We know a little bit more about the Eric Jackson Administration’s plan for this Thursday’s proposed Resolution #16-170. As usual, this being Trenton, what we are finding out ain’t good.
We first heard about this Resolution on Friday, as an Agenda item on the docket for the May 5 meeting of City Council. The item on the agenda calls for “an emergency appropriation” to pay the Internal Revenue Service for payroll tax deposits that had already been made by the City to its former payroll service, Innovative Payroll Services (IPS) in 2015, but which had been embezzled by IPS’ owner, John Scholtz. I had a lot of questions on Friday about that resolution. Among them were: “What are the actual amounts due to be paid to the Federal Government and the State? How are these emergency appropriations being funded?” Thanks to reporting by Cristina Rojas of the Trenton Times, we have a few answers.
The City of Trenton intends to sell a bond – long-term debt – worth $4.7 Million Dollars to satisfy the outstanding obligation to the Internal Revenue Service. For now, apparently, whatever obligation we have to the State of New Jersey – and we still don’t know how much THAT is – is being put aside for now. Uncle Samuel is probably getting very insistent that the City pay, again, what it owes from last year.
The method being used by the City – a municipal General Obligation bond – removes this $4.7 Million liability from the current year’s budget. This being the next-to-last month in the current fiscal year, the prospect of having to come up with nearly $5 Million would have meant an immediate, drastic, unwelcome special property tax assessment from the city’s beleaguered private property owners. This prospect likely scared Mr. Jackson and his colleagues, so they have essentially punted. Floating this obligation as a bond will string out payment of this liability over a period of many years – 10, 15, 20, 30. Cities (and states, and the Federal government) typically use this kind of long-term funding to finance items like buildings or roads, with a long-term life and benefit to the community. Spreading the cost of a new library (I wish!), for instance, over 20-30 years makes sense, if you expect people to use the library for 30 years or more. That’s what long-term financing is for.
Financing a one-time cost, like the stolen taxes, this way does not make sense. For a lot of reasons. For one thing, it costs much, much more money over the long-term than it would if funded under the current year’s budget and appropriations. Here’s an example, from this website. I don’t know the specific terms the City plans to offer with this emergency issue, so I chose terms at random. I input this as a $4.7 Million Dollar 20-year note at 7% interest (I’ll talk more about that below). Adding in other costs associated with issuing the note, the monthly payments the City would make on that example would be $47,408. Over one budget year, that comes to $568,896.
That’s much more palatable to an annual budget than $4.7 Million in one hard-to-digest bite, true. But that would be paid every year for the next 20 years. In this example, future Mayors, Councils and city Financial Officers will be paying $568,896 each and every year for this 2015 fuck-up until 2036, for a total of $9,937,920.
Is it fair, to saddle future administrations and taxpayers for this failure of this, current Eric Jackson Administration?
I highly doubt it! Here are the numbers I used:
The actual terms the City may get for this may actually be more favorable than this. Of course, they might be worse.
Also, apart from the concerns with this one bond issue, there will be a ripple effect. The City’s bond rating, the reviews granted to all of the City’s long-term financing, has deteriorated greatly over the last several years. Trenton’s poor financials have been enough to sink the city’s bond ratings all by itself, but this trend has been badly exacerbated by the poor ratings given to the State of New Jersey for the last several years.
The lower a city’s bond rating, the riskier their bonds are considered to be by the investment community, and therefore a city with low bond ratings has to pay the bond buyers a higher rate of interest. The City of Trenton’s latest financings have been assigned a rating of Baa1 by Moody’s, one of the two biggest rating services. Baa1 is just a few short ratings above Ba1.
The common term assigned to bonds – and their issuers – rated Ba1 and lower (there are many ratings lower than that, but you don’t want to know about them), is Junk. Junk bonds. I don’t know what interest rates junk municipal bonds have to offer in order to attract buyers, but I don’t think the example I used above, 7 percent, is far off from what the real rate would be.
Changes in bond ratings to a city makes all of their borrowing, for whatever purpose, much more expensive. Over the last couple of years, the City has seen a few downgrades in its ratings, the most recent one by Moody’s in April of 2015. What might affect future changes?
Moody’s offers a few tips. In a notice issued in November 2015, the service said this:
WHAT COULD MAKE THE RATING GO UP
-Successful management of cuts in state aid with recurring budgetary solutions [Don't laugh. It could happen!! OK, probably won't! - KM]
-Improvement in Current Fund balance reserves and liquidity
-Decline in debt and pension burden
It also said this:
WHAT COULD MAKE THE RATING GO DOWN
-Reduction in financial flexibility and liquidity to offset potential state aid declines
-Failure to adequately and timely address additional state and federal aid reductions
-Need for cash-flow borrowing
Do those negative factors sound familiar? Yep, thought so.
One, Trenton is in no position to absorb reductions in state Transitional Aid. The State seems to agree, since it has continued to fund the City at roughly similar levels over the last few years. But the State’s finances are in the toilet as well. How much can we absorb a sudden reduction in state Aid? Not at all.
And, two: Moody’s tells us that using long-term bonds to solve a current cash-flow problem will make our rating go down. In other words, PRECISELY WHAT THE CITY IS PROPOSING TO DO WITH RESOLUTION #16-170. Using long-term financing in the way that the Administration is proposing for this Thursday will hurt us in the long run.
Seems to me the first impression to this news that I had on Friday is looking more and more accurate: “an attempt to sweep the whole distasteful episode of the missing IPS money under the rug.”
I wrote a note to Council on Friday expressing my opposition to this measure at this time, based on all that we still do not know. As has been typical with this Council, I received almost no replies. One member wrote to tell me that Council, at least as a body, had no prior notification that the Administration was seeking to solve the IPS/IRS problem by floating a bond. They collectively (it’s possible one or two members of the Cool Kids on the Council got a heads-up, but not all members apparently heard the news) found out in the newspaper, and from their copy of the Agenda for Thursday’s meeting.
On Friday, I asked many more questions about this whole matter that I feel need to be publicly addressed before Council approves ANY action to resolve this by emergency measure. Apart from the “How?” and “How Much?” we are still critically uninformed.
As of this morning, I have one more note. Here is the text of the Resolution, courtesy of the Times’ Ms. Rojas, that Council will deliberate on Thursday. In the text, the City’s Chief Financial Officer, Janet Schoenhaar, is directed to execute the emergency $4.7 Million Note, along with the Mayor. Ms. Schoenhaar is also directed to oversee the process by which the bond will be offered for sale. Here’s her signature on the Certification for the need for the Bond:
It was Janet Schoenhaar, you will remember, who was copied on all of the correspondence between the City of Trenton and IPS during the second half of 2015. The same correspondence that noted the frequent notices from the IRS and the State about missing tax payments. The same correspondence described by the Times as “red flags over Trenton’s payroll problems.”
If Ms. Schoenhaar is being directed to be part of the City’s proposed solution to this matter, then she needs to open up to describe and be held accountable for her role in missing all the “red flags.”
Even more so than I thought on Friday, I think this proposed Resolution is the wrong solution at the wrong time. The City is rushing to push this matter under the rug. Mayor Jackson and his Administration is still refusing to answer too many questions about how this whole matter came to pass. Their proposed “solution” is one that will burden taxpayers for the next 15 or 20 years to pay off. And the use of long-term bond financing to solve this one-time current cashflow problem threatens the City’s overall financial integrity.
Resolution #16-170 is nothing more than Junk.
[As emailed to City Council members, 4-29-2016]
Good Afternoon -
At your upcoming Council session of May 5, you will deliberate Resolution #16-170, authorizing an Emergency appropriation to pay the US Internal Revenue Service the funds embezzled in 2015 by individuals associated with Innovative Payroll Services. I understand the grave nature of this issue, and appreciate the urgency in resolving this matter. However, given how much about this entire episode has still not been disclosed to the public – and perhaps not even disclosed to Council – as of this week, I must express my opposition to this Resolution, and urge you to reject it at this time.
