John Shay's Water Tower of Cards

[XLFD]

A little over ten years ago, Ludington City manager John Shay sold the city council on the idea that spending over $1.2 million on painting both Ludington water towers was a great idea. Other contractors painted Scottville's water tower for $191,000 in 2010, with less than $48,000 coming from that city's coffers thanks to a grant.

For some unknown reason, John Shay, who famously ignored both water and wastewater infrastructure projects up to that point and beyond, chose to do this project without seeking competitive bids and without any need to, as the structures had been painted in the year 2000 and steel water tower paintings in our climate can easily last for 30 years w/o issue. When the painting was done in 2000, the cost was around 30% of the cost of the new contract even when adjusted for inflation.

On December 21, 2009 the council minutes reflect: "Moved by Councilor Castonia, seconded by Councilor Holman, that Ordinance No. 208-09 be adopted. This ordinance refers to the 10 year service contract with Utility Service Maintenance Contract to work on both the Gaylord Avenue and Danaher Street water tanks... City Manager Shay explained that the proposed contract with Utility Service Maintenance would have the City spending $151,000 a year on the maintenance of the two water towers."

I had asked to review the contract via the Freedom of Information Act (FOIA), but was given a price tag of $57 for the records, which turned out to be 14 pages of non-exempt records. I would eventually be extorted, paid the price without ever receiving any idea what it consisted of, and read the full contract. That's why I was surprised when Shay indicated in front of a room of witnesses in 2011 that the water towers would be painted twice during the 10 year period of the contract; someone from the company had told him that. The Danaher tower would not even have its first painting done until the very end of 2012, when it was too cold according to the specs on the paint.

Nothing in the contract indicated there would be a second painting of the water towers during the ten years of the contract. The closest thing was a non-binding graph which indicated that repainting could be done in the tenth year, and words in the Danaher contract which stated "the exterior painting will not exceed ten years".

Being that the ten year contract began in January, 2010 and ended at the beginning of January, 2020, the Gaylord water tower (painted in the summer of 2010) could be repainted in the summer of 2020-- requiring the need for another highly overpriced ten year contract. According to the records, when the ball dropped at the corner of James and Ludington Avenue six days ago, this contract was finished.

So John Shay told everyone a lie about getting a second painting, and spent over three times more than he should have (even more if we look at Scottville's example) with this no-bid contract he pushed without any oversight performed by an apathetic council. Compounding that big lie was a lot of missing assignations and expenditures in the budget over the years that have never been explained. It makes one suspicious that the money earmarked for these capital improvements found its way to the contractor over the years.

The 2010 budget shows where the approximately $150,000 of the money for the contract went under code 802, contractual services. You will notice the 2007 and 2008 numbers are roughly about that much less than the projections for 2010-2012.

Something unexpected happens, that isn't explained in the available records, the 2013 Budget shows only $46,357 was spent in 2010, the first year of the contract. The next years seem to have went up, possibly due to other contractual services (CS) or some executive re-working of this contract. Keep in mind, water plant fund revenues are considered separately.

But even these are seen to be dramatically off budget, as the amount spent for CS turns out to be only $59K in 2013 and less than $30K in 2014, when they should minimally be in the $140K range, as seen in the 2016 budget below.

The 2018 budget was the last one John Shay authored, vacating the job the summer before the 2019 budget was worked on. In 2016, it showed that they had spent $181,354 through August for 2015 on CS, but in that 2018 budget, that number drops to $40K for the whole year of 2015. How can that happen? The year 2016 was the first year the contract payments would be reduced from the $140K range, the City would go from paying $140,000+ down to $62,000. Yet, the amount is only $21,113 an amount that was less than other CS costs they had before the water tower painting.

Oddly enough, this happened again in the first budget Shay was not responsible for, the 2019 budget which was oversaw by Interim City Manager Steve Brock. Once again they had a high amount spent by August ($108,477) of 2017, but in the 2019 budget the 2017 CS expenses were down to $43,568.

