Erie Street Market - questions that deserve answers

Here's what I don't understand. Citifest had a contract with the City of Toledo to manage the Erie Street Market. I've read the contract and it says that Citifest has no liability for any losses ESM may incur.

So why is it that Mayor Carty Finkbeiner continues to say that they are liable for outstanding bills?

A press release issued Friday afternoon announcing that ESM vendors will get the payments due to them, states that "The money in question is owed by CitiFest - not the City of Toledo." Carty is quoted saying, “We’ll make good on Citifest’s debt and pursue all avenues to ensure CitiFest eventually pays their debts.”

There is a huge contradiction here and no one is asking about it - or, if they are, they aren't sharing the explanation. You can't have Citifest liable for debts when their contract says they incur no liability for losses. From their contract:

WHEREAS, it is the intention of the City to appropriate monies for the Market Project sufficient to meet its management and operation needs until such time as it becomes self-supporting, provided that future availability of City funding and appropriation is subject to the standard procedures of the City's yearly budget allocation processes;
...
WHEREAS, CITIFEST shall have no responsibility or liability to provide financial support for the Market Project and shall not be denied either its current allocation from the city or any similar future allocations for entering into this Management Agreement;
...
8. REVENUES
b. Deposits and Disbursements: ... CITIFEST is hereby authorized and empowered to draw on the Account for the payment of (i) first, all compensation to which it is entitled to pursuant to this Agreement and (ii) second, any and all liabilities, expenses and obligations incurred by CITIFEST in carrying out the terms pursuant and performing it obligations under this Agreement. After deposit of all gross revenues from the Market Project, CITIFEST shall disburse such revenues with the Payment of the Operating Expenses section below.
...
9. PAYMENT OF OPERATING EXPENSES. CITIFEST shall pay...all fees, costs and expenses ... except for expenses which the City has agreed in this Agreement or otherwise to pay directly, and always subject to the availability of funds in the Account. ... and CITIFEST shall have no liability for such Market Project fees, costs and expenses except as set forth in this Agreement.
...
15. BUDGET AND PLANS. ... Further, CITIFEST shall have no responsibility or liability to provide financial support for the Market Project.

Numerous times the contract specifically absolves Citifest of ESM liabilities and says that they're supposed to pay bills "subject to the availability of funds." And the contract says Citifest gets to subtract their payment for their services first.

Some may say this wasn't a good contract for the city to sign, but that is a moot point now. The contract was signed, Citifest followed the contract and now Carty is saying they need to pay the debt on the operations of the Market, directly contradicting the contract.

Why am I the only person pointing this out and asking this question?

But that's not the only issue. Citifest says that they ran out of money as an organization because they did cover losses at ESM that they weren't required to pay, expecting funds from the City, as per the first 'whereas' in their contract.

Carty hired an auditor (at an estimated expense of $7,000) to review the books because he implied that the ESM couldn't have lost money and that ESM profits must have gone to cover Citifest bills. But when the audit was released, there was nothing in it that indicated the profit and losses of either operation, just a review of the accounting processes which, incidentally, found that ESM had not been charged enough in several line items. That would indicate, however, an even greater operating loss for the Market.

ESM has never made a profit and has traditionally required financial support from the city. Such monetary support was not provided in 2007, and, as a result, Citifest expended money to run the facility and is now closed. But ESM is still open - and the Mayor continues to say that a new business plan is in the works. From the press release:

"The City’s Department of Development has prepared a business plan to make the market profitable. This plan has been submitted to a committee of local business people for their review and input. When this review is complete, it will be presented to Toledo City Council for action."

(Wonder what would happen if I asked for a copy of this public record, even if it is in draft form???)

Fortunately, City Council wants a public hearing on this and the proposal from the Mayor to establish an account for receipts and expenditures so the Market can continue to operate. Seems to me that Council would want to see the business plan first.

And if I were on Council, I'd ask for a P&L statement on each operation - Citifest and the ESM, so I'd be able to see whether or not ESM was operating at a loss. And if Citifest was owed reimbursement for any costs they covered, I'd probably want to reimburse them per the terms of the contract, even if I thought the terms of the contract were not favorable to the city or to the taxpayer. But then, if I were on Council, I would have raised those points prior to voting on the contract in the first place.