As stated on the Docket as issued today, April 29, by the office of the City Clerk, the agenda item fails to state the Dollar amount of the appropriation, which is unusual for agenda items generally, and specifically for this docket. All other Resolutions on your Agenda for next Thursday are itemized to the dollar, some to the penny. The lack of a similar Dollar number for Resolution #16-170 is notable and striking. Does the Administration intend to spring the number on the public only during the course of your Session?
That this matter is being handled on an Emergency basis is also notable and striking. That payments intended for the IRS which were not made in 2015 was known to the Administration at some point in Fall 2015. City Council was notified in January of this year. The Budget for the Fiscal Year ending June 30 was not approved until March 17. Surely, provision for these missing payments should have been made, deliberated and voted upon at that time, and not one month later.
As of this date, there are many unanswered questions about this matter that should be openly addressed before you authorize appropriation of funds to replace the money stolen by IPS. Namely:
- Has the internal audit and process review by the City’s outside Labor Counsel announced by Mayor Jackson on March 14 been completed? Has a report been written? Have you on Council seen that report?
- What are the findings of that review and audit? What recommendations have been proposed to ensure this situation cannot be repeated? Have those recommendations been implemented?
- Was this review and audit a truly unbiased and independent effort? What assurances do you have that this was the case?
- What changes have been made in City Hall – in policies, procedures and personnel – that will prevent reoccurrence of this? Who in the Administration is assuming accountability?
- We still do not know the chronology of how this episode unfolded: we don’t know what failures of procedures, communication and oversight led to this? How can we be confident we have made the right fixes if we don’t know how things failed?
- This Resolution covers payments due to the Internal Revenue Service. What is the current status of payments due to the State of New Jersey?
- What are the actual amounts due to be paid to the Federal Government and the State? How are these emergency appropriations being funded?
Unless these questions are fully addressed and answered in the intervening week, I believe there is no way that Council could conscientiously and ethically approve Resolution #16-170 next Thursday.
Frankly, the treatment of this matter as an Emergency Resolution authorizing an appropriation of an undisclosed amount of money, when so many questions remain unanswered, strikes me as an attempt to sweep the whole distasteful episode of the missing IPS money under the rug.
This is not the right way to be resolving this entire sordid affair. I urge you to vote down Resolution #16-170 unless there is more credible information forthcoming to you on or before Thursday than we have seen for all of the last four months.
Number 2 in an experimental series. Thanks, Jeffrey Quinones-Diaz
La Junta Escolar de Trenton aprobó anoche su presupuesto por un total de $
299 millones. Según el reportaje de Cristina Rojas en el *Trenton Times*
los estados financieros suman a una diferencia de $ 5,9 millones de gastos
por encima de los ingresos. Como resultado de ello, la Secretaría de
Educación aprobó un plan que, lamentablemente, dará lugar a la cesantía de
164 puestos de trabajo. La señora Rojas explica que de “las posiciones
eliminadas – una décima parte son empleados a tiempo completo del distrito
- incluyen 92 profesionales, 43 maestros, 23 secretarias, cuatro
administradores y cuatro empleados técnicos y de negocio.” Además, un
puesto preescolar también estará eliminado. La acción tomada por la Junta
se produce un año después de una gestión similar que fue aprobada como
resultado de la adopción del presupuesto anterior. Enfrentando un déficit
de $ 17,3 millones
las escuelas de Trenton perdieron 226 puestos de trabajo.
Son momentos difíciles para las escuelas de Trenton, sus profesores y el
personal, y sobre todo, para sus estudiantes.
La semana pasada, el Ayuntamiento de Trenton aprobó su presupuesto de $
207.7 millones de dólares para las operaciones de la Ciudad. Los números
incluidos en el presupuesto aprobado de la Ciudad no requieren el tipo de
despidos masivos experimentadas por el distrito escolar, a pesar de que las
finanzas “siempre frágiles” de la Ciudad aparentan que no será necesario
este tipo de acciones en el futuro. El presupuesto, sin embargo, contempla
un aumento en los impuestos sobre la propiedad para los dueños, ya
sobrecargados de Trenton, en un 1,5%, para un valor total de $ 1,7
millones. La tasa de impuestos de Trenton representa $ 3.95 por cada $ 100
del valor de tasación, la cual es por mucho la más alta entre los
municipios en el Condado de Mercer, alrededor de 3 veces la tasa más alta
que el municipio vecino de Ewing, y alrededor de 10 veces mayor de aquella
con la tasa mas baja, Hopewell Township.
Este es el asunto, la Junta Escolar de Trenton aprobó el presupuesto para
el próximo año fiscal 2016-2017, que habrá de comenzar el 1ero de julio,
el Ayuntamiento aprueba su presupuesto para el año en curso – casi 9 meses
después – que habrá de terminar el 30 de junio.
Las escuelas de Trenton fueron capaces de proyectar el próximo año, vieron
los números desfavorables, y utilizaron su presupuesto como herramienta de
gestión para tomar las medidas necesarias ahora para poner un plan de
trabajo en curso, meses antes del comienzo del próximo año.
El gobierno de la Ciudad de Trenton aprobó su presupuesto después que casi
el 75% del año calendario ya ha pasado- habiendo gastado el 75% del
dinero. Cualquier circunstancia adversa que puedan enfrentar, a estas
alturas del año, según reconocido en el plan financiero de la Ciudad – como
por ejemplo, hablando hipotéticamente, la malversación de $ 5,000,000 de la
nómina – no deja ningún tiempo o la capacidad para responder de por sí,
ante medidas drásticas.
Haciendo una revisión rápida del proceso realizado por el Consejo
Municipal, celebrado la semana pasada, la señora Rojas reseñó: “Para el año
fiscal que comenzó el 1 de julio, a finales de octubre el gobierno presentó
un presupuesto de $ 216,4 millones, que ha estado en manos del Consejo
desde entonces. El comité de presupuesto ha llevado a cabo una serie de
audiencias y recortó en adición $ 8.6 millones de … el Departamento de
Asuntos de la Comunidad del Estado le dio al Consejo el visto bueno el 1 de
Para el Presidente del Consejo Municipal, Zachary Chester, esto es sólo la
forma en que las cosas son. Como le indicó a el *Times*, en la sesión del
17 de marzo”
“Para aquellos críticos que hablan de por qué nuestro presupuesto está tan
atrasado … no podemos completarlo sin la aprobación del Estado.
Trabajamos duro en este presupuesto, pero en algún momento, no podemos
seguir adelante hasta que consigamos su revisión por parte el Estado (Nueva
Jersey). Cada comunidad en transición tiene que pasar por el mismo proceso.”
Para poner esto en un contexto histórico, durante muchos años antes de que
se creara la ayuda de Transición como un mecanismo de ayuda financiera
estatal para Trenton y otros pueblos en Nueva Jersey, el ciclo
presupuestario de Trenton ha concluido repetidamente 8 o 9 meses después
del año fiscal. Pero, por ahora, vamos a tomar la declaración del Sr.
Chester a su valor nominal, y aceptar su argumento de que otras comunidades
que reciben esta ayuda, trabajan con el mismo calendario.
Mi pregunta hacia el señor Chester, el Ayuntamiento, la Administración, al
Departamento de Asuntos de la Comunidad los representantes legislativos
Estatales, y al Gobernador Christie es simplemente esto: ¿*Cómo puede ser
¿Cómo es que el distrito escolar de una ciudad pueda preparar su
presupuesto anual, que el Estado lo apruebe, lo presentan para su
escrutinio y comentarios del público, lo revisan y lo adoptan tres meses
antes del comienzo del año fiscal; mientras que la Ciudad en la que está
ubicado el distrito no pueden hacerlo hasta tres meses antes del final del
Tanto la ciudad como el Distrito operan en el mismo Estado, ¿no? ¿Cómo
puede el Departamento de Educación del Estado ser más eficiente en sus
prácticas – casi un año entero procesando un presupuesto – que el
Departamento de Asuntos de la Comunidad?
