Action. Inaction. And the Consequences of Each

At Thursday evening’s session of Trenton’s City Council, I addressed some remarks to the Members on the matter of the City’s payroll problems, which appeared on that evening’s Agenda in the form of a Resolution to grant an emergency contract to a new payroll service. This action was proposed in the wake of several media reports over the previous two weeks that millions of dollars in payments made to the City’s previous payroll vendor Innovative Payroll Services (IPS), intended as payroll tax deposits to the State of New Jersey had gone missing. Reports to which the City had made no response.

I began my remarks with a quote from “The Big Short,” the book by Michael Lewis about the entirely predictable (in hindsight to all but a few foresighted individuals) 2008 Wall Street financial collapse. I thought this particular quote very relevant to the matter before Council. Today, in light of new developments reported by some great efforts by our local media, I think it’s even more relevant than I thought it was on Thursday night.

Michael Lewis defined “the problem with money” in his book:

What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other.

I immediately followed that quote by saying “This evening, you members of City Council face the consequences of what someone did with money from the taxpayers of the City of Trenton and the State of New Jersey. To prevent this kind of thing from happening again requires that your minds must connect whatever original actions that have led – once again – to news reports of State and Federal criminal investigations in the City of Trenton.”

At this point, I was interrupted by Council President and Alpha Phi Alpha Brother Zachary Chester, who asked if my comments were connected to any item on that evening’s agenda. Perhaps he had momentarily forgotten that rumor had it that upwards of $8 Million Dollars was missing? In any case, I reminded him of the Resolution on his docket, and continued to talk.

That little moment is a pretty concise look into the current mindset of those who run City Hall these days. Given all the words that have been written in the media over the last few weeks, and all of Council’s Executive sessions, the last thing that I expected to hear when I started talking about criminal investigations and what others have done with taxpayer money was essentially “Excuse me, this is relevant to me how, exactly?”

I suppose Brother Chester had other things on his mind at that point.

Before I go further, I will reference one other quote that is even more relevant today than it was when I first published it two weeks ago. In my first piece on the developing payroll mess, on February 11, I quoted the US Attorney in Baltimore, Rod J. Rosenstein, from a 2013 Baltimore Sun article about the business failure and legal failure of a Maryland payroll service similar to IPS. Mr. Rosenstein had some pretty good advice for clients of these services:

You need to verify that the payments are made as if they were made by a bookkeeper in [your] own office. The first time the payments are not made on time, it’s a pretty good idea to get a new payroll company. [Emphasis mine – KM]

I wrote right after that quote, “This article talked about a Maryland vendor, and procedures involving US tax payments. But the principle is still valid for us: How vigilant was the City of Trenton in verifying that its payroll service was making the required payments on its behalf since 2009?”

We know the answer to that question today. And the answer is “Not At All Vigilant.”

Now, we talk about Action, Inaction and Their Consequences. Follow along. This ain’t pretty.

In the first of two articles posted online yesterday in the Trenton Times by reporter Cristina Rojas (who, along with David Foster in the Trentonian, has done been doing some great reporting on this story for two weeks now), the headline announces “Trenton often delinquent in tax payments, records show.” Ms. Rojas reports “Over the past year, the city has owed the state as much as $1.6 million in back taxes, accrued interest and penalties.”

Ms. Rojas obtained several delinquency notices that were sent by the State of New Jersey to the City of Trenton throughout 2015, indicating to the City that hundreds of thousands of dollars in state tax withholding payments were late, and had not been made to the State. According to The Times, the dates for several of these notices, and the delinquent amounts on them were

• April 24: $162,581 owed in contributions, interest and penalties
• June 5: $174,947 owed in payroll taxes, interest and penalties
• June 9: $968 owed in interest, but a handwritten note says IPS paid the amount a few days later
• June 12: $334,273 owed in liabilities plus any accrued interest
• Sept. 18: $27,825 owed for filing the WR-30 quarterly wage report late

A Nov. 12 account balance from the DOL showed the city owed $282,440 with balances dating as far back as March 2011.

This is pretty bad. But in the context of what we have known since February 5, from Ms. Rojas’ first Times piece on the subject, this is devastating. In that article, The Times reported,

The city’s contract with the West Berlin-based company to provide payroll and human resource information systems services was extended for a third and final year in June 2014. Last year, six-month extensions were approved on June 18 and again on Dec. 17 to allow time for the city to prepare new specifications and go out to bid for a new vendor. [Emphasis mine – KM]

So, after receiving no fewer than four notices from the State between April 24 and June 12, indicating several hundreds of thousands of dollars of payroll tax problems, the City extended the IPS contract on June 18, and again on December 17!! And did you pick up on this little kicker: the December extension was intended “to allow time for the city to prepare new specifications and go out to bid for a new vendor.” IPS should have been fired at least as early as April, with another firm brought in as an emergency replacement, action that didn’t take place until this week. Oy!

And also remember “A Nov. 12 account balance from the [NJ Department of Labor] showed the city owed $282,440 with balances dating as far back as March 2011.”

Un-freaking-believable. Rather than take US Attorney Brownstein’s common sense advice to get a new payroll company “the first time the payments are not made on time,” the City of Trenton did nothing throughout multiple occasions during the year of 2015 when it was informed by the State of major problems. As a result, Ms. Rojas reports today that we’ve owed the state as much as $1.6 Million in back taxes to New Jersey.

Inaction. Consequences.

And, of course, being Trenton there is more bad news. In the second article in the Times to appear yesterday under Cristina Rojas byline, the headline screams “Trenton owes $3.4m in payroll taxes to feds, suit says.”

