Paying back funds could result in fiscal emergency
By David Skolnick
A law firm representing the city is urging the state auditor’s office to not issue findings that could reach about $4.5 million for using water, wastewater and sanitation funds for economic-development projects.
The auditor’s office “is currently waiting for a repayment plan from the city” for $4,462,662 it spent in 2017 from those three funds, according to a 20-page letter sent by attorneys with Roetzel & Andress, a Cleveland law firm hired by Youngstown to represent the city in negotiations.
The auditor’s office wants the money repaid from the city’s general fund, which had a $629,509 surplus at the end of 2017. The city cannot afford to pay the money from that fund, the Roetzel letter reads.
“Addressing these structural deficits will require sacrifice from taxpayers,” it reads. “Any further financial liability on taxpayers would be too much of a burden on the city and its people.”
The city could end up in fiscal emergency if required to pay back the money.
The letter, dated Feb. 15 and obtained Friday by The Vindicator, also states the “city is committed to negotiate in earnest with the auditor between now and the end of February to meet the auditor’s end-of-February deadline to close the city’s fiscal year 2017 audit.”
The auditor’s office sent a Nov. 14, 2018, letter to Kyle Miasek, the city’s interim finance director, informing him that office’s review “found expenditures not made in compliance with the purpose of the [three] established funds.”
The Roetzel letter states if former Finance Director David Bozanich, who’s under criminal indictment for public corruption, is found guilty, the money for findings should come from him and others “that participated in the criminal enterprise that abused the city’s water/wastewater grant program – and not innocent taxpayers.”
Bozanich served as finance director until December 2017. An August 2018 indictment alleges that Bozanich received benefits from several individuals and, in return, agreed to assist in securing public funding from the city for economic-development projects. He’s pleaded not guilty to the charges.
The auditor’s office first contacted the city in a May 4, 2018, letter to Mayor Jamael Tito Brown informing him that using water funds for economic development “may violate” state law and the Ohio Constitution.
The letter stated the issue came to light after the city two months earlier settled a class-action lawsuit that questioned the legality of the practice. The Roetzel letter points out that in prior audits, the auditor’s office “never clearly identified the grant program as a misuse of water/wastewater funds. In fact, the auditor has assisted the city in refining the grant program.”
The city has used close to $10 million from its water, wastewater and sanitary funds since 2010 for business development, but the state auditor is currently looking at the $4.5 million spent in 2017 for that year’s audit.
The auditor’s office also has indicated it’s interested in the nearly $1 million spent from those funds for economic development in 2018.
“The city would also like to discuss with the auditor any expenses related to water/wastewater grant/loan payments that were made in fiscal year 2018,” the Roetzel letter reads.
Previous administrations have pointed to a June 2, 2011, legal opinion from the Cleveland law firm of Calfee, Halter & Griswold, and a June 10, 2011, legal opinion from then-Law Director Iris Torres Guglucello that Youngstown can use water and wastewater money for expenses related to those items for economic-development projects.
But Brown and Law Director Jeff Limbian didn’t agree with the practice and sought a legal opinion from Roetzel & Associates, which provided one Nov. 9, 2018, that concurred with them.
The Feb. 15 Roetzel letter said the auditor should not issue any findings for the money for three reasons:
The city will recoup about $2 million owed under one loan.
The grant funds of about $2.4 million were lawfully spent under the city’s reliance on legal advice.
Should the auditor issue findings, the repayment should come from money potentially recouped from “pending criminal prosecutions related to the abuse of water and wastewater grants.”