After two expensive out-of-courts settlements, the city is paying dearly for parting with its last two chief financial officers.
The Hoboken City Council recently approved a $500,000 settlement that clears the way for Municipal CFO George DeStefano, whom the state’s Department of Community Affairs had suspended, to return to his $92,790 job in City Hall.
According to city attorney Joseph Sherman, the city might look to the state to defray some of the costs for DeStefano’s settlement, since the state was the one who officially suspended DeStefano.
Last year, the city had to pay a $183,000 settlement to former CFO Michael Lenz, who was DeStefano’s replacement. Lenz had been fired by the city.
The political blame game
DeStefano held the CFO position from 1996 until he was suspended in 2002.
After fighting the suspension for nearly the past three years, DeStefano was awarded with a major victory in May when Administrative Law Judge Barry Frank dismissed six out of seven charges that related to his handling of the city’s budget, the remaining charge being relatively minor.
Initially, the state had charged that DeStefano “neglected or failed to perform his duties as CFO, and by his failure placed the city in danger for financial distress.”
Back in 2002, Roberts’ political opposition was starting to raise serious concerns about the city’s budgeting. Critics questioned the administration’s spending, the size of the city’s structural deficit, and budgetary over-expenditures.
At this time, the state’s Department of Community Affairs issued a damning report saying that DeStefano “inadequately monitored the city budget,” which led to $8 million in overspending by the administration of former Mayor Anthony Russo.
On Sept. 23, 2002, DeStefano was suspended by the DCA, the agency that has oversight of municipal budgeting. Those close to DeStefano charged that Roberts used his connections in Trenton to lobby the DCA to get DeStefano blamed and suspended.
DeStefano denied that there were any overexpenditures and claimed that because he is the brother-in-law of former Mayor Anthony Russo, whom Mayor David Roberts had just beaten in an election, he was “being harassed” by the Roberts administration.
Russo is now serving time in jail due to municipal corruption.
The administrative judge ruled that the fundamental problems in the makeup of the Finance Department were more to blame than DeStefano.
“It was DeStefano’s job to ensure compliance with the regulations, and if he was being prevented from accomplishing this goal due to inadequate staffing, computer problems, political problems or other departments ignoring him, he should have notified the Department of Local Government Services,” Frank ruled. “It is this court’s decision that the state has not proven DeStefano’s behavior warrants termination and revocation of his licenses. However, the apparent lack of effective communication does warrant a lesser form of punishment.”
The one count that stood up was that DeStefano violated the “48 hour” rule, which states that any department that received cash must turn it over to the Finance Department to deposit it within 48 hours.
The judge ordered that there be a 30-day suspension of DeStefano’s municipal finance officer certification, and a 30-day suspension without pay from office as chief financial officer for the City of Hoboken.
DeStefano was then to be “restored to his tenured position together with any back pay and benefits due him after accounting for monies earned during his improper suspension.”
Concurrently with the state Administrative Law case, DeStefano filed a federal lawsuit against the city challenging how the city handled the suspension.
After the administrative judge ruled in DeStefano’s favor, the City Council decided to settle with DeStefano in return for his dropping the federal case.
According the to settlement, DeStefano will receive $252,603 to be covered by the 2006 fiscal year budget, and $247,870 in the 2007 fiscal year budget. The amounts are for back salary, legal expenses, and compensatory damages.
In addition to the compensation package, DeStefano will receive a yearly salary of $92,790.
Wednesday was DeStefano’s first day back on the job. He said that he harbors no ill will towards those in the Roberts administration.
“I’m just excited to get back to work,” DeStefano said Wednesday night. “I think everyone is ready to put all of this behind us.”
Not the first time
The settlement looks especially bad for Roberts’ administration, considering that this is the second CFO who has won a settlement in the past three years.
In 2004, the city reached a settlement with fired CFO Michael Lenz for $183,000. Lenz, who was only on the job for around eight months, had sued the city for defamation, among other charges.
Lenz served as Roberts’ campaign manager during the 2001 mayoral election. A year after Roberts won, Lenz, a CPA, was hired as the city’s chief financial officer. But the two had a falling out.
Among Lenz’s jobs was to put together the city’s budget. The budget was passed in January of 2003. A few months later, the city realized it had underbudgeted and was forced to appropriate additional emergency money. In spring of 2003, Lenz supported a council ticket that was opposition to the mayor’s ticket. At the time, there were political accusations made in public by several pro-Roberts council members and administration officials that CFO Lenz was purposely making the city’s books look worse than they truly were.
On Election Day in May of 2003, the Roberts administration fired Lenz based on an internal investigation by their auditors, Ernst and Young. The administration charged that the city’s Finance Department, under Lenz, had miscalculated how much in emergency appropriations would be needed to finish the fiscal year that ran from July 1, 2002 to June 30, 2003.
Lenz said that he did his job in a professional manner and, based on the data he had before him, made an honest estimation of how much more money would be needed to finish the year.
Lenz’s position was later strengthened by a city audit for the fiscal year 2003, which was released in April of 2004. According to the audit, Lenz did not overestimate how much was needed to run the city; in fact, he underestimated it. The audit showed that the city’s fiscal shape at the time was even worse than his “conservative” estimate, therefore Lenz did not overestimate the state of the books for political gain.
Lenz’s settlement was made in return for him dropping his “whistleblower” and defamation suit against the mayor and city, then-Business Administrator Robert Drasheff, and the Roberts-aligned City Council members who first voted for Lenz’s termination.
The track record of the Finance Department has left much to be desired. The most recent audit, which was completed by the firm Ernst & Young, contains 29 comments about areas in need of adjustment. Several of the comments point to major problems in how the city keeps its books.
The Finance Department is understaffed, which has led to problems in keeping an up-to-date general ledger. This has made it difficult for the city to maintain an accurate picture of its true fiscal health and has made creating a high quality budget problematic.
But there are possible major changes on the horizon.
In an effort maintain better municipal records, the council recently approved a $300,000 contract with Donahue, Gironda, and Doria – a Bayonne firm that specializes in municipal accounting – to privatize the city’s Finance Department.
The basic role of the Finance Department is to record every dollar that comes into and leaves the city’s coffers. According to city officials, the firm will work with DeStefano to manage the city’s books.
“I’m 100 percent in favor of the privatization,” DeStefano said. “If you look at the judge’s comments and the comments in recent audits, much [of the Finance Department’s] problems are due to inadequate staffing. Bringing in a professional auditing firm will help improve the situation.”
Tom Jennemann can be reached at firstname.lastname@example.org