The City of Trenton filed a federal lawsuit against IPS yesterday, accusing it of diverting $3,400,000 in intended federal tax payments for its own purposes. It’s a claim that the company has admitted, through its lawyer, is true. Ms. Rojas writes, “The city first learned in late December that IPS had failed to make $3.4 million in federal payroll tax deposits for the last six months of the year — $1.9 million in the third quarter and $1.5 million in the fourth quarter.”

There are more details to be read in this article. Let me please repeat some points and connect the dots here.

The City of Trenton received multiple written warnings from the state of New Jersey in the first six months of June 2015 that a LOT of payroll tax money was missing. Rather than draw any logical conclusions from these multiple red flags, the City of Trenton actually extended the contract of this company on June 18.

Action.

This action allowed the company – by its own written admission of guilt, we learn today – to embezzle $3.4 Million More Tax Dollars intended for the IRS in the second half of 2015.

Consequence.

This consequence was learned by the City in late December 2015. But the Mercer County Prosecutors Office was not contacted until February 2016.

Why was there a delay of over one month? What happened behind the scenes between late December and early February, when law enforcement was finally contacted?

Inaction

In his first (and so far only) comments on this matter to date, Trenton Mayor Jackson provided a brief narrative of how the City discovered this problem, a narrative we now know is either flat out wrong or seriously misleading. On Thursday he said,

“Staff internally reconciling, looking at recordkeeping documents said something looked awry and began to look further and said to their director, ‘Something doesn’t look right here. We’re finding some inconsistencies’ and they kept elevating.”

In light of The Times reporting of the multiple tax delinquency notices from the State during 2015, Mayor Jackson’s narrative of an internal discovery that “kept elevating” is simply not credible. It’s not true.

Mayor Jackson also said Thursday that “We took immediate action to make sure that we knew what we knew and what we thought what was going wrong, so at that point, we went to law enforcement and we put it in their hands.” That is simply nor true, unless one considers finding out in late December and going to the prosecutor in February “immediate action.” I don’t.

And Mr. Jackson’s statement that “We believe it’s just the one agency” – given to the press a day before his Administration filed suit for stolen IRS payments, after a year of notices from New Jersey – is nothing but horseshit.

It’s bad enough to stonewall the press and the public for two weeks by saying nothing, but when you finally do speak on the record, one should at the very least tell the truth.

In my remarks to Council on Thursday, I specifically noted the discrepancy between the Mayor’s account of how this issue developed, and the first press accounts weeks ago indicating – as we now know to be true – that it was the State who first brought this to the City’s attention. I had expressed hope to Brother Chester that that particular discrepancy would reconciled in the Council’s discussion on the payroll matter that evening. As it happened. there was not one word of discussion about the matter. Clearly, Brother President, the Mayor and the Administration had every desire that evening to put a lid on this entire matter, as long as they could.

Today, the lid has blown off.

Consequences?

In December 2013, before Trenton’s election season started up, I wrote a piece about corruption at the Trenton Water Works. In that piece, I expressed concern about Mr. Eric Jackson’s previous tenure as Director of Public Works, during which time much of that corruption took place. This corruption that was dealt with by criminal prosecutions and other disciplinary actions after Mr. Jackson had moved on in 2010, the most prominent of which was of course that of Stanley “Muscles” Davis (brother of disgraced ex-mayor Tony Mack) and other co-defendants.

I was concerned that under Mr. Jackson, a lot of matters that were later shown to be criminal were apparently handled entirely in-house, without resort to involving law enforcement or the county prosecutor. I wrote on December 24, 2013,

We know that there was criminal activity at the Water Works; that’s why Muscles Davis is serving time. Equipment was walking away, and individuals were falsifying time cards. Did any of this lead Mr. Jackson to involve law enforcement? If not, why not? Why did the only criminal prosecutions stemming from corruption at the Water Works occur after Palmer and Jackson left City Hall, if the situation was similar back then?

I think we also need Mr. Jackson to explain what other measures he put in place to reduce problems at the Water Works. We read he cut down on overtime abuse. Were additional security cameras installed to control equipment walking away? Were inventory controls and equipment sign-out procedures revamped? Did TWW management exert more effective oversight of their staff?

While we are at it, why was maintenance of the suburban assets of TWW allowed to slip in the run-up to the 2010 referendum, and why were so many staff openings for service technicians left open during that period, leaving the Water Works short-handed as the Mack Administration started up?

For me, if Eric Jackson cannot show that he at some point in his tenure brought in law enforcement to investigate the situation at TWW, that will sink his [mayoral] candidacy. He cannot be seriously considered as a potential Mayor if he allowed a culture of corruption to survive unchecked at the utility without trying to call in the cops.

I refer to that today not to point to any foresightedness on my part (OK, maybe a little) but mainly to point out that we have a grave situation with some similarity here.

The City of Trenton had been informed – many times – in 2015 that state tax payments were late, and or missing. The City extended the contract in June 2015 of the company responsible for making those payments. Over the next six months, millions of dollars were stolen by that same company. Which the City found out about in December 2015.

Yet, from December 2015 to early February 2016, it seems – based on what we know today – Mr. Jackson and his Administration failed to involve law enforcement. Hell, I would have called the cops as early as that first note from the state last April!

Why not? Mr. Jackson really owes us an explanation now. Of this whole stinking matter.

There’s no fig leaf on “not commenting on an open investigation” now to worry about. The lawsuit, and the IPS lawyer’s admission of guilt, is all out in the open now. That there will inevitably be criminal indictments of IPS’ owners and managers is really a foregone conclusion.

A lot of the problem here won’t ever even see the inside of a courtroom, anyway. Today, it’s clear that there were multiple, ongoing serious failures inside the City of Trenton. Failures of policies, procedures, judgment, and transparency. None of that (that we know of, anyway) is criminal.

But all of those failures – all of those actions and inactions – are very, very, very serious.

And they will – they must – have consequences.

EDITED 4:07PM