The ESM is - and always has been - Carty's baby. We all know he wants to continue to have the city run it, especially in light of his comment that anyone who disagrees with him that it can be profitable - well, 'the facts are on my side' he says. Of course, if you never actually get the facts in terms of a P&L statement, you can stand by that comment.

And don't forget that the ESM is heavily subsidized by the City for heating and electricity. The 2008 budget predicts ESM will have a profit of $306,148, but it also allocates City funds of $287,370 for electricity and $14,191 for heating.

NOTE TO Carty: ESM doesn't have a "profit" of over $300,000 if taxpayers are paying roughly the same amount to cover utility costs! Perhaps you should include that in your 'facts.'

The future of ESM is now up to City Council. I hope they ask these questions and demand answers to them PRIOR to making any decisions. In the end, it's important to remember that the City of Toledo has no record of success with any such ventures. As former District 5 Councilwoman Ellen Grachek has said, "The time has come to gracefully exit, if there is such a thing, from the Erie Street Market."

The importance of NORIS

That's the title of my Eye on Toledo column in this week's Toledo Free Press, and I hope you'll take the time to read it. Vallie Bowman-English, the Clerk of Toledo Municipal Court, will be my guest on Eye on Toledo Thursday, Dec. 27, and we'll discuss just what NORIS means to her and her office. I believe that NORIS is vital to community safety - every bit as
important as police or fire departments - and the mayor should fund this
before he wastes tax funds on his various pet projects.

Also in this issue of the TFP is a great article on Camp Adventure and a must-read by Justin Kalmes which focuses on comments by city of Toledo staffer Andy Ferrara about Citifest and the Erie Street Market. Interestingly, what Ferrara says now seems to conflict with earlier statements about the ordinance on council's agenda for January 2, 2008, not including any 'public funds.'

Enjoy!

Mayoral spin on Citifest audit - UPDATED

Mayor Carty Finkbeiner had requested an audit of Citifest, a non-profit agency charged with putting on various events in the downtown area and, for the last several years, with managing the city-owned Erie Street Market. (background on the issue is here)

Yesterday, he issued a press release on the outcome of the audit, saying "While there is no evidence of wrongdoing or misappropriation, it is clear that CitiFest did not meet their managerial or fiduciary responsibility to the City of Toledo in managing the Erie Street Market."

Now, there's no explanation of why the Mayor believes this and there's nothing in the audit report accompanying the press release to indicate such responsibility had not been met. Interestingly, the big question prior to beginning the audit was whether or not the expenses/losses at the Erie Street Market (ESM) are what caused Citifest to run out of money. That issue isn't even addressed.

What is addressed are the following with the auditor's comments in italics:

* were monies for electricity costs properly allocated to ESM? We noted no exceptions and electricity income appears to be properly allocated to ESM.

* was reimbursement for security services properly allocated to ESM? The amount of the security reimbursement income is $7,497 for the nine months ended September 30, 2007 which appears to be properly recorded and allocated to ESM.

* were payroll expenses for Erie Street Market personnel appropriately reflected in the books and records of Erie Street Market? All allocations were consistent and appear to be reasonable.

* were professional fees for services to or at ESM properly allocated to ESM? After review of all legal invoices by CitiFest representatives, the allocation of legal fees to ESM was increased by $2,559. ... Based on additional analysis by CitiFest representatives, professional fees allocated to ESM were increased by $5,276 from $13,897 to $19,173 for accounting and legal fees which had been previously allocated to CitiFest. After adjustments, all allocations appear to be reasonable and calculated consistently.

* were insurance expenses properly allocated? There were some adjustments to the liability/property insurance allocations, but it doesn't say if the adjustments were up or down. Under health/dental/vision insurance, "appropriate payroll deductions from one of the employees for this additional coverage had not been made and ESM was owed $355 which was not reflected in the September 30, 2007 financial statements. However, all amounts owed are expected to be ultimately collected."

* were advertising expenses properly allocated to ESM? One invoice was billed to ESM Catering and should have been billed to ESM. It appears that the advertising charges reviewed were related to ESM activities and properly allocated.

* were bank service charges appropriately and consistently allocated? Total bank service charges allocated to ESM, Antique Mall and ESM Catering were $8,637, of which approximately $6,750 resulted from bank overdraft fees. Bank service charges have been allocated consistently under this policy.

