Youngstown water funds flow to downtown development

RELATED: Girard gets MVSD-treated water from four sources

By DAVID SKOLNICK

skolnick@vindy.com

YOUNGSTOWN

Without the city giving money from its water and wastewater funds, several economic development projects never would have happened, Mayor John A. McNally and city Finance Director David Bozanich say.

Since 2010, the city has provided $2,731,893 to businesses, mostly in downtown, according to information provided by the Youngstown Community Planning and Economic Development office, the Youngstown Finance Department and Vindicator files.

The funding is split evenly between the water and the wastewater funds.

Also, $520,000 from the funds is pending the completion of the Wells Building on West Federal Street by Strollo Architects.

A number of people question how Youngstown can provide six-figure payments from water and wastewater funds for projects such as downtown housing, expansions of downtown businesses including the Youngstown Business Incubator and VXI Global Solutions, and demolishing two vacant structures to turn them into parking lots.

But the city has a June 2, 2011, legal opinion from the Cleveland law firm of Calfee, Halter & Griswold that Ohio Revised Code and Ohio Supreme Court decisions give city councils “broad legislative and administrative power relating to the operation of public utilities,” and that city council has “broad discretion” in determining how it uses water and wastewater surplus revenues.

Also, then-city Law Director Iris Torres Guglucello wrote a legal opinion June 10, 2011, concurring with Calfee.

“If we don’t put the [water and wastewater] money into these downtown development projects, they don’t happen,” Bozanich said. “If we’re not doing it this way, we can’t do it. The projects don’t make economic sense if we don’t contribute utility money.”

In one of the more interesting examples, the city received a $653,000 state grant to demolish the former Paramount Theatre, and used $80,000 in water and wastewater funds to purchase the parcel. The plan was to turn the location into a free parking lot for those who come to city hall to pay their water and sewer bills.

But before the first customer could park there, the city leased it to the Youngstown Central Area Community Improvement Corp. to manage it and no longer use it for water and sewer customers. At the same time, the city paid $500,000 in water and wastewater funds to the CIC to demolish the former Kress Building, which is closer to city hall. When that demolition was done, the city took ownership of the land and made it a free parking lot for water and sewer customers.

Girard Mayor James Melfi and Canfield City Manager Joseph Warino, a former Mahoning County sanitary engineer, question how Youngstown was allowed to do it.

“I don’t know how that was authorized or approved without some explanation as to how it’s affecting the water or wastewater system,” Warino said, adding that he’d rather see that money go to replace water-supply infrastructure.

“One of these days, I’m going to be as clever as the city of Youngstown,” Melfi said.

“As a mayor, we have a lot of demands placed in a lot of different areas. So, is it a stretch? Is it creative? Is it clever? It’s probably all of those things, but I also know the pressures put on [McNally] to try to make Youngstown better,” Melfi said.

Bozanich shrugs off the criticism.

“People are entitled to their opinion,” he said. “We disagree and have the legal opinion to say otherwise. We’re trying to fund worthy projects. The choice is do you do creative things or do you turn the lights out.”

The NYO Property Group received $570,000 for Erie Terminal Place and $500,000 for the Wick Building. Both are downtown apartment buildings.

Without the water and wastewater money, the projects “wouldn’t have happened,” said Dominic J. Marchionda, NYO managing member.

“It’s a necessity,” he said. “The problem you have in communities like downtown Youngstown is you never get enough money to do projects from lenders. Because of bank regulations, it’s difficult to get the funding needed. The city providing that money is vital to any project.”

The only project to receive water and wastewater money that didn’t succeed was Penny’s Place, a restaurant on the East Side that received $2,695. That’s the smallest amount of money from the funds given to a business from 2010 to the present.

The two legal opinions came after council President Charles Sammarone made a request for them four years ago. Sammarone backs the use of water and wastewater funds for economic development and said he asked for a legal opinion after the state auditor’s office inquired if one existed.

“As long as it’s legal, and it is, it’s a good idea,” Sammarone said. “Without that money, we wouldn’t be able to do these projects.”

The Calfee opinion reads: “While municipalities are authorized to use surplus funds on, among other things, the extension of water works, Ohio law is silent as to what activities specifically qualify. The phrase ‘extension of the works’ is not defined in the revised code, and Ohio courts have not addressed what expenditures reasonably fall within its scope.”

The opinion also states: “It is well-established that city councils have broad legislative and administrative power relating to the operation of public utilities” and “Ohio law suggests that the determination of what activities qualify as an extension of the water works system is within council’s broad discretion.”

The city carefully evaluates each request for water and wastewater funds, Bozanich and McNally say.

“If we think the project makes economic sense in terms of long-term stability and has water and wastewater needs, it would be counterproductive to not fund them,” Bozanich said.

“It will be on a project-by-project basis,” McNally said. “If we feel it will be beneficial and helpful to economic development, we’ll provide funding.”

Harry Meshel – a former Ohio Senate president, ex-state Democratic Party chairman and a longtime critic of this city practice – said: “The idea would be fine if the money wasn’t coming from an overcharge for water and wastewater. People can’t do anything about it because [water and wastewater] are mandatory and necessary.”

The city also plans to use water and wastewater funds – along with other funding sources – to help fund a potential amphitheater at the Covelli Centre and a park along the Mahoning River.

“It’s nice to have a renovated Wells Building and an outdoor arena, but it shouldn’t come from water and wastewater funds,” Meshel said. “They need to replace water lines. They need to replace sewer lines.”

The city has an agreement with the U.S. Environmental Protection Agency to spend $147 million to upgrade its sewer system by 2033. That includes $48 million to eliminate combined storm and sanitary sewer overflows into Mill Creek Park. City sewer discharges from heavy rain in late June caused a massive fish kill. The park closed its three lakes because of high E. coli levels.

The city’s water fund ended 2014 with a $13.8 million surplus; the sewer fund’s surplus was $11.5 million.

The city plans to reduce fees to city residents – and not to its customers outside Youngstown – by 30 percent Dec. 1 as part of a plan to shift money toward demolition. The plan would leave the water department out of money by 2020.

The reduction “won’t stop” the use of the fund to help economic development, McNally said.

The city replaces water and sewer lines, but it doesn’t have a specific annual program for that work.

The city needs to replace one or two of its water tanks, and paint two others, said Eugene Leson Jr., chief engineer of the water department. That work should be done in a couple of years, he said.

“We would then develop a 10-year plan and concentrate on water-

line replacements in 2018 or 2019,” he said.

Contributor: Peter H. Milliken