Youngstown has forced a showdown with the state over its refusal to repay about $3.1 million over 15 years from its general fund to three other funds for economic development.
With city officials publicly saying they won’t back down, it’s doubtful this will end well for Youngstown.
On its face, it looks like the state auditor’s office was reasonable allowing the city to spread the $3.1 million, given in 2017 for economic-development projects, over 15 years. The city’s general fund has struggled for years, particularly the past few, to be balanced without laying off any employees.
A request to pay $206,667 a year for 15 years from the general fund to the water, wastewater and sanitation funds is a strain on the city’s finances, but it could be significantly worse.
This doesn’t include about $1 million the city used from those three funds in 2018.
When that audit is done, the same issue will arise and using the same 15-year repayment proposal, that’s an additional $66,667 a year.
The auditor’s office first contacted the city in a May 4, 2018, letter stating the use of $4,462,662 in 2017 for economic development “may violate” state law and the Ohio Constitution.
The amount was lowered to about $3.1 million because of a loan repayment expected in December by the owners of the downtown DoubleTree by Hilton hotel.
Mayor Jamael Tito Brown said last week that the city “rejects” the auditor’s “demand” to repay the money.
The city, he said, offered a “series of reasonable ways to resolve the dispute through a proposed structured payment plan, a proposed long-term payment plan and a commitment to stop the grant/loan program.”
He didn’t provide information about the structured payment plan or how many years the city suggested for the long-term payment plan. I don’t know how many more the city could possibly seek in excess of 15 years.
“Despite the city’s best efforts, the auditor would not budge from forcing the city into an unaffordable repayment option that would jeopardize city services and employees,” Brown said. “The city cannot and will not agree to place such a burden on its citizens.”
The city has been in lengthy discussions with the auditor’s office over this audit and had its exit interview Wednesday with auditors. The audit of the city’s 2017 finances could be ready as soon as the end of the month.
Brown’s comments drew a rare response from the auditor’s office, which normally doesn’t comment on audits until they’re concluded.
A day after Brown’s statements, Allison Dumski, an auditor spokeswoman, said: “Because the auditor understands the city of Youngstown’s challenging financial position, we have attempted to work through extraordinary efforts to reach a resolution on the repayment of the sewer and water funds. We are disappointed that the city has rejected our proposal.”
Once the audit is released, a number of decisions will have to be made.
The city could simply ignore the report and let the auditor’s office do what it wants. If that occurs, the auditor could take the steps needed to put Youngstown in fiscal emergency and seize control of the city’s finances.
Neither side wants that to happen, but don’t think it won’t.
Remember that this audit was initiated when Dave Yost ran that office. He is now the attorney general and thus acts as Ohio’s legal counsel. He, along with Auditor Keith Faber, are likely to follow through with the steps necessary to compel the city to pay its general fund.
The city could also take legal action against the state contending that under its home-rule form of government it had the legal right to use that money for economic-development purposes.
The city has a legal opinion from 2011 that contends it has the authority to make these loans that date back nine years and has several state audits that never raises the question of whether using the money was improper.
But Brown and Law Director Jeff Limbian are on record saying they didn’t believe the practice was appropriate and haven’t used money from those three funds for new economic-development projects since they began in their respective positions in January 2018.
The city has used close to $10 million from the three funds since 2010 for economic development, but the auditor’s office has only reviewed the practice since 2017.
The issue came to light after the city in March 2018 settled a class-action lawsuit that questioned the legality of the practice of using those restricted funds for economic-development purposes.
It would likely be tied up in the courts for a long time. It would be expensive for the city to litigate the issue, and there’s obviously no guarantee it would win.