¿Será posible que a nivel estatal, los legisladores de Nueva Jersey y los
padres pueden considerar inaceptable que sus hijos sean educados por las
escuelas con circunstancias fiscales inciertas? ¿Es de alguna manera sin
complicaciones y rutinario que el procesamiento del presupuesto de Ayuda
Transitoria para las comunidades se retrase o este benignamente descuidado?
¿Por qué nadie se ha molestado por esto? ¿Por qué nadie – en la ciudad, en
la Administración del Estado, en la Legislatura – esta trabajando para
solucionar este problema?
Sinceramente, desconozco la respuesta. Pero, en lugar de aceptar que esto
es sólo la forma en que funcionan las cosas, como lo hace el señor Chester,
este tiene que corregirse. Si un distrito escolar puede cumplir con su
ejercicio fiscal frente al Estado, tres meses antes del comienzo del año
fiscal, tiene que ser muy viable que una ciudad pueda hacer lo mismo.
Cada miserable año terminamos en esta misma situación, casi a la misma
época exacta del año.
El año pasado, por ejemplo, el Consejo Municipal no dio su visto bueno a su
presupuesto 2014-2015 hasta el 24 de marzo de 2015. En esa sesión del
Consejo, algunos residentes presentaron sus quejas sobre el proceso. Un
residente vocal de Trenton, Dan Dodson, y este servidor le expresamos al
Consejo de que existen serios problemas con todo el proceso. De la misma
forma en que este proceso ocurre tan tarde en el año fiscal, el narrativo
del presupuesto también adolece de transparencia mínima, detalle y
descripción suficiente de lo que se pretende lograr.
Una reseña del *Times of Trenton* del año pasado concluyó:
“El Presidente del Consejo, Zachary Chester, había expresado previamente
que esperaba poder mover el largo proceso del presupuesto del próximo año
de manera más rápida. También dijo que McEwen le dijo *que esperaba iniciar
la recopilación de información para el presupuesto de 2016 en los próximos
El abogado de la Ciudad, David Minchello, explicó el martes que la ciudad
no podía tomar ninguna acción respecto al presupuesto hasta que comience el
nuevo año fiscal, *aunque puede comenzarse la planificación para el nuevo
año*. [El énfasis es mío - KM]
Bueno, ya sabemos cómo esas buenas intenciones han resultado para el 2016.
El presupuesto de este año se aprobó 51 semanas después que la del año
pasado, y con sólo 105 días antes de que finalice del ejercicio
presupuestario. Para actualizar lo que el Señor Dodson y yo dijimos en
“*Todavía* no hay una información o narrativa disponible que detalle lo que
se ha modificado desde el presupuesto se presentó en noviembre”.
“Estamos *todavía *muy por detrás de la pelota.”
“*Todavía *es vergonzoso e irresponsable”.
¿Alguien quiere comenzar las apuestas sobre cómo se realizará el proceso
presupuestario del año que viene?
*¿Cómo es esto aceptable?*
Trenton’s School Board passed its budget last night, totaling $299 Million Dollars. According to the account by Cristina Rojas in this morning’s Trenton Times, the financial numbers add up to a gap of $5.9 Million of expenses over revenue. As a result, the School Board approved a plan that will unfortunately lead to the layoff of a net 164 jobs. Ms. Rojas explains that “The eliminated positions — about a tenth of the district’s full-time employees — include 92 paraprofessionals, 43 teachers, 23 secretaries, four administrators and four business and technical employees.” In addition, a preschool will also be closed. Last night’s action taken by the Board comes one year after similar action was approved as the result of the previous budget adoption. Facing a shortfall of $17.3 Million, Trenton’s schools lost 226 positions.
It’s hard times for Trenton’s schools, their teachers and staff, and most of all, their students.
Last week, Trenton’s City Council adopted its $207.7 Million Dollar budget for the City’s operations. The numbers included in the City’s adopted budget did not require the kind of massive layoffs experienced by the school district, although the City’s always-fragile finances mean such actions will not be required in the future. The budget did, however, raise property taxes for Trenton’s overburdened property owners by 1.5%, for a total increase of $1.7 Million. Trenton’s tax rate of $3.95 per every $100 of assessed value is by far the highest for municipalities in Mercer County, around 3 times the rate of next highest Ewing Township, and around 10 times that of the lowest Hopewell Township.
Here’s the thing: Trenton’s School Board approved the budget for its upcoming fiscal year of 2016-2017, beginning July 1. City Council approved its budget for the current year we are in – nearly 9 months gone! – ending June 30.
Trenton’s Schools was able to forecast the year ahead, saw the unfavorable numbers, and used its budget as a management tool to take action now to put a workable plan in place, months before the beginning of the year.
Trenton’s City government adopted its budget after nearly 75% of the calendar has passed- and 75% of the money spent. Any adverse circumstances faced at this late date in the year as recognized in the City’s financial plan – such as, strictly hypothetically speaking, a theft of $5,000,000 in payroll money – doesn’t leave any time or ability to respond other than with drastic action.
To quickly review the process that Council concluded only last week, Ms. Rojas wrote, “The fiscal year began July 1. In late October, the administration introduced a $216.4 million budget, which has been in council’s hands ever since. The budget committee held a series of hearings and slashed an additional $8.6 million… The state Department of Community Affairs gave council the go-ahead on March 1.”
For City Council President Zachary Chester, this is just the way it is. As reported in the Times, he said at the March 17 meeting,
“To those critics who talk about why our budget is so late … we can’t do it without the state’s approval. We work hard on this budget, but at some point, we can’t move forward until we get this examination by the state. Every transitional community has to go through the same process.”
To put this in some historical context, for many years before Transitional Aid was created as a vehicle for state financial aid to Trenton and other towns around New Jersey, Trenton’s budget cycle repeatedly concluded 8 or 9 months into the financial year. But, for now, let’s take Mr. Chester’s statement at face value, and accept his contention that other Aid communities in NJ work with the same calendar.
My question to Mr. Chester, to City Council, to the Administration, to the NJ Department of Community Affairs, to our state legislative representatives, and to Governor Christie is simply this: How is this acceptable?
How is it that a city’s school district prepare its annual budget, vet it with the state, offer it for public review and comment, revise it and adopt it three months before the beginning of the fiscal year; while the City in which that district is located cannot do so until three months before the end of the year?
Both the City and the District operate in the same State, do they not? How can the state Department of Education be more efficient in its practices – almost an entire year in its budget processing – than the Department of Community Affairs?
Is it possibly, that, statewide, NJ lawmakers and parents would find it unacceptable for their children to be educated by schools with uncertain fiscal environments? Is it somehow unremarkable and routine that budget processing for Transitional Aid communities to be delayed, benignly neglected? Why is no one upset about this? Why is no one – in the City, in the State Administration, in the Legislature – working to fix this?
I honestly do not know the answer to this. But, rather than accept that this is just the way things work, as Mr. Chester does, this needs to be fixed. If a school district can get its fiscal act together with the State 3 months before the beginning of the fiscal year, it should be pretty damn well possible for a City to do the same.
This is the same place we end up nearly every doggone year, at nearly the same exact time of year.
Last year, for instance, Council did not give its approval to its 2014/2015 budget until March 24, 2015. At that Council session, a few residents spoke to complain about the process. Outspoken Trenton resident Dan Dodson and I both told Council that there were serious problems with the whole process. Along with it happening so late in the fiscal year, there was also minimal transparency, detail and narrative description of what the budget was intended to accomplish.
