmons and physician Lance Hampton.

Rounding out the board are VCUHS interim CEO Marlon Levy, former U.S. ambassador Carmen Lomellin, Capital One executive Fay Manolios, Henrico County supervisor Tyrone Nelson, state Del. Roxann Robinson, CPA consultant Gary Thomson, and physicians Bimaljit Sandhu, Wes Shepherd, Wally Smith and Romesh Wijesooriya.

Public Safety old rendering Cropped

A rendering of the VCU Health-anchored office tower and complex that would have replaced the Public Safety Building. (BizSense file)

VCU Health’s costly exit from an ill-fated downtown development project has prompted calls for organizational and procedural change from Gov. Glenn Youngkin.

In a letter dated Sept. 19 to House Speaker Todd Gilbert and Senate Rules Committee Chairwoman Mamie Locke, Youngkin urges the Virginia General Assembly to make changes to the VCU Health System Authority’s governance structure, including the replacement of VCU President Michael Rao as chairman of the authority’s Board of Directors.

Youngkin also recommends changes to how the authority reviews and evaluates significant capital projects, in light of the health system’s exit from a $325 million development that would have replaced Richmond’s old Public Safety Building with a multi-building complex that VCU Health would have anchored.

VCU Health ended up paying $73 million to back out of its 25-year lease for that project, referred to by administrators as the Clay Street Project, and continues to pay additional costs that Youngkin said could end up totaling $100 million.

youngkin glenn governor portrait

Gov. Glenn Youngkin

“While some commentators have pointed out that no state funding was at risk with the Clay Street Project’s failure, I reject the notion that because VCU Health System is a separate authority there is nothing the Governor and the General Assembly can, or should, do in response,” Youngkin says in the letter, which was first reported by the Times-Dispatch.

“The widely publicized cancellation of the Clay Street development project in downtown Richmond, which could cost up to $100 million, should serve as a wake-up call to the significant flaws in the current governance of the University and the Authority, particularly related to the planning, approval, and implementation of sophisticated and costly capital projects.”

Youngkin’s letter includes eight recommendations, including a “restructuring and professionalizing” of VCU Health’s Board of Directors, which includes appointments made by the governor and legislators, as well as a revision to the board chairmanship currently filled by Rao, who also serves as president of the health system as well as the university.

“Because the two institutions will remain affiliated but also remain separate legal entities, the VCUHSA Board should not be chaired by the President of VCU, but by another individual with the experience and time commitment necessary to lead the board,” Youngkin said in the letter, adding that the president should continue serving on the board as an ex officio member.

“VCUHSA’s Board should also be populated with individuals who have the professional background and experience necessary to run a large, complex medical enterprise with annual operating revenue of nearly $3 billion,” the letter reads, adding that board members should have demonstrated experience in academic medical center administration, commercial real estate, business and risk management, and capital finance.

Noting that state code requires the appointment of five teaching physicians to the board, Youngkin adds, “Some physician representation is appropriate, but this level of representation seems arbitrary, and our focus should be on appointing individuals who not only can represent this constituency, but who also have other necessary skills for the Board.”

Youngkin also calls for a “reimagining” of the relationship between the health system and VCU, reducing the number of members and their terms on the health system board, and requiring transparency and outside review of complex or capital-intensive projects.

PublicSafetyBldg1

The 3-acre Public Safety Building property at 500 N. 10th St. (BizSense file photo)

Referring to the Clay Street Project, Youngkin says in the letter, “Outside financial advisors were not consulted on this complex deal which involved multiple parties and other stakeholders, and a detailed risk analysis was only conducted immediately prior to closing. This analysis reportedly outlined serious risks with the proposal and did not point favorably towards approval. Yet despite the repeated warning signs, VCU Health pressed forward and approved the Project.”

In his recommendation for transparency between the VCU and VCUHS boards, Youngkin adds, “The artificial wall present between the two Boards throughout the Clay Street Project did not serve the public interest and must be eliminated moving forward. Additionally, a more robust internal review and approval process must be instituted.