The same phenomenon would once again happen in new City Manager Mitch Foster's first budget for the year 2018. $116,631 was spent by August 2018 according to 2019's budget, but the years total expenses would be only marked as $57,836 in the 2020 budget.

If we look at the finalized numbers in contractual services over this ten year period and add them all up, we get a number much lower than the $1.2 million. This is even without considering any other type of CS work that would show up, which may explain why the latter years have been trending up due to plant upgrades.

2010:  46K
2011: 198K
2012: 109K
2013:  59K
2014:  30K
2015:  39K
2016:  21K
2017:  44K
2018:  58K
2019: 129K*

The numbers for the first six years add up to only $481K, while the never-amended contract would have the City pay out nearly $900K in that period. The difference is less dramatic over the last four years, but there seems to be nearly a half of a million dollars missing. The total is $733K over the ten years.

Nothing in the budgets or budget explanations given every year explains the differences in a way that makes sense. On November 12, 2012, in the first year the council allowed their agenda packets to be reviewed by the public, it was suggested that the 2012 and 2013 CS budget would total $441,500, not the $168,000 it turned out to be in actuality and that's even including the extra $300,000+ contract the City added to paint and maintain the Brye water tank.

It has never been justified where that missing money has disappeared to. One could ask how such stark differences in the budget could escape the detection of the city treasurer, and this is a good question. Until one notices that both City Manager Shay and City Treasurer Linda Rogers left town at the same time, in July of 2018. Coincidence-- or collusion?

What is definite is that John Shay lied about what the contract with Utility Maintenance Services offered; there was never a second painting implied in the contract terms, and now that 2019 is finished, any future water tower painting (and there is none forecasted in the next three years), will be under a separate contract.

The costs told to the public of the two water towers and the Brye water tank was over $1.5 million, the total amount of contractual services in the water fund was $733,000 over the ten years. Even if there were no other contracts, this would account for less than half of the contracted amount. These three contracts were never amended by the city council, the only entity that could legally do so.  Treasurer Rogers never commented on the fluctuating numbers.

Over three quarters of a million dollars is not accounted for, accounting irregularities pepper the public records. The parties responsible for this fiasco leave town feted by their fellow officials for doing such a great job over the years.  It should all make sense now why Shay brokered this ridiculously-expensive deal without using competitive bidding protocols.  

[Du Wright]

These are very serious allegations and still very confusing. Maybe this could be investigated by the Ethics Board for an explanation that makes sense?

[Du Wright]

x, I remember former mayor Henderson retorting something to the effect "... bringing this up again ... we've gone over this many times ..." at John Shay's last city council meeting where you had the steel courage to bring his legacy up in front of an assembled goodbye party.  Can you explain John Henderson's  history of explanation(s)?  And why weren't his explanation(s) sufficient to address this?  It seems from what you are showing from city records,  there obviously looks like a huge discrepancy in year to year carry-over figures.  That, imo, needs an honest explanation from those in charge.

I think John Henderson's  sentiment was, " why you just drop this?"  By the records shown, I can see why, if anyone has a conscience, at least the records need to be corrected or explained, if it's a legitimate mistake.  This is really troubling when our water/sewer fees and taxes continue to rise while our lead pipes don't get removed and our streets are full of dips, potholes and waves and think how many sidewalks $750,000 could have built.  

[Freedom Seeker]

Maybe it's been someone's  secret slush fund?  Why hasn't the auditor noticed this?

[XLFD]

Serious allegations to be sure and potentially far reaching.  Shay could not help but be in on the bad bookkeeping, it would be hard for Treasurer Linda Rogers to not be complicit in some manner.  

I believe you have some accounting/record-keeping skills, is there any squaring of the circle to make the numbers fit?  I've looked over numerous budgets and budget messages and can't find anywhere else this money would be put in the budget.  I am also curious as to how it may have been missed by the City's long term auditor unless misrepresentations were given to the auditors.