Last year’s Trenton Times report concluded by saying,
Council President Zachary Chester has previously said he hopes to move the along budget process faster next year. He also said McEwen told him he hopes to start compiling information for the 2016 budget in the next few months.
City Attorney David Minchello explained Tuesday that the city couldn’t take any action on a budget until the new fiscal year begins, although planning for the new year may occur. [Emphasis mine - KM]
Well, we know how those good intentions played out for 2016. This year’s budget was approved 51 weeks after last year’s, and with only 105 days before the end of the budget year. To update what Mr. Dodson and I said last March:
- “There is STILL no information or narrative available that details what has been amended since the budget was introduced in November.”
- “We are STILL way behind the ball.”
- “It is STILL embarrassing and irresponsible.”
Any wagers on how next year’s budget process will proceed?
How is this acceptable?
As an experiment, we’re trying to translate a few of these pieces into Spanish. The main post can be found here:
Thanks to Jeffrey Quinones- Diaz for the translation, and to Paul Perez for the idea. Let me know what you think. Since I don’t speak Spanish, Similar to Blanche DuBois I rely on the kindness of others.
Por Kevin Moriarty.- (traducido al español por J. Q. Díaz)
Nota: Traducimos las siguiente columna del Blog de Kevin Moriarty, un comunicador interesado en ilustrar al publico hispano los asuntos medulares administración municipal de la Ciudad de Trenton, Nueva Jersey. Trenton, capital de ese Estado, tiene una población hispana significativa que ha sido tímida en participar en el proceso político. Hace más de 20 años sufre del problema de ingobernabilidad, producto de la corrupción e incompetencia. Vea el Blog en Ingles en http://www.kevin-moriarty.com/blog/
A partir de esta mañana – viernes, 26 de febrero de, 2016 – el más reciente comunicado de prensa en el sitio web de la Ciudad de Trenton es de febrero 5. Esa fecha pasó a ser el mismo día cuando escuchamos por primera vez noticias sobre lo que resultó ser el robo de millones de dólares de la Ciudad de Trenton por parte de su servicio de nómina privada.
El 5 febrero no es el día más reciente en que la ciudad ha sido noticia, pero es el día más reciente en que el Alcalde Eric Jackson y su administración se dignaron a ofrecer al público alguna información acerca de los asuntos públicos; es decir, cierto detalle respecto al desfalco en la nómina municipal, cuyas estimaciones mas recientes hacen que la cantidad total malversada ilícitamente bajo las mismas narices del Alcalde y su Administración se encuentre alrededor de los $ 4 millones de dólares.
Entonces, ¿cuál fue la última pieza de Noticias y anuncio que hizo el grado, que la Administración decidió valía la pena el visto bueno municipal? Un anuncio titulado “Alcade de Trenton, Eric Jackson, se une a la convocatoria para detener las redadas de ICE”, en la que se lee “Alcalde Eric Jackson, su Consejo Asesor Latino (LAC), y una coalición de organizaciones cívicas y sin fines de lucro latinos, se han unido para responder al creciente miedo y la falta de información entre la comunidad inmigrante de la ciudad sobre la campaña de detenciones recientemente anunciada por el Servicio de Inmigración y Control de Aduanas de Seguridad Nacional (ICE, por sus siglas en ingles) “. El comunicado de prensa señala más adelante, “Ninguna de estas detenciones han tenido lugar en Trenton. Sin embargo, los residentes han expresado preocupación sobre un aumento percibido en la presencia de ICE en nuestra ciudad”.
Este es sin duda un área de gran preocupación para muchos en la comunidad latina de Trenton, al igual que muchas ciudades de todo el país. No obstante, al ser este un proyecto de seguridad y de política nacional, no es un asunto sobre lo cual el Alcalde de Trenton tenga ningún control o influencia. Su declaración de febrero de 5 es muy buena por si misma. Es un buen gesto de solidaridad y apoyo para muchos Trentonianos. Pero en la realidad no exactamente significa mucho en términos del impacto que pueda tener.
Cuál es el resumen sobre la Administración de Jackson hasta el momento: lindas palabras sobre asuntos que en realidad no tiene ningún control, sin efecto real o impacto sobre los asuntos en los que tiene influencia. A manera de ejemplo, cómo 4 millones de dólares (o más) del dinero de la nómina de la Ciudad se desvanece durante todo un año.
Hay otro elemento destacado en la primera página del sitio web de la ciudad que vale la pena volver a visitar, ante el (hasta ahora silencio) sobre la malversación de la nómina, lo que expone acerca de la trayectoria de esta Administración, a mas de la mitad su término.
Tomado directamente de la pagina principal de la Ciudad de Trenton, justo a la derecha del retrato del Alcalde Jackson, hay un enlace al mensaje del Estado de Situacion de la Ciudad( en format Pdf) emtido el 22 de Octubre de 2015.
El alcalde esta muy orgulloso de su mensaje de Situación y de lo que entendía representaba para los residentes de la ciudad, así como para los que están fuera de Trenton, creyendo que demostró que esta ciudad atraviesa una reconstrucción después de muchas décadas de declive económico y social, y más recientemente después de sufrir varios años de mala práctica gubernamental y la corrupción criminal.
La relectura de ese mensaje en Octubre – un momento en el que ahora sabemos, donde atravesaba la peor parte de la malversación de la nómina por parte de Innovative Payroll Services (IPS, por sus sigla en inglés), dirigida por John Scholtz y sus dos hijas – el lenguaje autocomplaciente ahora suena un poco más hueco. Por ejemplo:
“Nos hemos centrado nuestros esfuerzos en restaurar de nuestro gobierno municipal, colocar sus finanzas en orden, atender asuntos críticos de personal y una marea de tareas que nuestros empleados deben completar de manera profesional.”
“A tal fin, estamos llevando a cabo una estrategia de gobierno que está sustentada por ocho pilares: la restauración, la colaboración,las comunicaciones, la rendición de cuentas, la evaluación comparativa,medición de los resultados, la transparencia y la innovación.Los residentes de Trenton esperan nada menos, y como Alcalde, es mi responsabilidad cumplir con esa promesa cada día, cada minuto, cada hora.”
“Gracias a la labor de Administrador de Empresas Terry McEwen y el personal del Departamento de Administración, preparamos un presupuesto de 188 millones de dólares que abarca 11 departamentos separados. Y con la ayuda del Consejo de la Ciudad, que aprobó ese presupuesto. Debido a la renovadaconfianza en que Gobierno del Estado tiene en nuestro equipo de gestión,hemos negociado con éxito un aumento de 2 millones de dólares ennuestra ayuda transitoria.”
Uf. Si el estado aumentó nuestra ayuda transitoria por $ 2 millones, “debido a la confianza renovada de que el Estado tiene en nuestro equipo de gestión,” ¿ qué pasará ahora, después de que el mismo equipo de gestión supervisó el hurto de más del doble de los $ 2 millones, de los cuales Alcalde estaba tan orgulloso? ¿Vamos entonces a agradecer el trabajo del administrador de negocio de Terry McEwen?
Aparte de la indignación que produce esta malversación en sí, lo que más me molesta acerca de esta estafa en la nómina de este mes, es como ésto ilustra la amplia grieta que existe entre lo que la Administración dice y promete, remontándonos a la campaña del 2014, reclamando transparencia, rendición de cuentas y ética; y la realidad de los últimos dos años. Al releer el texto del mensaje del Estado de la Ciudad, que con orgullo pauta en la página web de la Ciudad para el día de hoy, sólo refuerza esta salvedad.
