By David Skolnick
The city inappropriately spent about $5 million from its water, wastewater and sanitation funds for economic-development projects and could be required to pay back that money from its struggling general fund, potentially putting the city into fiscal emergency, its law director said.
The bombshell announcement Wednesday toward the end of a city council finance committee meeting stunned council members who were hearing it for the first time.
But the state auditor’s office first contacted the city administration in May with concerns the use of water, wastewater and sanitation funds for grants and loans may not comply with Ohio law, The Vindicator has learned.
Mayor Jamael Tito Brown didn’t attend Wednesday’s finance committee or council meeting. Law Director Jeff Limbian said Brown traveled Wednesday to Columbus to meet today with state auditor officials to discuss the issue and hopefully convince them not to require the city to use general-fund dollars to pay back the other funds.
“There will be more meetings,” Limbian said. “This is an initial foray.”
While the city has used close to $10 million primarily from its water and wastewater funds since 2010 for business development, particularly downtown, it was the March settlement of a class-action lawsuit that questioned the legality of the process that drew the attention of the state auditor.
To resolve the suit, the city agreed to give $1.45 million in credits to its 52,000 water accounts, about $28 to each account, which was done this summer.
It appears right now the state is interested in only the $5 million or so spent from those funds since 2017.
“The previous administrations took grossly expansive interpretations of the” legality of using those funds, Limbian said.
If the city is required to use general-fund money to pay back the other funds, Limbian said, “this could be a financial crisis. The Brown administration has been concerned about these prior expenditures, and the state has validated our concerns. If we’re required to pay it all back, fiscal emergency is a real concern.”
The general fund ended 2017 with only a $12,000 surplus and will have a small surplus to finish this year, said Kyle Miasek, interim finance director.
He also said that based on department head requests for 2019, the general fund and other funds that get money from the general fund would be about $2.2 million in the hole. He said he will work to reduce that amount.
When asked by a Vindicator reporter for a comment, a visibly angry Councilwoman Lauren McNally, D-5th, chairwoman of the finance committee, said Brown “can give me a report. He can show up at a meeting. No one is here to answer our questions. I have no idea about it at all.”
As for the mayor’s meeting today with the auditor’s office, McNally said, “Wouldn’t you take your finance director, your law director, your economic development director?”
Councilman Mike Ray, D-4th, said, “This is the first the administration has made us aware of this. It’s caught us off-guard because it’s been standard practice and approved in audits in previous years. So what has changed is what I’m looking to understand.” Councilman Julius Oliver, D-1st, said, “It’s unfortunate if that’s the case. Hopefully we don’t have to pay the money back.”
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.
All those grants and loans were approved by city councils when David Bozanich served as finance director.
Bozanich served as finance director until December 2017. An August 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. It’s not clear if the indictment – of which the state auditor led the investigation – is related to this latest issue.