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Amid probe of developer, state looks into city use of water, wastewater money
VINDICATOR EXCLUSIVE
YOUNGSTOWN
US Campus Suites Agreements
Document
Development and Purchase Agreements between the City of Youngstown and US Campus Suites, LLC dated November 19, 2009.
NYO Subpoena Case
Document
Mahoning County Court of Common Pleas Case No. 2015-CV-3100 against the Ohio Auditor of State, David Yost. Plaintiffs Erie Terminal Place, Us Campus Suites, Wick Properties, and Dominic Marchionda, filed a complaint regarding a subpoena issued for an unknown investigation.
The city has provided $8 million since 2009 in water and wastewater funds for economic development projects.
The use of this money is back in the spotlight after state and Mahoning County investigators, led by the Ohio Auditor’s Office, seized documents Thursday from the business and residence of Dominic J. Marchionda, the head of one of downtown’s largest property development companies.
“We believe it is entirely legal to use that money for [economic development] purposes,” said Mayor John A. McNally. “The agreements that have been reached by my administration and previous administration are allowable by the city’s ability to govern itself. As long as we don’t circumvent the policing authority of the state, it’s permissible.”
Marchionda leads the NYO Property Group with its subsidiaries benefiting from Youngstown water and wastewater funds for four projects.
Three of those projects are targets of a probe spearheaded by the Ohio Auditor’s Office with assistance from the Ohio Attorney General’s Office, the Mahoning County prosecutor and county sheriff’s department. The investigation questions the legality of NYO subsidiaries using more than $2 million in city money for water and wastewater projects.
A source with knowledge of the investigation said city officials are being investigated as part of it.
The city gave $1.2 million in water and wastewater funds to U.S. Campus Suites LLC, an NYO subsidiary, 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. Those contracts can be found today on Vindy.com.
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 simply move $1 million from the water and wastewater funds to the general fund.
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 either $1 or $10 annually, city officials said. The exact amount could not be verified since so many city officials were out of the office Friday.
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.
When asked to explain the property deal, city Finance Director David Bozanich, who helped put together the various NYO contracts, declined to comment Friday to The Vindicator about any of the company’s transactions with the city.
McNally and Law Director Martin Hume, who weren’t with the city in 2009, didn’t have information about the deal.
Attempts by the newspaper Friday to reach Jay Williams, who was mayor in 2009, were unsuccessful.
The city has awarded $8 million for economic development projects from the water and wastewater funds since 2009.
Among those projects, the city gave Erie Terminal Place, another 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.
John F. McCaffrey, Marchionda’s attorney, confirmed that his client was compiling documents related to city water and wastewater funds for those three projects when search warrants were executed by state and county officials Thursday.
Also, in December, the city agreed to loan $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.
That money is split three ways among water, wastewater and the environmental sanitation fund. It is not part of the investigation led by the state auditor.
The money from the environmental sanitation fund for the hotel is $916,666 and is in addition to the $8 million from the water and wastewater funds given to economic development projects.
However, the hotel is the only project that requires a company to pay back money to the funds.
As of the end of 2016, the water fund has a $12.6 million surplus while the wastewater fund’s surplus is $14.6 million.
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.”
Youngstown “is illegally removing monies from the special fund in violation of Ohio law for the purpose of subsidizing private development projects,” according to Bryan M. Ridder, the plaintiff’s lead attorney.
He added: “In addition to stopping this illegal conduct, the plaintiffs want the surplus water funds – nontaxpayer funds statutorily required to be used for articulated purposes related to providing sewer and water services – to be accounted for and to be returned to the water department special fund.”
When asked what he would say to those upset about the city’s using water and wastewater funds for economic development, McNally said: “The money we’re utilizing is making Youngstown a better place to live, improving downtown and creating jobs.”
He said the lawsuit is directly related to this issue and “at some point, we’ll get a decision from the court. I’m very confident the city will prevail.”
Hume said city “council has every right to make decisions to expand the utility systems through appropriate agreements, and the board of control executes appropriate contracts. We don’t believe any of the contracts were inappropriate. I don’t know of any activities not in accordance with applicable law regardless of the time frame.”