Ecorse, Michigan city officials violated tax law for years
From Sunshine Review
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September 22, 2009 A Michigan state review released September 18, 2009 reveals that Ecorse city officials have violated state tax law for years by improperly dispensing tax money collected from residents and businesses.[1]
[edit] Financial management
Governor Jennifer Granholm outlined several financial irregularities the state found and, in a five-page letter, announced that the state would appoint an emergency financial manager to run the city.
The review found that the city collected millions of taxpayer dollars for other entities, but it did not turn the money over. The review found that the city hasn’t submitted to the state a financial audit on time since 2003. It also found that Ecorse operates with a deficit, refusing to outline plans to correct the problem.
City officials responsible for the financial issues could face criminal charges.
“I have determined that a financial emergency exists within the city of Ecorse because no satisfactory plan exists to resolve a serious financial problem,” Granholm wrote in her letter to city officials.
Granholm's letter stated that city officials have gotten in a pattern of using money earmarked for specific purposes to pay for general city operations. This includes employee payroll.
[edit] Funding operations
The Ecorse city officials illegally took $2.6 million in state and school taxes from March 2008 to February 2009, using the money to fund city operations. This made the city late in paying other entities the taxes they were owed, violating Michigan's General Property Tax Act.
The city collected more than $2.6 million in school taxes in July and August 2008, turning over only $1.75 million to the school district. The officials chose to keep the rest of the money for the city.
This illegal policy and practice grew into a multimillion-dollar problem.
“The amount of property tax collections owed by the city to other taxing jurisdictions, including this state, increased from an estimated $2.5 million to approximately $6.8 million,” Granholm’s letter says. “The $6.8 million reflects the accumulated extent to which the city continues, in violation of state law, to utilize property tax revenues due to other units of government to maintain its own spending levels.”
[edit] City pensions
In the 2008 fiscal year, city officials imposed a $1.1 million tax levy in order to meet city worker pension obligations.
However, when the money was collected, city officials did not use it toward pensions. They chose to use the money to fund general operations, making it the second consecutive year that the city failed to pay into its pension fund.[1]
[edit] Unauthorized borrowing
The city was unauthorized in borrowing from restricted funds, from which they did borrow. For example, they borrowed from a fund designated for paying for street repairs in town, using more than $550,000 for the unauthorized expenses.
The letter says the state was unable to investigate the problem any further because the city officials failed to submit its required financial audit for the 2007-08 year on time.
The city hasn’t submitted regular deficit-elimination plans, which are required by law. They did submit a plan in 2008 that was rejected.
“The Department of Treasury did not certify the plan because it did not provide adequate assurances that the deficits would be eliminated,” Granholm’s letter says. “To date, city officials have yet to submit to the Department of Treasury a suitable and realistic deficit-elimination plan which the department might be able to certify.”[1]
[edit] Ecorse deficit
Ecorse's general fund had a surplus of $5.4 million in June 2004, but it was fully depleted and reversed, putting the city in a $3.9 million deficit.
“The general fund has been in an increasingly deficit position since that time,” Granholm’s letter says.
The most recent financial audit shows the city’s deficit increased by 76 percent, from $5.3 million in June 2007 to $9.3 million in June 2008.
A city auditor has been unable to provide a clear report for at least two years.
In 2007 and 2008, the city’s audit showed the city did not follow generally accepted auditing practices.
That raises a red flag as the financial statements “do not present information fairly” and, therefore, “one cannot rely upon the information in the financial statements because it is misleading,” the letter says.[1]
[edit] Deadline for challenging
City officials can challenge the governor's decision to appoint a financial manager until Sept. 28 by requesting an administrative hearing.
The potential hearing date is October 13, 2009 at the Richard H. Austin Building in Lansing.
City Attorney Sequara Henry said she has begun working on a legal appeal because some city officials insist an emergency financial manager is unnecessary.
If there is a hearing in which Granholm maintains her decision to hire the financial manager, the city could appeal her decision to Wayne County Circuit Court.
If a manager is appointed, a state entity, the Local Emergency Financial Assistance Loan Board, will be in charge of selecting who to hire.
The manager would have access to all documents relating to the state review and he or she would decide if any of the illegal acts rise to the level of prosecution. The manager would have the authority to turn his or her findings over to law enforcement officials for possible criminal charges, state spokesman Terry Stanton said.
“The state has finalized their decision and now I need to see what the city of Ecorse wants to do,” Mayor Herbert Worthy said. “Personally, I think we can handle our own finances.”[1]
[edit] Ecorse Board of Education
Ecorse Board of Education filed a complaint against the city earlier 2009, prompting the governor’s decision.
School officials alleged that the city did not turn over millions of dollars of tax money. The review confirmed this.
Nichole Hunter, the school district’s attorney, said the district had a deficit at the end of the 2008-09 fiscal year, suffering financially because the city refused to turn over the school taxes.[1]
[edit] History of financial mishandling
The introduction of an emergency financial manager would be the second time in 20 years that the city had to be rescued from millions of dollars in debt.
In 1986, Ecorse was the first municipality in the state to have a court-ordered receiver when the city nearly went bankrupt.
At this same time of potential state takeover is federal authorities investigation of the city’s finances.[1]
[edit] Federal probe
The FBI alleges that some city leaders have accepted bribes from a private contractor. This same took advantage of the city for more than $2.5 million by submitting falsified invoices.
Court documents say that in return for the inflated payments not being questioned, the owners of Michigan Municipal Services (Sheldon Divers and Stacey Tarockoff) paid off city officials.
The bribes allegedly ranged from $1,500 to $10,000 cash.
There are no charges so far in the ongoing federal probe. However, authorities seize a 2002 Porsche 911 Cabriolet from Divers’ Romulus home in January. The $42,000 sports car was originally purchased with money the city of Ecorse obtained, according to court records.[1]
[edit] External links
[edit] References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 "City officials have violated state tax law for years, report shows," The News-Herald, September 22, 2009
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