¿Qué tan bien, por ejemplo, utilizó el Alcalde sus “ocho pilares de la estrategia de gobierno” – específicamente, Comunicaciones, Responsabilidad y Transparencia – durante el asunto IPS? No los usó en lo absoluto. Sirvieron más como pilares de la insuficiencia de gobierno, si me preguntaras. Esta Administración falló durante el asunto de IPS, en formas que aún no sabemos porque esta administración es cualquier cosa lejos de ser comunicativa, responsable y transparente.
A grandes rasgos, sin embargo, este incidente terminó, a quedado atrás. El dinero se ha perdido. Un pleito civil ha sido iniciado para tratar de recuperar la mayor cantidad de dinero de la Ciudad como sea posible. Las investigaciones criminales han empezado a nivel estatal y federal que seguramente dará lugar a procesamientos y enjuiciamiento de los responsables en el IPS.
El Alcalde y su administración tienen ahora la oportunidad de hacerlo mucho luego del desastre de IPS. Lo que sea, y el como, que no pudo evitar la pérdida – políticas, procedimientos, estructura de la administración o empleados individuales – necesita ser descrito, analizado y arreglado para que nada como esto vuelva a suceder.
¿Cuán confiado estoy de que esto va a suceder? ¿Qué piensas? Exacto, me lo imaginaba…
Por otra parte, Eric Jackson tendrá provocar que algo positivo suceda. Él tendrá que decir algo bueno en su próximo mensaje de Estado de la Ciudad, sobre todo.
USA Hispanic no se responsabiliza del contenido de los artículos de opinión, siendo cada autor responsable de sus propias creaciones.
As e-mailed this morning, 3/15/16
Dear Mayor Jackson -
News reports today tell us that in a press conference yesterday, you announced that “the city’s outside labor counsel is reviewing its internal controls and any steps that can be taken to ensure there is no repeat of its payroll fiasco.” I am glad that you are finally taking this action after several weeks during which this story has developed in the absence of any substantive information from your office or elsewhere in the Administration of the City of Trenton. As I and others have said on multiple occasions since the news of the City’s payroll theft first became public, action must be taken and information publicly shared that will not compromise the integrity of any current civil and criminal investigation. Recovering from this event will require a hard look at processes, personnel and systems to make sure nothing like this will happen again. I am pleased that you and your Administration recognize this, however belatedly.
The article by Cristina Rojas in this morning’s Trenton Times which describes your statements made during yesterday’s press conference is informative, but begs several questions. I respectfully request you to provide some further information about this effort now under way.
You stated, “Not only are we taking an internal audit, but we’re having an outside legal firm look at the processes that not only took place during that period, but the organization that’s set up so we can avoid having similar things.” Does this statement indicate that there are two parallel processes taking place?
Is there an internal audit taking place? That is, a functional accounting and management audit to be undertaken by the City’s Finance and Business Administration offfices, with the assistance of the City’s regular outside independent audit firm, or another independent CPA firm? Is that the work to be undertaken by the City’s outside counsel?Or will that counsel be working on a separate but parallel project?
If the latter is the case, how is the scope of work to be constructed for each task? How will they report? What is the timeframe for this effort?
Frankly, the selection of outside legal counsel to lead an investigation into what was essentially a failure of financial, accounting and management systems strikes me as an interesting choice. What are the qualifications of this firm, and of the specific attorney leading this effort that suggests that they are singularly qualified to perform this work?
News of the selection of a legal firm to be involved in this kind of investigation and audit brings to mind the work performed by the law firm of Gibson Dunn & Crutcher for Governor Chris Christie last year in the aftermath of the Bridgegate incident. The integrity and independence of that effort has been challenged on several counts, including cost, the lack of notes and work product, and the general sense that the Governor always intended that effort as a piece of political theatre with a pre-determined outcome favorable to him.
In order to avoid those kinds of charges to this effort, Mr. Mayor, you need to publicly lay out several ground rules for this effort.
First, you should announce that attorney-client privilege will not apply to any reports and work product that is prepared and delivered to you from the audit and/or attorney review. Everything should be made public, with the exception of any materials that may be determined to be of material relevance in potential criminal investigation.
Oversight of this extraordinary audit and management review should be inclusive of members of City Council as well as independent parties from outside the City having professional background and experience in NJ municipal administration. Former Business Administrators and/or City Attorneys from other NJ municipalities would be excellent candidates.
As referenced above, the Scope of Work for this effort should be made publicly available, as well as a timetable for the effort. News reports have revealed over the last couple of weeks indicates that multiple warnings from the State and Federal agencies were ignored for a period of at least nine months, which suggest several problems. All of the notes written to IPS by the single accountant in the Finance Department fail to suggest any sense of the urgency of the matters at hand. Although the City Comptroller was copied on these notes, there has been up until now no evidence that she involved herself in further investigation of these matters. Nor did she – as far as we know – include or notify anyone further up the administrative chain of command in City Hall from April 2015 until December.These failures suggest problems with internal communications, training of financial personnel, and even common sense judgment. This management audit must describe how these problems will be addressed, and when.
This effort should also produce a full chronology of the sequence of events since last April. In yesterday’s press conference, you and Mercer County Acting Prosecutor Onofri both said that the City “acted very quickly,” when the scale of the theft was discovered in December. Since statements like this are at odds with the fact that serious delinquencies with tax deposits were made known to the City at least eight months prior, these contradictory facts can be resolved via a definitive chronology that tells us Who Knew What When, and What They Did About It.
You also stated yesterday that “depending on how the litigation turns out, next year’s budget could be impacted. ‘They’ll take that into consideration as we build toward next year’s budget depending on where we are in litigation to figure out where we have to balance that out at.’” This loss occurred during the first 2 quarters of the current fiscal year ending June 30. Generally Accepted Accounting Principles (GAAP) require expenses to be recognized in the period in which they are incurred. That is, any loss to the City as a result of this theft should be recorded in the current year. What makes you believe that we can defer any fiscal impact of this crime for the next year’s budget cycle? On what authority are you depending for this advice?
Mr. Mayor, this is an opportunity to get to the root causes of the problems within the City’s Administration that allowed this crime to take place. To attempt to rebuild confidence in your Administration on the part of the public and other stakeholders in the City’s future, this effort needs to be comprehensive, transparent, and independent. We do not need allegations of another Bridgegate whitewash to tarnish this effort and the City’s reputation.
I am sure you understand.
Thank you, Mayor Jackson.
The headline for Cristina Rojas’ story posted on The Times of Trenton’s website yesterday is “How many red flags were missed over Trenton’s payroll problems?” I am glad that the press is looking at the documentation coming available about the multi-million dollar theft of city funds intended for payroll tax deposits with the IRS and the State of New Jersey, and finding that the Administration of Mayor Jackson’s chronology about its “discovery” of the problem raises more questions than it answers.
I shared the documents that I received from the City in response to an Open Public Records Act (OPRA) request filed last month with Ms. Rojas, and which I also posted online. She, in turn, provided me the copy of the brief filed to support the City’s civil lawsuit against Innovative Payroll Service and its principal, about which I wrote yesterday. Looking at the same items leads Ms. Rojas to make the same observations as I have for weeks now:
The city says it first learned it was the victim of a fraud scheme in late December, but more than a dozen notices from the state and federal governments from as early as April reveal potential red flags about its former payroll company now under investigation…
[T]hroughout the year, there was no shortage of signs that something was amiss when the city repeatedly received notices about unpaid balances, penalties and interest.
“The minute you see a question, you should ask the provider what happened,” said Michael Pires, an industry expert and CEO of JetPay Payroll Services. “But if you see that as a pattern, that could raise a red flag — are my funds deposited in a timely manner and are they protected?”
Armed with this information, The Times – once more – sought a response from the City, with the same predicatable result as similar attempts to pry information loose the from increasingly tight-lipped Jackson Administration: “City spokesman Michael Walker declined to comment for this story, citing the ongoing investigation and litigation.”