[XLFD]

Back in early 2012, I had asked to inspect correspondence between the City and USM (the contractors) during the year 2011 and was told to inspect these records it would cost nearly $100, which I considered prohibitive and unlawful since I had just paid $57 to inspect two dozen pages of a non-exempt contract without any explanation of why I was extorted.  At that point, the Danaher tank had not yet been painted, even though the contract explicitly said it would be painted in 2010. 

You don't need to be a psychiatrist to understand that when an official assigns unexplained prohibitive and extortive fees for public records, that they don't want those records to be publicly released.  Somebody made off with a lot of money that they were not entitled to.

This was a recurring theme during the Shay regime, so no, I do not have any itemizations for those years just the budget messages between 2013 and 2017 reflecting that money on this line-item was being spent in accordance with the contracts-- but then not reflecting that in future year's budgeting-- and I haven't been able to track that down.

[Freedom Seeker]

That's so illegal, so wrong, so arrogant. I have a hard time believing the attitude that was at city hall.

[Willy]

As I recall, the reason for the exorbitant price for the painting was never established. You repeatedly requested information but it was continually denied just like the shop with a cop missing money. I don’t know how it’s done but it seems that an independent audit conducted by an outside auditor, possibly the state, could be the only way to get to the truth. If their is wrong doing involved, this may be just the tip of the ice burg. If heather leaves town in a hurry, it may be a sign that we may have another petunia type scandal on our hands. I wonder how deep the rabbit hole goes? I should say rat hole. 

[Du Wright]

https://www.michigan.gov/treasury/0,4679,7-121-1751_2194-423696--,0...

Here are some interesting generalities from State of Michigan Treasurer.

[Willy]

Thanks dianne

[XLFD]

Thanks for the link, Dianne, and I hope you or somebody with audit experience can perhaps review one or more of the recent City audit reports and perhaps give your opinion on whether their methods would catch any of the discrepancies noted, if the numbers presented to them balanced in other ways.

The City has retained the same auditor for over 30 years and there hasn't been a competitive bid for auditor service for over 30 years, so it doesn't take a conspiracy theorist to believe that our auditor may not be very independent or observant when collecting his $20,000 paycheck made out from the funds he audits each year. 

This aspect will be looked at in a future article.

[Du Wright]

X. here is a tidbit that you may be aware of, but I wasn't until reviewing budget records:

Two pages before the 591-556 (Water Plant Fund Expenditures) is 591-556 (Revenues Budget).  [That they have the same "CODE" is confusing, but I won't focus on that now.]  Generally the Revenues Budget is around page 59-62 through the years, the first page of three pages of Code 591 (There is:  1. Water Plant Fund Revenues Budget 591, Code 591-556; 2. Water Maintenance Fund 591, Code 591-000; and 3. Water Plant Fund 591, Code 591-556, from which you cut and pasted).

So then, on the "first page" of Code 591-556, Water Plant Fund Revenues, at the end of the "line item codes" is a Total Water Plant Revenue line bolded, and "Prior Year Fund Balance" follows, (negative) or positive.  I'm only guessing that some of the "excess or unused" Watertower Painting Contract" went into that line.  I think there should be better line item Fund Balance return, but that's my opinion of accounting principles, having worked and studied accounting in the 1960s and 70s, and moved on from employment of that field in the early 80s into what I felt was more interesting career.

Reconciling the "Prior year Fund Balance" looks almost impossible with the data given to the public, but as I said, and as a challenge, I will give it a shot if you wish to present some questions or (forbid, a FOIA!).

I agree that the Watertower Painting Contract should have been modified by the City Council at some time in that 10-year period, if there were such drastic changes because it looks like flippy-floppy accounting principles and sloppy or possible missing of funds.

[Du Wright]

Here's a more interesting link that allows review of reports filed by municipalities by doing a search as prompted.

https://treas-secure.state.mi.us/LAFDocSearch/