Thursday, August 29, 2019
By DAVID SKOLNICK
A state audit of Youngstown's 2017 finances states the city improperly used about $4.5 million from restricted funds for economic development.
A state audit of the city’s 2017 finances contends Youngstown improperly used $4,462,662 from its water, wastewater and sanitation funds for economic development by private companies that instead should have come from its general or business development funds.
The auditor’s office today issued a “finding for adjustment” requiring the city to have the general fund or the business development fund reimburse $3,170,620 – $1,696,003 to the water fund, $1,324,617 to the wastewater fund and $150,000 to the environmental fund, according to the 127-page report The Vindicator exclusively obtained.
The overall amount to be repaid over 15 years was reduced to $3,170,620 because of a $2,042,042 loan given to the owners of the downtown DoubleTree by Hilton hotel with $750,000 of it forgiven as long as it’s paid back by December.
Other projects receiving money from the water and wastewater funds include the Chill-Can Beverage and Technology Complex, Noble Cask House and the Youngstown Business Incubator.
The city was given the option to pay the three funds from the general fund or the business development fund over 10 or 15 years, and Youngstown officials kept stalling, state Auditor Keith Faber said.
“We tried to work with them since I became auditor, and they tried to delay and delay and delay,” he said. “The taxpayers can’t accept that.”
Paying the $3,170,620 over 15 years would be about $211,375 annually.
Faber said that’s 0.6 of a percent of the city’s total operating budget, and the repayment wouldn’t have put Youngstown into fiscal emergency.
“We hope the city steps up to the plate and takes responsibility,” he said. “We offered them favorable terms.”
Faber said his office has the option to send this matter to the attorney general for “execution of the adjustment.”
Faber said, however, his office won’t take any action against Youngstown until the completion of the city’s 2018 audit as there is about $1 million improperly spent last year from those three funds for economic-development projects.
The 2018 audit, he said, should be done at the end of this year or early next year.
“I’ve instructed my staff to expedite it,” he said.
The 2017 audit took more than a year to complete. Part of that, Faber said, was the city stalling.
“We did everything to work out a deal with them,” he said. “We thought we had a deal that was either 10 or 15 years. Then they started waffling.”
He added, “Ratepayers expect that the fees they pay for services will be used for their intended and legal purpose. In this case, the city has violated that expectation.”
Mayor Jamael Tito Brown said Wednesday, “I hope there’s an opportunity to find a common solution. I hope the communication with them continues and we hope to come up with a solution.”
Brown wasn’t as conciliatory Aug. 8 when he said the city “rejects” the auditor’s “demand” to make the repayment over the next 15 years.
He added at the time: “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. The city cannot and will not agree to place such a burden on its citizens.”
Faber said he was surprised by the city’s decision.
“I always expect government officials to do the right thing,” he said.
The auditor’s office first alerted Brown in a May 4, 2018, letter that the funds had been inappropriately allocated.
The city has used close to $10 million from the three funds for economic development since 2010, but the auditor’s office has only reviewed the practice since 2017.
Faber said his office doesn’t plan to go after the city for previously closed audits.
The only time the auditor’s office reopens past audits is for criminal prosecution, he said.
“That is not something we plan to do at this point,” Faber said.
When asked about David Bozanich, the city’s finance director in 2017, being under indictment on charges including engaging in a pattern of corrupt activity, bribery, aggravated theft and obstructing justice related to his former position, Faber said, “It makes us look at this issue in a much closer fashion.”
The economic-development money issue came to light after the city in March 2018 settled a class-action lawsuit that questioned the legality of the practice of using money from those three funds for economic development.
The 2017 audit also said the city ended that year with a $5,330,752 deficit in its general fund, which isn’t permissible under state law. This happened because the “city incorrectly classified $5.6 million letters of credit as cash and cash equivalents in the city books, which overstated their general fund cash balance.”
This has been an ongoing issue with city officials contending that loans given to companies – that require irrevocable letters of credit from an accredited lending institution – shouldn’t be considered as shortfalls because the money could be called in on a day’s notice. The state auditor doesn’t agreed with that interpretation, however.
Another issue in the audit is concern about how the city allocates a portion of some of the costs of various departments to water, sewer and sanitation funds.
Since 2004, the city uses about 70 percent of the cost of operating various departments from those funds. The departments include the board of control, the mayor’s office, city council, civil service, finance and the law department excluding prosecutors. Also, about 50 percent of the cost of operating the public works department is charged to those funds.
The audit states: “The city does not have detailed documentation supporting these allocations,” and “this practice can lead to improper charges, financial statement misstatements and findings for adjustments.”
The audit also suggests the city have a policy requiring passwords for its computers and other technology devices.
The report states password policies are “not strong or have not been set at all,” and “account lockout policies at the network have not been set.” It also mentions that passwords are set by the chief information officer and “users are not able to change their passwords.”