Probe of city water funds hits homes

By DAVID SKOLNICK

skolnick@vindy.com

YOUNGSTOWN

A state probe into the legality of more than $2 million given by the city from its water and wastewater funds to a prominent downtown developer led to search warrants being executed Thursday at four locations, including the home of Youngstown Finance Director David Bozanich.

Led by the Ohio Auditor’s Office, the search warrants were conducted at:

7842 Walnut St., Unit B, Boardman, Bozanich’s residence, where neighbors say his sister lives.

3722 Starr Centre Drive, Suite A, Canfield, the law office of Stephen Garea.

3780 Fawn Drive, Canfield, Garea’s residence.

4355 Devonshire Drive, Boardman, the residence of Panzy Eldridge, Bozanich’s girlfriend, where it’s presumed the finance director lives.

The auditor’s office wouldn’t comment on the warrants because they deal with an ongoing investigation.

But several sources said the warrants were executed as part of the investigation into the legality of more than $2 million given by the city from its water and wastewater funds to three projects by the NYO Property Group, operated by developer Dominic J. Marchionda.

Even Mayor John A. McNally said he “wouldn’t be surprised” if the search warrants were connected to the NYO investigation.

Participating in the execution of the warrants were representatives of the state auditor’s office, Ohio Attorney General’s office, the Ohio Bureau of Criminal Investigation and the Mahoning County Sheriff’s Office.

McNally said he has no plans to take any disciplinary action against Bozanich.

“Anything that is being done as part of this investigation has to play itself out before I’d consider any sort of discipline,” he said. “At this point, there’s no reason for any disciplinary action.”

The finance director is the city’s purchasing agent, in charge of maintaining the city’s accounting system, and he has the power to investigate all its financial transactions, according to the city charter.

SEARCH WARRANTS

Investigators began their search of Garea’s office and residence about 9 a.m. Thursday, spending about three hours at the locations.

County deputies were on hand at both locations to provide security. A mobile crime-scene investigation truck was among the state vehicles parked outside Garea’s residence.

Neighbors watched the scene unfold from their lawns and driveways as investigators moved between the residence and their vehicles.

Items were seized from all four locations.

A Vindicator reporter saw only a small number of boxes, which were closed, taken from the Walnut Street location.

The search warrants are sealed and not available for public viewing, said Ben Marrison, a spokesman for the state auditor’s office, who declined further comment.

Dan Tierney, an attorney general spokesman, deferred comment to the auditor’s office.

Bozanich and Garea couldn’t be reached Thursday by The Vindicator to comment after repeated attempts.

Also, attempts by the newspaper to contact Marchionda and John F. McCaffrey, his attorney, were unsuccessful.

THE INVESTIGATION

On March 16, records were seized at NYO’s downtown office and at Marchionda’s Poland home by officials from the same agencies that conducted the searches Thursday.

At the time, a source with knowledge of the investigation said city officials were being investigated as part of the probe but declined to disclose their names.

One city official considered to be under investigation, however, was Bozanich. A day later, Bozanich declined to comment to The Vindicator about whether he was being investigated.

The investigation focuses on three projects to NYO subsidiaries that received $2.27 million from the city’s water and wastewater funds. Garea served as Marchionda’s attorney during the transactions.

The largest project was $1.2 million to U.S. Campus Suites LLC in November 2009 for the Flats at Wick student-housing project. Then, Marchionda’s company paid $1 million to the city for a fire station property on Madison Avenue for the project, netting the company $200,000.

At the time, the city was projecting a general-fund deficit for the end of 2009, but the influx of $1 million in part helped avoid the city’s shortfall. Without such a transaction, the city would not have been able to move $1 million from the water and wastewater funds to the general fund.

FIRE STATION DEAL

U.S. Campus Suites planned to develop more student housing at the fire station location but hasn’t to date. It is leasing the station back to the city for $10 annually, city officials said.

Also, the city originally agreed to sell the fire station for $10 in May 2009 to Marchionda, according to a city ordinance from that time. That sale price increased in November to $1 million, according to a board of control contract.

McNally, who wasn’t mayor when the fire station deal was made, defended it Thursday.

“If they’re looking at the fire station, that transaction was perfectly legal,” he said. “We’ll have to wait until the conclusion of the investigation” to see if any charges will be filed.”

The city has provided documents as part of the investigation, McNally said.

The city has awarded more than $8.5 million for economic-development projects from the water and wastewater funds since 2009.

Among those projects, the city gave Erie Terminal Place, an NYO subsidiary, $350,000 in water and wastewater funds in 2011 for its Erie Terminal Place apartment project, and then $220,000 two years later for improvement work at that downtown property.

Also, $500,000 in those funds went to Wick Properties LLC, also an NYO subsidiary, in 2015 for the apartment/extended-stay Wick Tower that opened in November of that year.

In December 2016 – and not part of the investigation – the city agreed to lend $2,750,000 to Youngstown Stambaugh Hotel LLC, an NYO subsidiary, with $750,000 of it forgiven and the remainder borrowed without interest under certain conditions for a $35.4 million, 130-bed DoubleTree by Hilton hotel being built at the vacant Stambaugh Building, 44 E. Federal St.

WATER LAWSUIT

There is a lawsuit from four Youngstown water customers – there was a fifth, but that person has since moved out of state – questioning the legality of using water and wastewater funds for economic development, and seeking to stop the practice.

The lawsuit, with the plaintiffs seeking to make it a class-action suit, filed last year in Mahoning County Common Pleas Court contends Youngstown violates state law and the city charter by using water and wastewater “surplus revenues to issue grants and payments to private parties involving projects unrelated to the purposes and activities necessary for providing the water and sewer utilities to its customers.”

City officials have defended the practice, saying it is permissible, and they have legal opinions backing that up.

Garea is a prominent local attorney who has, over the years, served as the lawyer for a number of high-profile clients including former county Prosecutor James Philomena, who admitted to fixing cases and has since died, and former mobster Lenny Strollo.

In January 1997, the FBI searched Garea’s law office as part of a federal investigation into how $4 million was used to resurrect an idled Indian casino in California, according to Vindicator files.

The government was investigating whether the casino company was financed by genuine investors or served as a front for money controlled by underworld figures. Garea was never charged with any crime related to the investigation.

Contributor: Staff writer Graig Graziosi