“Board members must be provided full information, have a healthy skepticism, and be encouraged to ask questions about all critical business issues, particularly those related to significant contractual and capital commitments. In all capital projects, the Board should be presented with a comprehensive financial and risk analysis and should not vote on a project until members are comfortable with the potential impact to the Health System and the Commonwealth.”

In a prepared statement Wednesday, Rao said he “fully” supports Youngkin’s “thinking about board governance and VCU Health.”

herd1101 Michael Rao

Michael Rao

“These are best practices that will strengthen the leadership of the university and health system boards, as well as that of the president,” Rao said. “The Governor’s statement echoes the recommendations VCU Health received in June from the independent law firm hired to review the Clay Street project. I recommended the review to the board, and VCU Health has implemented those recommendations. VCU is adopting them as well.”

Rao added that The Chartis Group, a healthcare consulting firm, has been working since May on a “final report” about the project that is expected to be presented to the boards soon.

“Both boards met last week, and I shared then my belief that healthcare has changed so much, and so rapidly, that the VCU Health board of directors requires a chair 100 percent devoted to the health system, similar to how the president of the University of Virginia is not chair of its health system board/committee,” Rao said. “I support this evolution of the role of the VCU Health board chair.”

VCU also released a joint statement from Rector Todd Haymore and Vice Rector Andy Florance expressing their commitment to work with Youngkin and Rao to make the changes to governance structures.

“VCU and VCU Health are two of Virginia’s most indispensable institutions of student learning and patient care. For the Commonwealth to meet its critical education and healthcare goals, VCU and VCU Health must focus on innovation, impact and accountability. Changes to board governance will reinforce the work VCU and VCU Health began this spring,” their statement said.

In addition to Rao and Haymore, the VCUHSA board’s current membership includes state Sen. Lamont Bagby, physician Hem Bhardwaj, attorney Joel Bieber, investment manager Diana Cantor, physician Laurence DiNardo, developer George Emerson, private equity firm manager Peter Farrell, Truist executive Ellen Fitzsimmons and physician Lance Hampton.

Rounding out the board are VCUHS interim CEO Marlon Levy, former U.S. ambassador Carmen Lomellin, Capital One executive Fay Manolios, Henrico County supervisor Tyrone Nelson, state Del. Roxann Robinson, CPA consultant Gary Thomson, and physicians Bimaljit Sandhu, Wes Shepherd, Wally Smith and Romesh Wijesooriya.

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John Gerencser
John Gerencser
8 months ago

I am not a big Gov. Youngkin fan, but I have to agree with him on this issue. VCU Health threw away $73,000,000. and no one is fired or reprimanded. Now VCU is looking to raise tuition by 10%, (hope my facts are correct). So parents and students should pay for VCU’s mistakes. Some will are agree that the two topics are unrelated, different pots of money, etc., but there is still the matter of $73,000,000. pissed into the wind. Perhaps all the administrators involved in the fiasco should have their pay reduced to make up the lost money.

Fred Squire
Fred Squire
8 months ago

VcuHsa board seems comprised of folks with connections, not years of experience running large corporations. And Rao’s statement – “Health Care has changed so quickly they couldn’t react correctly“. Umm… no one says that, it moves at a glacial pace. And it has nothing to do with lacking good corporate governance and due diligence on large contracts. Plain and simple VCU was not equipped to handle this deal with their current players, someone was probably getting a hand out and the deal was bad and there was no leadership in place to steer them away from the pond they were… Read more »

Liz Smith
Liz Smith
8 months ago
Reply to  Fred Squire

Dr. Kellerman resigned shortly after this. Wonder if it was related?

Daniel Ofl
Daniel Ofl
8 months ago

Someone(s) got paid here. That’s the only logical explanation.

SA Chaplin
SA Chaplin
8 months ago

Why in the world would we want the state (the Feds, or any government bureaucracy) expanding and taking MORE control of healthcare after the debacle of Covid. Government did everything wrong. 