Of course. Despite Mayor Jackson’s promise several weeks ago that “we’re going to keep our own council and our community informed,” he has done nothing of the sort. Mr. Jackson, Mr. Walker and the rest of the Administration are hiding behind the veil of “ongoing investigation and litigation” to justify their refusal to talk about critical matters that have nothing to do with the ongoing investigation and litigation. This refusal is increasingly impossible to justify and increasingly maddening.
Nothing has changed in the last couple of weeks since I wrote, about IPS, John Scholtz, and his daughters:
The complete – and totally unnecessary – lack of transparency, candor and honesty shown by the City over this last month shows that the folks running this City are in deep denial about how badly they are fucking up. What will be next to go wrong? [Emphasis mine - KM]
We are now hearing about the next thing going wrong. Yesterday I heard a credible report from inside City Hall that the city’s office equipment vendor was about to repossess several copying machines leased to the City, for non-payment since December. The City hasn’t paid because of any shortage of available cash (at least, this time!), but because Trenton has simply ignored several months of billing.The vendor has had enough, and finally threatened to remove the machines to get some response from the City. Last I heard, City Hall was scrambling to get the bills paid, and the affected copiers were still in place.
Sound familiar? Multiple notices? Several months? Red flags? “No shortage of signs that something was amiss?”
The matter of a few copy machines is admittedly a small one, very small compared with the $5,000,000 at issue with the IPS scandal.
But to hear – well over a month after the payroll news broke, and nearly three months after the initial “discovery” of the embezzlement – of something like this copier nonsense proves that NOTHING IS HAPPENING IN CITY HALL TO FIX WHAT’S CLEARLY BROKEN. There is no sense that crooks were able to steal millions of dollars under the very eyes of the City because of flawed policies and of possibly incompetent employees, appointed and elected officials. There is ZERO sense of urgency to address the frequent and repeated failures that are stacking up. No collective fire has been lit under the Administration’s collective butts to get their collective asses in gear to get their collective shit together.
As a result, having bill collectors and re-possessors figuratively standing at the City Hall doorway with their hands outstretched waiting for payment while city officials scramble to write a check is now Business as Usual.
Having the city’s computers operate without virus protection, or data backup, and paying millions of dollars more to a startup company working out of a guy’s garage than more reputable and established companies would charge for the privilege of providing those second-rate services, is now Business as Usual.
Being designated as “a high-risk grantee of federal funds” by the United States Department of Justice is now Business as Usual.
Having Millions of Dollars stolen over a period of months without paying attention to dozens of “red flags” is now Business as Usual.
Let’s be absolutely clear on this. NONE of this stuff has ANYTHING to do with “ongoing litigation” or “open investigations.”
ALL of this should be the subject of urgent and drastic action that needs to be immediately taken by the Mayor, his Administration, City Council, as well as the State of New Jersey.
But I don’t see anything happening. And I don’t believe anything meaningful will happen as a result of this disaster. Why?
Because this is now Business as Usual.
And we put up with it.
So here is the brief supporting the lawsuit that the City of Trenton filed on February 19 against the former vendor Innovative Payroll Services (IPS), its principal John Scholtz and Scholtz’s two daughters, who also worked at IPS. The case was filed in Mercer County’s Superior Court, not US District Court as I had first thought. Since the greater share of the funds stolen from the City by IPS were intended as withholding tax deposits for the Internal Revenue Service, and since Scholtz had moved to and established more business ventures in the State of Florida, I would have figured that a federal civil suit would have made more sense, if the intent of the suit was to effect a quick recovery of whatever financial assets may be left after IPS embezzled those millions of dollars from Trenton’s (and New Jersey’s) taxpayers. After all, condos and cars purchased by Scholtz in a lavish spending spree over the last few years seem to be located in Florida. It’s a safe assumption that those purchases were made at least in part by funds intended to the tax divisions of the United States and New Jersey governments. I’d have figured, to get the money, go where it is. File in Federal Court, I would have thought.
Oh, well. I am sure that the City of Trenton, the Eric Jackson Administration, and all their lawyers, know what they are doing. Right? Right??
Maybe, maybe not. OK, probably not!
There’s a lot in the text of this lawsuit that confirms what news stories have been reporting over the last month, based on the reporting and research local newspaper writers have been able to uncover in spite of a massive and almost total news coverup from City Hall. There’s a lot in here that contradicts the only public statements made on the record to date by public officials. And the timeline suggested in this suit is not supported by documents in possession by the City. It’s a very interesting stew, this brief.
The heart of the City’s case is narrated in this excerpt, found on pages 5 and 6:
We see here summarized that 1) IPS failed to make Federal tax deposits to the IRS; 2) IPS failed to make tax deposits to the State of New Jersey; 3) the amount owed to the IRS totaled $3,367,198.82l and 4), the City knew about this since late December 2015. OK.
Contrast this with the following statements:
Eric Jackson, 2/18: “We believe it’s just the one agency” that was shorted on payments. No, the City knew it was the State AND the Feds.
Eric Jackson, 2/18: “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.” No, again. You say you found out in “late December.” Law enforcement, in the form of the Mercer County Prosecutors Office, was notified in late January or early February. What happened during those intervening weeks? We don’t know, but cannot call the City’s actions “immediate.”
Eric Jackson, 2/18: “[W]e’re going to keep our own council and our community informed of that which we can as this process unfolds.” Um, No, Again! Most of this process had unfolded by February 3, when IPS lawyer Mark Cedrone admitted in a letter addressed to City Attorney Marc McKithen, in part (Page 89 of the law suit):
Upon that admission, and IPS’s stated intention to make Trenton whole, the case blew wide open, and proceeded down a very different investigative and legal path, one likely far less confrontational and certainly less mysterious than most legal matters. The City of Trenton filed its lawsuit in Superior Court two weeks after receiving Cedrone’s letter, and the very day after Mayor Jackson promised to “keep our own council and community informed.”
We read today in the Trentonian that Federal Court orders to preserve the financial assets of both IPS and John Cedrone have been issued and signed by both parties. The case is well on its way to resolution. This is not likely to take nearly as long to conclude as the case I discussed in my first piece on this matter, that of the payroll service Axium International. Axium failed in 2008, and the criminal trial of its principal didn’t get under way until 2014.
However, if you have any hope that Mayor Jackson is honoring his promise to keep “our community informed,” you can probably forget it. To date, there has been not one press release nor any other item released to the public or posted to the City website referencing this case or this lawsuit. Heckuva job, guys.
Zachary Chester, 2/19: “Not knowing what the amount is, whether it’s a million (dollars), $800,000, that’s a million or $800,000 that we don’t have in our budget.” He knew what the amount was, since the lawsuit had been filed the same day he spoke to 6ABC’s Muchanic, and he knew it was a lot more than “a million or $800,000.”
One of the reasons we actually do “know what the amount is” is that, from late December or whenever it was up to until the first week of February, the City did a little investigative work in its own records and calculated the amount of the Federal taxes that had been stolen. The precise amount of State tax missing was – and still is – unknown, although we do know it is a significant portion of the $1,884,815.95 cash that Trenton paid IPS during the second half of 2015. In the City’s brief, a footnote in the February 3 letter from IPS attorney Cedrone talks about a “chart” he got from the City:
Ron Zilinski is Trenton’s Finance Director. If he composed a “chart” that Cedrone found accurate on February 3, as far as Federal taxes were concerned, and if that number (plus $4,000) was the one cited in the City’s lawsuit on February 19, then City Council President Mr. Chester damn well knew what kind of money was at issue when he spoke to 6ABC the same day the suit was filed.
I can’t suppose I know how Mr. Jackson and Mr. Chester justify lying to the press – and, by extension, to us – but this is another severe blow to the already-strained credibility of both officials. The City’s own documents contradict their spoken words in a way that will not be soon forgotten or forgiven.
