By David Skolnick
The Ohio auditor’s chief legal counsel first contacted Mayor Jamael Tito Brown in May to inform him that using water funds for economic development “may potentially violate” state law and the Ohio Constitution.
Now, the city faces the possibility of having to pay about $5.5 million from its general fund, putting the city into fiscal emergency.
“In the event that it is determined by our office that any such expenditures are in violation of either ... appropriate findings will be entered,” Mark W. Altier, the auditor’s chief legal counsel, wrote in a May 4 letter to the mayor.
The letter read: “While ‘extension of water works’ is not defined in the statute, spending surplus water works revenue on any activity that is arguably related to water utilities operations [however tenuous] is not permitted under” state law. “In fact, Ohio courts have explicitly rejected the idea that a municipality has broad discretion how to spend surplus water revenues.”
Altier offered “to discuss this matter in further detail” with the mayor or his legal counsel.
City Law Director Jeff Limbian said he and Brown met with Altier, “but they didn’t give us any indication there was a sledge hammer until November.”
Limbian is referring to a Nov. 14 letter to Kyle Miasek, the city’s interim finance director, from Michele Porter, assistant chief auditor for the East Region, informing him the review had expanded to not just water funds but also wastewater and sanitation funds for economic development.
And the auditor’s review, she wrote, “found expenditures not made in compliance with the purpose of the established funds.”
That totaled $4,462,662 in 2017 for six projects, according to Porter’s letter.
“The descriptions and documentation included in the grant and loan application payment requests to support the above expenditures were not adequate to allow us to determine if the expenditures have appropriate nexus to water, wastewater and sanitary purposes,” Porter wrote.
She added: “If you are unable to provide adequate support for us to determine that the above expenditures were made in accordance with the allowable purpose of the funds, findings for the adjustments may be issued against the business development fund [or general fund].”
The city has also spent about $1 million from those funds for economic-development projects this year, which would also be required to be paid by the general fund.
Brown met Thursday in Columbus with state auditor officials for an initial discussion on the issue. Brown wants the auditor’s office to not require the city to pay back the approximately $5.5 million from water, wastewater and sanitation funds to its general fund for 2017 and 2018.
“I thought it went well,” Brown said of the meeting. “I’m cautiously optimistic. They were open and receptive to me coming down face-to-face and asking what we can do to resolve this.”
The auditor’s office asked for additional documentation to justify the expenses, will review them and meet later with city officials, Brown said.
The city’s general fund has a minimal amount of dollars in it and requiring it to pay back even a portion of money would likely put the city into fiscal emergency.
“That would be devastating to the general fund,” Brown said.
The auditor’s review was prompted, according to Altier’s letter, by a $1.45 million settlement in March of a class-action lawsuit that questioned the legality of using water and wastewater funds.
The city has used close to $10 million from the water, wastewater and sanitation funds since 2010 for economic projects, but the investigation is limited to only 2017 and thereafter, according to Porter’s letter.
The agreements to provide money from the funds were approved by previous mayoral administrations.
Those administrations have used 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 that Youngstown can use water and wastewater money for expenses related to those items for economic development.
Limbian said he and Brown didn’t agree with those legal opinions and sought their own from the law firm of Roetzel & Andress, with offices in Akron, Cleveland and Columbus. That legal opinion “comported with our analysis” that using the money from those funds was improper, Limbian said.