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By JOLYN RESNICK jolynr@leader.net
Sunday, October 06, 2002 Page: 1A
WILKES-BARRE – Because Mayor Tom McGroarty botched the call center project
from the beginning, city homeowners face a possible 10 mill tax increase,
according to the investigative committee studying that and other city
projects.
In its final report on the call center, the panel also questioned the
legality of the call center transaction, pointing out that the mayor received
only one appraisal for the Chacko Bowling Lanes property on which the call
center now sits.
The call center, located on South Main Street, a facility that takes in
orders over the phone from catalog customers.
According to the report, the appraisal was for $737,000. However, the city
paid $1.1 million to the Chacko family for the building.
“The conclusions which we have reached are inescapable,” the panel wrote.
“The Call Center Project is in its present state of financial distress for
one reason and one reason only. Mayor McGroarty insisted on being the
developer, rejected assistance from the business community and the Chamber of
Business & Industry and then bluntly ignored the findings and recommendation
that the Pennsylvania Industrial Development Authority presented to him …”
concerning the proposed lease.
The panel consists of: Chairman Tom Torbik, a Ramada Inn partner; Kevin
Foley, a certified public accountant with Kronick, Kalada Berdy and Co.; John
Kebles, president and chief executive officer with Choice One Credit Union;
Teresa McGuire, GAR High School principal; and Wesley Simmers, a retired bank
president. McGuire on Saturday said the panel’s findings were unanimous.
McGuire said the fact that the state authority indicated it did not agree
with the original lease and pulled out its grant money was the most disturbing
fact the panel uncovered. “Everything that happened after that could have
been prevented.”
The Redevelopment Authority, with the city’s backing, in 1998 floated two
bonds to help finance the project, one for $7.5 million and another for $2.38
million.
The building’s first tenant was Corporate Express. A short time later, the
lease was taken over by United Stationers. In 2001, a new tenant came into the
picture, Customer Satisfaction First – and a new lease was negotiated, without
council approval, the report states.
That tenant failed to pay rent and other fees. As of Oct. 1, 2002, the
unpaid rent owned by the Texas-based corporation was $621,939.
The report states that the taxpayers of the city are on the hook for
$15,098,423 and another $2,765,800 in state and county grants. Also, the city
has taken $464,240 from its general fund to help pay Customer Satisfaction
First’s unpaid debts.
In a prepared statement, McGroarty called the report political and said the
panel is “biased and unfair.”
“It is crystal clear that this committee is being used for political
purposes and that is just plain wrong,” McGroarty wrote. “If one is looking
for fault, that is all one will find. If everyone joined together we could
help make the city better.
“As Mayor in hind sight I would do things differently, so would many
others,” he wrote. In other projects, such as bringing Commonwealth Telephone
to the Wilkes-Barre Center in downtown, he said he was criticized for being to
“harsh.”
“The members of City Council who did not look at this project themselves
because they too knew they were a large part of it. One only needs to look at
the pictures of the ground breaking. The former principal of GAR High School
even brought the school band.”
City Council members reached for comment, including those who were members
of the board when the project began, say otherwise.
Councilman Jim McCarthy said the “conclusions could have been reached by
anybody who took the time that the investigative committee did.”
“The only way the mayor can call this document political is if the facts
are inaccurate,” said council Chairman Tom Leighton. “If the facts are
accurate, the mayor has to come before council and explain how he could have
done this to the taxpayers of this city.”
The five-member panel also concluded:
McGroarty bid the call center project in the spring of 1998 and started
construction shortly thereafter – even though the lease was not signed until
Sept. 30.
“There is no way Mayor McGroarty could have negotiated from any point of
strength with Call Center since millions of dollars of construction money had
already been spent on the building prior to the lease being signed by the
tenant,” the report states.
The project was a joint effort between the chamber and city when it first
started in early 1997. The chamber had prepared a draft lease containing
“necessary safeguards” to protect the city (which guaranteed bonds for the
city authority).
But, in Oct. 1997, the chamber was notified that it was “out of the
deal,” and McGroarty negotiated a lease that did not include standard
commercial clauses, such as a confession of judgment, an acceleration clause
and a rental guarantee from a strong corporate partner.
“Without these conditions the taxpayers of the City now have the
responsibility to repay the debt.”
Although the state authority expressed concerns about the city’s lease,
McGroarty never briefed the Redevelopment Authority or City Council regarding
those concerns, even though the authority was the lessor and the city was the
guarantor.
McGroarty told council the city was not canceling a state authority grant
application on Sept. 22, 1998, the application was canceled seven days later
by a letter from then Redevelopment Authority counsel, Cathy O’Donnell, “at
the direction of the mayor.” O’Donnell could not be reached for comment
Saturday.
“If Mayor McGroarty had not taken the Chamber out of the picture…and if
the project ended up in the same condition it is now, the Chamber of Commerce
would be holding the bag and not the taxpayers of the City of Wilkes-Barre.
“The annual debt service on the two 1998 bond issues equals approximately
$685,000 per year. Based on 1 mill equaling approximately $70,000 in tax
money, all things being equal, if the issues with the tenant are not favorably
resolved quickly, Wilkes-Barre City taxes may have to be raised approximately
10 mills to cover the obligation until the year 2019.”
Homeowners also might face an additional 14-15 mill tax increase because
the city has defaulted on its second tax anticipation note for the year and
the banks involved are threatening a lawsuit to recoup the money, McCarthy
said.
A mill is a $1 tax for each $1,000 of assessed property value.
What the panel recommends
The panel issued nine sweeping recommendations, including that the
Redevelopment Authority needs to operate independently of the city
administration.
“In this case, the Authority was clearly too closely tied to the Mayor
through the Authority’s Secretary-Treasurer (Marie McCormick)…who also
serves as the Mayor’s Executive Assistant,” the report states. McCormick did
not return a request for comment Saturday.
Further, the panel recommended that the mayor seek the advice and
assistance of the business and professional community, the city solicitor and
council in “complex transactions which will affect the city.”
Also, the report notes that the current call center lessee has no insurance
on the building – “despite the requirement that insurance be in place.” And
the report recommends the city receive two appraisals before acquiring a
property.
Council weighs in
Council Chairman Tom Leighton said McGroarty had told council before
construction started that the lease had been prepared and presented to the
company. “There was an understanding that everything had been executed when
it hadn’t.”
Leighton also said that council will “most likely seek outside counsel to
review this document.” He called the call center project “a pure case of
mismanagement and misrepresentation on the part of the mayor and the
administration.”
Councilman Jim McCarthy suggested that beginning the project without the
lease being signed might be illegal. “We depend on the mayor and the mayor’s
staff to tell us. We depend on people giving us the truth.”
Councilwoman Shirley Morio Vitanovec, who was not on council when the
project began, said everybody trusted McGroarty at that time. She said the
mayor was “energetic and willing to work for the city” in his first term.
She said he has since turned into a “dictator” who has “ruined the city
of Wilkes-Barre.”
Councilman Tony Thomas Jr., who was not on the panel during call center
construction, said he understands why council never questioned the lease.
McGroarty had “free rein. They trusted him and they got burned.”
“Every taxpayer in the city got burned. Once the cost of (McGroarty’s)
creative financing is realized, you will see an exodus (of residents) of
Gothic proportions.”
“I would point out that Monday morning quarterbacks are always right,”
McGroarty said in his prepared statement. “I know the public knows that many
others were part of this project besides the Mayor, and we all could have done
better.”