The leadership of the VCU Health System has agreed to the city of Richmond’s request for mediation in a financial dispute over money the city argues the health system still owes after a downtown development deal fell apart.

City officials and VCU Health have been in a dispute over which obligations remain after VCU Health’s botched attempt to buy the city’s former Public Safety Building and build a 17-story office building on the site. The project collapsed in 2021 after VCU Health concluded it was no longer financially viable, but the city insists the health system still has to honor its agreement to pay the city roughly $2.5 million per year.

General Assembly leaders have taken a different view, instructing VCU Health not to pay the local government because the project never came to fruition.

To try to avoid a court battle over whose stance is correct according to the terms of the deal, city officials requested mediation last month.

VCU Health CEO Marlon Levy responded in a Dec. 6 letter, saying the VCU Health System Authority is “amenable” to working things out via a “mutually agreeable mediator.”

“As we prepare for mediation, I want to alert you that VCUHSA will be required to obtain prior approval from the Virginia General Assembly and the governor of Virginia before the terms of any settlement agreement with the city can be finalized,” Levy wrote.

Levy sent copies of the letter to General Assembly leaders and Gov. Glenn Youngkin’s chief of staff.

Depending on how long the mediation process takes, Mayor-elect Danny Avula and the new leadership team he brings to City Hall could ultimately call the shots on how the city should move on from a failed deal that happened before he took office.