Monday, September 26, 2022

Town Manager Jacobs Resigns After Proposing "Laundering" ARPA Funds

Jacobs resigns
Town Manager Mary Jacobs resigned Friday. We do not know the reasons behind this. We do know that she proposed a money laundering scheme regarding $5.38million in ARPA funds. This happened at the Town Council meeting last Wednesday. You can read about this scheme in this article.

We do know that council conducted her annual review as scheduled after she had proposed this scheme. 
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Jacobs proposed laundering ARPA funds 

Jacobs and her staff tried to “pull a fast one”. She put an item, Consent Agenda, item 2, on last week’s council meeting, which was an item that clearly needed discussion. Consent Agenda items are not discussed at the meeting unless a council member requests that the item be pulled for discussion. Otherwise, Consent Agenda items are voted on as a block.

The item called for the council to approve a loan of  $5.38 million from the General Fund to the Water Utility Fund.  These funds were received from the federal government as part of the ARPA award. ARPA required that the funds be used for water infrastructure projects. Under Jacobs’ scheme, the utility would pay back this money with interest over time. 

Rather than simply gifting the money from the town to the Water Utility to build infrastructure, Jacobs wanted to lend the money to the Water Utility so that the town can get it back and use it for another purpose, one not related to the federal allowable use of these funds.

As council member Steve Solomon pointed out at the council meeting, the scheme sounds like the town is trying to get around federal regulations for the use of the money because the town will get the money back and then use it for some other, non ARPA allowable purpose.

Solomon was exactly right.  

The Water Utility was the conduit for the sham transaction
Speaking in defense of the loan arrangement, Town Manager Mary Jacobs said that the money that the utility will be getting would be the ARPA funds which carry the restriction that be used for water infrastructure.  According to Jacobs, the money the town will get back in loan repayment and interest would be unrestricted. It will not get back ARPA funds. The funds would be from the general revenues of the Water Utility.

Attention all.

This is called “money laundering”.

Gephart: It's OK to do this because the Water Utility is an enterprise fund
Town Finance Director David Gephart justified the scheme because he felt that the town should not simply transfer the money to the utility.  Gephart said that the reason that a loan has been proposed is because the Water Utility is supposed to be a self sustaining (“An Enterprise Fund”) entity. Thus, anything that has to do with the Water Utility, including administrative services that are provided by the town must be paid by the utility.

The loan approach, according to Gephart, provides the appearance that the Water Utility is self-supporting. Gephart also explained that the town had no alternative but to use this money for the Water Utility system. That’s because any other allowable uses were just not feasible for the town.

So, why not just gift the money to the Water Utility Fund and be done with it? After all, these ARPA monies were gifted to the town by the federal government  The funds are intended to be used for water infrastructure projects.  In this case, the town’s general fund is merely a conduit to get the money to the town-owned Water Utility Fund because the Water Utility did not get the funds get directly from the federal government.

Jacobs tried to do this "in the dark of night" by putting the item on the “Consent Agenda” segment of the town council meeting
Jacobs claimed at the meeting that she wrote about this loan transaction in April. Council Member Bohen agreed that he found it buried in a document council received back then. The members never discussed it then because they were never really aware of it.

It would not have been discussed last week had it not been for the sharp eyes of Bohen, Jones-Ivey and Solomon. The former two asked for the item to be pulled from the Consent Agenda for discussion. Solomon identified the transaction for the “sham” that it is.

Former Town Manager Jacobs tried to put "one past them." 

Fortunately, she failed.
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