One last point for today. Per the excerpt cited above, the City is claiming in its civil lawsuit that the City learned about the IPS diversion of funds in “late December 2015.” In my previous post dated March 4 I wrote about the frequent and multiple notices the City received from both the State as well as the IRS, throughout the last nine months of 2015. The dollar amounts were large enough, in the hundreds of thousands of dollars, and the detail on each bill extensive enough, attributing short payments to the first quarter of 2014 and the first quarter of 2015 for instance, to have given more than enough warning to the Administration that there were serious problems with payroll. I have thought ever since the news of these notices came out that it is absolutely incomprehensible that the City claims that they only became aware of the problem in December.
The implication of this fact leaves us with a nasty dilemma. Which is less outrageous for you to consider: that every single person in City Hall who would have had reason and opportunity to know the information contained in those notes from April through December of last year did not recognize them for what they meant? Or that people in City Hall knew exactly what these notices meant for the integrity of the City’s payroll system, and Chose To Do Nothing?
Not a pretty choice, is it? I don’t see any other alternatives here, do you?
The City has, in the sworn statements accompanying its lawsuit, chosen to go with Version #1: We got the notices, and forwarded each one along to IPS to resolve, trusting them to deal with and resolve each matter as it came up, never realizing that there were more serious problems underneath the surface. The only employees who knew about these notices were Mary Henry and Janet Schoenhaar, and they didn’t involve any other of their superiors or colleagues with any concerns. No one suspected theft of tax deposits until the last weeks of the calendar year, when it was too late to stop it. Nothing could have been done.
The Jackson Administration is making a concerted effort to move past this issue. The cone of silence has been imposed upon the matter, and now that it is an active case in the courts, they will not likely choose to give this any more light or attention than they absolutely have to.
So we are not likely to easily find out what happened. We probably won’t find out what failures of individuals or systems or policies led to this massive embezzlement that happened, not as the result of a single incident, but repeatedly over months and possibly years. We won’t know enough in order to feel comfortable that something like this – or worse – won’t happen again. Other than change its payroll vendor, the Administration is, based on all visible indications, doing nothing different now that it’s been doing for years.
As extremely unsatisfactory as this turn of events is for everyone in the city of Trenton, that’s the Jackson Administration’s story and they are sticking with it.
A couple of weeks ago, as the mystery regarding the City of Trenton’s missing tax millions deepened, I published a piece using the metaphor of a barking dog to explain my befuddlement at how this whole story had rolled out. Based on reporting in the local press, mostly by Cristina Rojas of the Trenton Times and with David Foster – in spite of zero information forthcoming from City Hall – a very unsettling picture was emerging. According to stories by Ms. Rojas, the City had received several notices of tax delinquencies and irregularities from the State of New Jersey throughout 2015, but had taken no action with its payroll vendor, Innovative Payroll Services (IPS), to investigate or resolve major issues. Beyond taking no action, the City had actually gone so far as to extend its contract with IPS last year, twice(!), once in June and once in December, shortly before the matter had gotten too big to ignore, something like $5 Million to $8 Million too big to ignore!!
I compared those frequent notices to the barking of a watchdog. When a watchdog barks in the night, you should listen and take care to see what’s going on. I wrote that on February 22. On that same date, seeing that City Hall was circling its wagons and refusing to give out any information, I filed an Open Public Records Acts (OPRA) request with the city, asking for any documents related to the matter.
This week, I received a block of documents in response to my OPRA request, including the delinquency notices I had asked for regarding the State, notices from the US Internal Revenue – which I had not asked for, figuring anything associated with the estimated $4 Million shorted to the IRS would have been considered embargoed during the course of the City’s civil law suit filed in Federal Court against IPS and its owner John Scholtz – and several email exchanges between the City and IPS throughout 2015.
This document release provides some needed information about this case, but it is very incomplete, despite one of the City’s lawyers telling me by phone yesterday that they have released everything I have asked for, as required by OPRA and no further. I find that extremely difficult to believe, for reasons I will get into below. In the meantime, I will describe some of these documents below. For your perusal, you can find all of the documents I received from the City this week at this link. Please be aware that these are not all arranged chronologically, which is the way I like to look at stories such as these. They are arranged with IRS-related materials first, with NJ State-related items next. There are many blank pages, due to the scanning process I was told. And there are page breaks during email exchanges that make the conversations hard to follow. Bear with all of that, though. Taken together, these docs start to unravel a very sordid tale.
I started this piece with a callback to my watchdog metaphor. A few weeks ago I wondered how the City and the Eric Jackson Administration could have ignored a barking watchdog for most of 2015, as this problem was building. I was wrong. After looking through these documents, I should characterize the warning signals that the City received throughout the year as a pack of werewolves howling at the moon outside the City’s bedroom window all night, every night, since April 24, 2015! The Administration either slept through that howling, or they heard it and put their pillow over their head for eight months. The result is, we are sitting here now, probably close to $5 Million poorer and none the wiser for the experience.
To help me make some sense of all the docs, I made a spreadsheet summarizing the documents, and arranged them by date. A note about my shorthand: the email exchanges I was given this week are all between Mary Henry (MH), an accountant with the City of Trenton, and Mary Tucker (MT), a Business Analyst with IPS. Copied on most all of the correspondence were John Scholtz, owner and then-president of IPS, and Janet Schoenhaar, the City’s Comptroller and Chief Financial Officer.
This is, by the way, the main thing that leads me to think I have been sent an incomplete set of records. Although my request was for correspondence, emails, faxes and so on to and from city employees and elected officials on the delinquencies and contract extensions, all I got were the Henry/Tucker exchanges. The City will have me, and the rest of the public, believe, that the only person in the City to write down anything about this matter was one Accountant in the Finance Department. How likely is that? Not fucking much.
Anyway, here’s a snapshot:
I wanted to lay out these documents to show their timing in relation to the two contract extensions the City granted to IPS in 2015. On February 22, I wrote that, based on what we knew from the press, by the time Council approved the June 18 extension, we should have known something was seriously wrong. These documents prove that without a doubt.
By June 18, the City was aware that there were delinquencies totaling around $300,000 for unpaid tax deposits from the first quarters of 2014 and 2015. In addition there was about $40,000 in interest and penalties dating to the tax years of 2011, 2012, 2013, and 2014. Here’s a look at one of the notices, the one from April 24 (page 43 of the document dump):
“Aaoooo, Werewolves of Trenton!!”
No one listened.
Take a look at this notice, a Penalty $20.077.36 (Page 57) from the IRS for “Failure to make a proper federal tax deposit” applied to its First Quarter 2015 tax deposit. Although the IRS notice is dated June 22, a handwritten notation indicates it was “e-mailed 6/16/15,” presumably to IPS, since there is an email message (Page 63) from Mary Henry to Mary Tucker stating – matter-of-factly, as all of the email exchanges are between City Hall and IPS – “We got a couple more notices from the State and the IRS. Thank you very much.”
These messages illustrated above were two of six statements or invoices or failure to report notices received before the contract extension of June 18. None of them mattered. Nothing was done. Not one person other than Mary Henry, if you believe the City’s Law Department, wrote any kind of note or document on the topic.
“Aaoooo, Werewolves of Trenton!!”
By the time of the next – and final – IPS contract extension on December 17, there were no fewer than ten more letters, bills and statements from the State and the IRS. The one received from the State’s Division of Taxation on December 2 was simply too blatant and definitive to ignore. In fact, since we know that the City actually started its damage control effort in December, this may have been the document that got their asses in gear. Even if it had, though, that did not stop the City from approving a contract extension on 12/17. We still have no idea why.
The December 2 statement (Page 95) shows just how bad IPS had gotten with their management of Trenton’s accounts. This document shows that during the third quarter of 2015 – the months of July, August and September – the City had eight bi-weekly payroll periods, for a total amount of taxes due of $1,023,096.74. IPS made only five payments totaling $586,877.02. The balance missing was $436,219.72, plus $11,725.58.
