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.  

[Willy]

Thanks Du Wright. Crunching budgets and the like just scrambles my brain so I'm glad you can understand what is going on. I have a question tho. Is it possible to hide or abscond with that much money without it being obvious to any City employees or contractors involved with the process?

[Du Wright]

Willy, it is an enigma to me in which code(s) the Watertower painting Contract was put without more detailed notes. There are two 802 (Contract Services) line items: one in 591-000 Water Plant Maintenance and one in 591-556 Waterplant Fund (which perhaps should be better defined as Waterplant Operations, imo and my guess). Further there is 970-801 and 802 (Capital improvements-Contractual) which the painting contract could have been put in? On top of that confusion, I haven't done accounting for many years, but when I did, our standards would have called for more specific line item definitions, better defined Funds titles, and most importantly, more specific notes to the public or readers. And my better, recent experience in budget was as an analyst, cutting fat, going dept. to dept., chairman to chairman with a diplomatic smile but a sharp ax. This is a different level of accounting, so this exercise is difficult, not having been involved in the Fund delineations, and Line Item usage.
Imo, a contract of $1,200,000 for Watertower painting could have had its own Fund and maybe it does, I haven't found the notes. X seems to assume it is 591-000, 802. If the watertower painting contract funds were thrown into an ambiguous 802 Contractual Services, that, imo, does not allow distinguishing it from other contractual services for "water maintenance." It probably was defined somewhere, but with what it available to the public, it is hard to find notes. I'm not saying the notes are not there, it's just that there are 10 or 12 years to sift through on a ten-year contract. However, overall I am finding the challenge frustratingly interesting.

To answer your question, I think there has to be an answer to the discrepancies, and I just can't imagine that much money could be absconded, but it is not impossible that the money has at least been moved around and used for other purposes (hopefully legal). It is, what I consider complicated accounting which is not made clear by simple glance. Further, the more I look, the harder it gets to reconcile actual year Fund totals with Prior Year Fund balance, let alone the 802 fund totals with the original Contract amount. Sorry for the long answer, but that is what I have analyzed. I hope this clear-as-mud answer helps somehow. What I can say is that, X, in his brilliance has seen figures that don't balance, and that needs answers but may be beyond my ability to answer mostly because I don't have explanation notes or actual usage records of line items. It could be figured out, with asking for records, but it is something that will probably irritate city hall. For now, the best I can do is have faith in city hall. Maybe X can also answer more specifically his reasoning for stating that the painting contact went into 591-000-802 and any further research for his post, or are my assumptions incorrect?

[Du Wright]

Correction, the references cut and paste X gives is from 591-556-802, not 591-000, but I have been looking at both funds to see if there were interfund transfers.  The explanation notes probably are linked to 591-556-802, however they are not marked which is a bit of sloppy accounting, imo.  So, X, with his history of being there and looking at this Fund for ten years is probably accurate that Watertower painting was put into 591-556-802.  I have been looking at possible interfund transfers and year-end carryovers.

[Du Wright]

Willy, to try to answer your question if it is possible to abscond or hide $750k in funds without others knowing about it?  I don't believe it possible--there would have had to be at least two to four people involved, imo, that's why I think it has to be some sort of moving around of funds because I don't think at least two of those four would be involved in that complicity.  It does appear that the state started noticing deficits at around this time (see the state Treasury links), but records are not specific or detailed on the state website.  There could have been some creative moving of funds around to look better to the state or to comply with not showing deficits.  Just thoughts I'm having to try to explain some other not readily explainable "carry overs" I'm discovering.  Sometimes it may be better to not have to know what goes on in city hall, but when our water rates continue to rise pretty steeply, these answers are due to the taxpayer, imo.  If the latter is the case, and we were carrying deficits then it may have been a matter of not wanting to put the burden of raising the water rates unto the taxpayer.  But that's the frustrating part, we maybe could have had a half a million dollars more and no need to raise water rates if there had been competitive bids on the Watertower painting.  An unfortunate conundrum.

[XLFD]

I cannot speak for budget years outside of 2013-2017 when the budget included explanations of major expenditures and the specific line-item they came from for those five budget years, but  in those years it's fairly clear that the contractual services line in Water Plant expenses (code 802) always contained the full numbers for the contractual expenses of the USM contract (see the last snippet in the above article for reference) and more.  They even show amounts spent up through August of a year-- then come back with numbers less than 25% of that spent for the full year in the year after's budget.  I can't for the life of me figure out how that works.

I have tried to seek where else the differences between budgeted amount and actual amount (only known a year after) go, looking in the same niches and more that you've noted.  I can't find it.  When Mitch gives his Budgets & Burgers presentations, I hope to try and find out where this could have went if some weird budget balancing was performed.  I hope he does some homework before that.

[Du Wright]

Thanks, X for detailing that you've looked into those funds in question.  Quite the enigma.    Also disconcerting are some of the "prior year" tallies and sometimes what we see as actual coming in two years past don't reconcile in some instances with other past years (and I'm never looking at projections).  Very disconcerting.  I'm making notes.  I hope so too, but for now it seems it'll  have to be one big burger to answer these questions.

[Willy]

Thanks Du Wright and X. I appreciate the explanations.

[stump]

  Not about the water tower but it does involve city accounting. Did the SHOP WITH A COP program continue this past Christmas season?  Didn't hear anything about it. Or did the Chief just not want anymore disgrace on his watch.

[XLFD]

The local effort this year seemed muted, perhaps since they didn't have the usual hyper-support that WMOM provided when it was on the air, but according to LPD's organizer, Chad Skiba, but it did bring in over $23,000.  The $7150 left over after shopping and dinner purchases was reportedly given to area schools ostensibly to support kids that would likely be part of the program.  

Despite the past problems with the chief's accounting (and improper defense of it) and the continued use of the City's general fund and staff during normal work hours to run the charitable program, I support the program on principle and am happy to see it expand with firefighters and EMTs getting involved. 

[stump]

Dianne, I think the number is $733 thousand over 10 years.

[Freedom Seeker]

So that's like $75,000 (plus or minus) a year for 10 years missing from year to year.  That's a good bonus for someone?