Youngstown’s finances were on shaky ground before the state auditor’s office told the city that it inappropriately spent about $5.5 million from its water, wastewater and sanitation funds for economic-development projects from 2017 to the present.
The state auditor’s office informed city officials that the practice could require the money be paid from the general fund, which has virtually no money in it. If the city is required to do that, it would be put into fiscal emergency.
Even before this was revealed two weeks ago, the city was fighting to avoid a deficit in its general fund.
That fund ended 2017 with only a $12,000 surplus and will have a similar small amount to finish this year.
Also, Kyle Miasek, the interim finance director, will spend the next few months working to avoid a deficit for 2019. Based on department head requests for next year, the general fund and other funds that get money from it are $2.2 million in the hole.
And it won’t get any easier in future years as expenditures continue to outpace revenue.
If the city is required to use even a small portion of its general fund to pay back the water, wastewater and sanitation funds, it will almost certainly put Youngstown into fiscal emergency.
A larger amount would be even more devastating to the city. It would likely require mass layoffs, particularly in the police and fire departments.
Incredibly, it could be a lot worse.
The state auditor’s office is only interested in the approximately $5.5 million from water, wastewater and sanitation funds spent from 2017 to the present. The city has used close to $10 million from those funds since 2010 for economic-development projects.
The agreements to provide money from the funds were approved by administrations before Mayor Jamael Tito Brown’s.
Those administrations pointed to a June 2, 2011, legal opinion from the law firm of Calfee, Halter & Griswold, and a June 10, 2011, legal opinion from then-Law Director Iris Torres Guglucello – provided during the final days of Mayor Jay Williams’ administration – that Youngstown could use water and wastewater money for expenses related to those items for economic development.
Several of the city’s suburban water customers – and some who live in the city – have long objected to the use of their water money for what they believed to be a questionable practice.
Current Law Director Jeff Limbian said he and Brown questioned those legal opinions and sought another one from the law firm of Roetzel & Andress.
That legal opinion states: “The city should refine the process and guidelines for using water surplus funds. Specifically, the city should: Continue to refrain from using surplus water funds for economic development grants or loans until the process has been refined,” and “create guidelines for the use of surplus water funds as an economic development incentive and/or tool for future projects that require expansion or enlargement of the water system.”
The auditor’s review was prompted by a $1.45 million settlement in March of a class-action lawsuit that questioned the legality of using water and wastewater funds for economic development, according to a May 4 letter to Brown from Mark W. Altier, the auditor’s chief legal counsel.
That Limbian didn’t tell city council about the issue until two weeks ago shows an ongoing disconnect between the legislative and administrative branches. It’s boiled over a few times with council members complaining about a lack of communication from Brown’s administration.
If nothing else, the days of businesses getting water and wastewater funds for development projects are over.
Another dynamic at play is there’s going to be a new state auditor come Jan. 14.
Auditor-elect Keith Faber is retaining Robert Hinkle as deputy chief auditor and Youngstown will have an ally in that office with Mary DeGenaro of Poland serving as the incoming chief legal counsel.
The auditor’s office has to follow the law. It’s a matter of working out a proper conclusion.
On top of this, Brown is delaying any wastewater rate increase until speaking with the federal Environmental Protection Agency. He correctly says city customers can’t afford to pay more in sewer fees.
Brown is seeking to reduce a $160 million commitment the city made in 2014 to upgrade its sewer system.
That’s going to be quite a challenge. The EPA originally ordered the city in 2002 to spend $310 million on improvements to its sewer system. The city negotiated for more than a decade before lowering the figure in 2014 to $160 million.
Arcadis, a company hired by the city for a sewer rate study, recommended the fee be increased 8 percent annually for five years.
While it puts a heavy strain on city sewer customers, the issue is the money raised only covers the approximately $76.5 million in improvements to the wastewater treatment plant that are already done, under construction or are about to be awarded.
Much of the money for that work was borrowed from the state EPA, which probably is concerned that Brown is refusing to raise rates to pay it back.