* determine the basis of the $2,500 per month general and administrative fee that Erie Street Market pays to CitiFest and determine what services Erie Street Market receives in consideration for this payment. ... we understand this charge was an administrative fee for the estimated time spent on ESM matters by the following employees of CitiFest: Executive Director, Executive Assistant and Special Events Coordinator. The monthly amount of $2,500 for the services of those individuals has remained the same since 2004, when it was approved by the Board of Trustees of CitiFest as part of the annual budget process. There is no written agreement between CitiFest and ESM to support this amount.

For the nine months ended September 30, 2007, the amount charged by CitiFest to ESM for these services was $22,500. This amount was approximately 19% of the total salary, payroll tax and employee benefit costs of the individuals who held these positions in 2007.

We examined the invoices from DTID (Downtown Toledo Improvement District) to ESM for September, October and November 2006 all of which were paid in 2007 and we noted no exceptions. These expenses were appropriately allocated to ESM.

So that's what the report said, but somehow I wonder if Carty actually read it. His press release also says:

"Due to the commingling of funds, it was impossible to determine if overdraft fees were charged to the Erie Street Market for expenses incurred by the Market or by Citifest."

Now, the audit says "Total bank service charges allocated to ESM, Antique Mall and ESM Catering were $8,637, of which approximately $6,750 resulted from bank overdraft fees." So how can Carty make the claim that it was impossible to determine? He can't.

Finally, his press release says:

"Finally, as managers of the Market, CitiFest leadership had an obligation to report operating losses so that staffing or other expenses could be adjusted. They made no such effort despite the fact that members of my administration and I met with CitiFest leadership regularly through 2007. CitiFest officials never indicated that there were financial difficulties until they ran out of funding in November, and had incurred in excess of $40,000 in bad check fees."

I'm not sure what Carty's expecting in this regard. Two representatives from the city sit on Citifest's board and both were present at the meetings over the last year where the financial issues/problems were discussed. One representative works for the City Auditor and appears to report to City Council. The other works for the Mayor.

So, Mayor, who's at fault for you not knowing about the financial difficulty - Citifest or your own employees who should have been sharing this information with you and their superiors on a regular basis? Personally, if I were to send a rep to sit on a board, I'd expect some kind of report monthly following each board meeting - and I'd read them. Perhaps Carty's employee did make regular reports but they never made it through the bureaucracy? Or maybe they did and were ignored until it was too late? Who knows?

But, the ESM has never made a profit and has traditionally required financial support from the city. Such monetary support was not provided in 2007, and, as a result, Citifest expended money to run the facility and is now closed. But ESM is still open.

Per the press release:

"The City of Toledo has assumed management of the Erie Street Market and is in the process of developing a business plan to ensure the Market’s su "

I believe the last word is supposed to be 'success,' but this is copied as received.

Unfortunately, Carty's actions have resulted in the closing of Citifest while a consistently failing ESM is going to get a new business plan from the city, despite the city's proven inability to provide a successful plan in the past.

Just a question, Mayor. When ESM continues to fail, who will you blame then?

UPDATE: Here is The Blade's take on the press release sent out (which, remember, included the letter from the auditors to the city). 13ABC had a blurb in their morning headlines section. NBC24 comments on the audit and not the Mayor's press release - they also have a copy of the audit report available. And here is the Fox 36 Toledo coverage. Also, here is WSPD's coverage and sound clips from Citifest Board Chairman Brian Epstein.

Toledo Free Press looks at Citifest

This week's Toledo Free Press has a terrific article on Citifest and the struggles they face with the City of Toledo in light of their management agreement to run the Erie Street Market.

Interestingly, the article says that Citifest did not want to do the Rallys by the River which lose money - but that Finkbeiner wanted them during the summer, so Citifest had to host them.

And then there is this, which I think says it all:

"(Citifest board chair Brian) Epstein refuted Schwartz's claim the market has a constant revenue stream that allows it to self-sustain.

“There isn't” a revenue stream, Epstein said. “Revenues aren't covering expenses. That's how you get an operational loss. If they can't understand that, how the hell are they running the finances of the city?”"

***

I'd also suggest that you read my column about 'quality of life' amenities...they're the result of economic development - not the cause of it.