Big problem! But look also at the timing of those payments that were made, and you will see a company struggling with its cash flow:
- The payment due to the state on July 8 was actually made on July 30, 22 days late.
- The payment due on July 22 was made on August 25, 34 days late.
- A payment due on July 29 was made on August 28, 30 days late.
- Payment due on August 5 was made on September 2, 28 days late.
- And the payment due on August 19 was made on October 7, 49 days late.
- After that, payments due on September 2, September 16, and September 30 were never made.
Remember, that all of the funds needed to make all of these tax payments – on time! – had been fronted to IPS by the City. Every time. There was absolutely no reason that any of the payments should have been late by a day let alone 28 to 49 days late. Someone should have known that something was seriously, criminally, wrong.
I won’t print any of the emails here, but you can find them, again, at this link. All I will say about those is that I am amazed – and not in a good way – at the consistent banal, calm, ho-hum unexcited tone of all of them, both on the City side and the IPS side. Most every note from Mary Henry says something along the lines of “Hey, we got another notice from the State and/or the IRS.” The reply is a variation on “OK, we’ll look into it. Have a great day!” There are also curious unexplained references dropped in occasionally, such as an email note by Mary Henry mentioning an unresolved payroll matter from 2012 involving $174,000.
How far back does this IPS mess really go? As of today, we don’t know.
And that’s it for the emails. No rising sense of urgency, no detailed questions or requests for explanations, until the very end of December when the matter has become impossible to ignore. No expansion of the email distribution list to include a greater number of responsible parties in the City. Only Mary Henry wrote anything to IPS, only Janet Schoenhaar was copied. For her part, Ms. Schoenhaar never seemed to respond or intervene in the IPS relationship. As the Comptroller and CFO for the City, she certainly owes an explanation for her role in this matter.
That is, as far as the City of Trenton has chosen to reveal, up to today. This cannot be the end of the paper trail, even though the Jackson Administration is, as has been its MO all during this story, stonewalling any further information release.
As I said in my previous post on February 26, this matter is now in the Courts. IPS has owned up to its responsibility in the matter, and is willing to make restitution – to the probably very limited ability that it can. We are now in the post-IPS period.
We should be hearing how the City is changing its systems, its policies, and – if necessary – its personnel to make sure this doesn’t happen again. The City has changed its payroll vendors, and that’s a big start.
But, as this OPRA document release conclusively shows, the City received multiple. critical, and outright explosive notices throughout 2015 that It. Simply. Ignored.
We have seen nothing come out of City Hall to indicate that ANYTHING is going on to address a system that clearly and repeatedly broke.
If nothing is changing, that means the werewolves are still howling, and still No One Pays Attention.
Who and what will they eat next??
Aaooooo!! Werewolves of Trenton!
As of this morning – Friday, February 26, 2016 – the most recent Press Release on the website of the City of Trenton is from February 5. That date happened to be the very day we first heard news about what turned out to be the theft of Millions of Dollars from the City of Trenton by its private payroll service.
February 5 is not the most recent day that the City has made news, but it is the most recent day that Mayor Eric Jackson and his Administration condescended to provide the public with any information about the public’s business; namely, any details about that payroll theft, which recent estimates make the total amount embezzled under the noses of the very same Mayor and Administration to be in the neighborhood of around $4 Million Dollars.
So what was that last item of News and Announcement that did make the grade, that the Administration decided was worth the municipal imprimatur? An announcement titled “Trenton mayor Eric Jackson Joins Call to Stop ICE Raids,” in which we read “Mayor Eric Jackson, his Latino Advisory Council (L.A.C.), and a coalition of Latino civic and nonprofit organizations, have come together to address the growing fear and misinformation among the city’s immigrant community about the recently announced campaign of arrests conducted by the Department of Homeland Security’s Immigration and Customs Enforcement (ICE).” The press release later states, “No such arrests have taken place in Trenton. However, residents have expressed concern over a perceived increase in ICE presence in our City.”
This is certainly an area of great concern to many in the Latino community in Trenton, as it is in towns all across the country. However, as a matter of national import and national policy, it’s not something over which the Mayor of Trenton has any control or influence. His February 5 statement is fine in itself. It’s a nice gesture of solidarity with and support for many Trentonians. But it doesn’t really exactly mean very much in terms of any impact it may have.
Which is a pretty good summary for the Jackson Administration so far: nice words over matters that it doesn’t really have any control over, but not much real effect or impact on anything actually under its influence. Like, for instance, how $4 Million Dollars (or more) gets skimmed off the City’s payroll monies over the better part of an entire year.
There’s another featured item on the front page of the City’s website worth re-visiting, in the (so far, silent) aftermath of the payroll theft, for what it says about the track record of this Administration nearly half-way through its term.
On the front page of the City of Trenton site, right next to a portrait of Mayor Jackson, is a link to the text of the Mayor’s 2015 State of the City Address, delivered on October 22, 2015.
The Mayor was very proud of this Address, and of what it represented to residents of the City as well as those outside of Trenton, believing it showcased this town as rebuilding from many decades of economic and social decline, and more recently several years of governmental malpractice and criminal corruption.
Re-reading that October address – a time, we now know, which was smack in the middle of the worst of the payroll embezzlement by John Scholtz of Innovative Payroll Services (IPS) and his two daughters – the self-congratulatory language now comes off as more than a little hollow. For example:
We’ve focused our efforts on restoring our municipal
government, getting its finances in order, addressing
critical personnel matters and the myriad tasks our
employees must accomplish everyday in a professional
To that end, we are executing a governance strategy that
is supported by eight pillars: restoration, collaboration,
communications, accountability, benchmarking,
measuring results, transparency and innovation.
The residents of Trenton expect nothing less, and as
Mayor, it is my charge to deliver on that promise every
day, every minute, every hour.
Thanks to the work of Business Administrator Terry
McEwen and the staff of the Department of Administration,
we prepared a 188-million-dollar budget encompassing
11 separate departments. And with the help of City
Council, we passed that budget. Because of the renewed
confidence that the state has in our management team,
we successfully negotiated a 2-million-dollar increase in
our transitional aid.
Whew. If the state increased our transitional aid by $2 Million, “because of the renewed confidence that the state has in our management team,” what will happen now, after that same management team oversaw the theft of over twice that $2 Million Dollar increase the Mayor was so proud of? Will we thank the work of Business Administrator Terry McEwen then?
Aside from the outrage of the theft itself, the thing that bothers me most about this payroll scam this month is how much it has illustrated the wide gap between this Administration’s rhetoric and promises, dating back to the 2014 campaign season, of transparency, accountability and ethics; and the reality of the last two years. Re-reading the State of the City text, so proudly displayed on the City’s website to this very day, just reinforces that.
How well, for instance, did the Mayor use some of his “eight pillars of governance strategy” – specifically, Communications, Accountability, and Transparency – during the IPS matter? Not well, at all. More like pillars of governance failure, if you ask me. This Administration failed during the IPS matter, in ways we do not yet know because this Administration is anything but Communicative, Accountable and Transparent.
To a great extent, though, that incident is done, it’s behind us. The money’s long gone. A civil court process is under way to attempt to recover as much of the City’s money as possible. Criminal investigations have begun on the state and federal levels that will surely result in indictments and prosecutions of those responsible at IPS.
The Mayor and his Administration have a chance now to do much better in the IPS aftermath. Whatever, and whoever, failed to prevent the loss – policies, procedures, management structure or individual employees – needs to be disclosed, analyzed and fixed so nothing like this happens again.
How confident am I this will happen? What do you think? Yeah, I thought so…
On the other hand, Eric Jackson will have to try to make something positive happen. He’ll have to say something good at his next State of the City speech, after all.