SA Chaplin
SA Chaplin
8 months ago
Reply to  SA Chaplin

To you “down-voters” – When listing government Covid responses, would you prefer I begin with the dumbest, or with the most harmful:

The federal government’s censorship machine
School closings
Jab mandates
Church closings
Business closings
Masking and mask mandates
Remdesivir
Ventilators
Moving the well in with the sick in nursing homes
Stay at home orders
Social distancing mandates (including one-way lanes in grocery stores)
Plexiglass barriers
“Vaccinating” children AT ALL

Shawn Harper
Shawn Harper
8 months ago
Reply to  SA Chaplin

Hey man, I agree, and good for you for taking a shot at the downvoters that don’t debate!

Shawn Harper
Shawn Harper
8 months ago
Reply to  SA Chaplin

I’ll do you one better — ignoring and even supressing, certainly not promoting things to make one healthier and naturally resistant getting outside excercise, vit D, etc…. Instead, they have brought our ideas back to the 1960s bleach down the walls, sterilize the food days, the 1990s use hand sanitizer days, and of course, a Chinese Communist Party view of making everyone wear masks and giving everyone a Social Score! But it’s fine, every time I see someone all alone wearing a mask in a car or something, I am glad they are exposing their mentalities without me having to… Read more »

Shawn Harper
Shawn Harper
8 months ago
Reply to  SA Chaplin

Well…. I am not going to touch the philosophical questions but I will point out that VCU is a State business so….

Alan Miller
Alan Miller
8 months ago

I am amazed Rao still has a job after this, and many other fiascos under his watch.

Michael Boyer
Michael Boyer
8 months ago

Rao laying low these days.

Victoria Woodhull
Victoria Woodhull
8 months ago
Reply to  Michael Boyer

Except for when he wants more money and tuition raises. smdh

Michael Morgan-Dodson
Michael Morgan-Dodson
8 months ago

Now that everyone is calling for structural changes to the boards when are the personnel changes coming? Asking for a friend!

Victoria Woodhull
Victoria Woodhull
8 months ago

“Youngkin also calls for a “reimagining” of the relationship between the health system and VCU, reducing the number of members and their terms on the health system board, and requiring transparency and outside review of complex or capital-intensive projects.” 1st thing is get the politicians off of these Boards. Is the governor trying to take credit for the Chartis Group recommendations, or is Rao covering his butt by saying the Chartis recommendations have been implemented since May/June? I am generally critical of Boards because most of the Board members are grifters trying to gain leverage for contracts for their company.… Read more »

Shawn Harper
Shawn Harper
8 months ago

Youngkin was elected in part to kick more of the grifters out of state government, but they are everywhere, unfortunately.

Justin Reynolds
Justin Reynolds
8 months ago
Reply to  Shawn Harper

No, Youngkin was elected thanks to his CRT boogie man campaign. If you look at who he has appointed he has put as many grifters in government positions as any prior Governor. The main difference is he’s not in Richmond much, and his kids still attend a private school in Maryland.

Shawn Harper
Shawn Harper
8 months ago

Well, in theory, this makes sense if I understand it: have some medical professionals — I don’t know about MDs, but whoever it is that knows best what is NEEDED and how it should be done on a board ALONG WITH people, who would be the real decision makers, who are savvy at getting big building stuff done. I am not sure Rao is that kind of guy. I could be wrong — I do know that he was hired not for his acedemic cred but his administrative cred — he’s got one of those “how to manage a college”… Read more »

Sam Foster
Sam Foster
8 months ago

Let me get this straight because of Covid the developers had to scale down the project, VCU wasn’t on board with that and then had to pay liquidated damages of $100 million? Wouldn’t VCU have given themselves an out in the case of a national emergency? Put all the attorneys responsible for orchestrating this deal under an conflict of interest or ethics probe. I’d like to know if this property was insured for an incident like this too.

Al Subramanian
Al Subramanian
8 months ago

The Governor is 100% right. Rao screwed up the parking in paying $3m in his early years and still kept his job. The board, including that of VCU, is a sad composition of individuals how rub shoulders. The call by the Governor for “healthy skepticism” never existed in VCU. So, Rao’s comment is pathetic and downright lies. I wonder where VCU’s capital team was in all of this. Just the usual “Yea, Sir” attitude. There are an embarrassment. VCU Health benefits greatly from VCU, which is a state institution. So, it is the tax payers who are getting screwed. Great… Read more »