Reacting to allegations that the town of Secaucus may have violated state bidding laws in directing billboard revenues to two non-profit organizations, Town Attorney Frank Leanza issued a report explaining in detail the town’s legal standing.
According to experts quoted in a recent Philadelphia Inquirer story, the town violated bidding laws by not seeking competitive bids for the two projects. The story also claimed that the town may have used two men close to then-gubernatorial candidate Jim McGreevey to get approvals for the deals.
Leanza said the town – as a governmental body – had no part in the actual billboard transactions. “All we did was to lease the two non-profits the land (for $10 a year), and we did that by ordinance,” Leanza said.
The town had negotiated to install two billboards on town-owned property to provide revenue for two non-profit organizations in town – Friends of the Library, and the Secaucus Youth Alliance. The Friends could then use the revenue to repay a loan from the town. The Secaucus Youth Alliance could use the money for a recreation center.
It now appears that the library’s using billboard funds to pay back the city may not be allowed (see sidebar).
While state statute requires local governmental bodies to seek requests for proposals or bids, non-profit organizations are not bound by the same regulations. Some of the people involved in setting up one of the non-profit organizations and filing papers of incorporation with the state and federal government are town employees or under contract by the town, but operated as volunteers. Thus, some might charge that town employees skirted bidding laws, but in this case, the employees were acting as volunteers for separate non-profits.
Peggy Barkala, when handling the billboard revenues for the Friends of the Library, was acting as a volunteer treasurer, not in her official capacity as the town’s chief finance officer, Leanza said.
Leanza said one of the concerns he and other public officials had in setting up the Secaucus Youth Alliance was to keep it separate from the town.
“That’s why I said the checks should not come to the Town Hall,” Leanza said.
Some of the questions raised in the Philadelphia Inquirer suggested that money from the billboards would go into the town’s coffers.
“Had the money gone into the municipal budget, then we would have violated the law,” Leanza said. “None of this money can ever come to the town of Secaucus. In fact, these two non-profits are separate organizations. They have been registered with the treasurer of the state. The money they collect is limited to three or four specific things. The money cannot be used for anything else.”
The money generated from the billboards to the Friends of the Library must go towards enhancing the library and reading comprehension programs.
“These are organizations registered with the IRS, and are governed by their own bylaws and federal tax codes,” Leanza said. “The money cannot go to any individuals, even if the one or both of the organizations should cease operations.”
Mayor Dennis Elwell said that under state and federal law, the funds collected by either organization must go to another non-profit organization if either or both organizations decide to close down.
“All jurisdiction over these organizations is in the hands of the IRS,” Leanza said. “Even the mayor, with all his power in the town, cannot say where the money can go.”
The Inquirer article also noted that other billboards operating along the Turnpike – that had gone through an RFP or bidding process – actually received more money than those funding the two non-profits in Secaucus. Thus, if the non-profits had gotten competitive bids, they might have been able to raise more money.
However, Leanza said, “What the article neglected to say is that the other billboards were part of a package of billboards.” Leanza noted that the other billboards, located on Turnpike property, had a higher visibility than those the town offered, and thus were worth more to advertisers.
Some problems
But in his report to the Town Council, Leanza acknowledged problems with the Friends of the Library, which was organized as a non-profit corporation in December, 1997 to provide funds and program opportunities for the library. The charter was revoked on July 16, 2000 for failure to file annual reports.
“Unfortunately, this is a common occurrence among both non-profit and for-profit corporations,” Leanza wrote in the report. “Fortunately, the procedure for reinstating the corporate charter is quite simple.”
A application for instatement was filed on Feb. 20, 2001, and granted eight days later by the New Jersey Department of Treasury. Unfortunately, the original charter did not meet federal regulations. The organization applied for and was granted a federal designation as a non-profit by August, 2001.
“During this time period of intense fundraising efforts for our new library, the town was contacted by attorney-entrepreneur Paul -Levinsohn,” Leanza wrote in his report.
Levinsohn, according to this account, made the town aware of the potential for raising funds through billboards along the Turnpike.
Levinsohn at the time was working on McGreevey’s campaign, and would later become a McGreevey appointee.
“Mr. Levinsohn, who had both expertise in this area and had devoted considerable time to finding locations such as the DPW site, stated that originally a billboard could not be placed at the DPW, as there were existing billboards in close proximity,” Leanza wrote. “He indicated that the New Jersey commissioner of transportation had the power to grant a waiver from the billboard distance requirements, but such waivers were not usually forthcoming. He indicated that the commissioner might be more inclined to issue such a waiver if the billboard proceeds would insure to benefit a charity.”
Levinsohn offered to schedule a meeting with the commissioner. Leanza, Town Administrator Anthony Iacono, Mayor Dennis Elwell and Levinsohn met with the DOT commissioner and unveiled the plans to help fund the new library’s interior with the billboard money. They received permission to move ahead.
The town later identified a second billboard site near Kane Stadium and determined to dedicate revenues from this site to the newly created Secaucus Youth Alliance.
The billboards were owned by a company owned by Levinsohn and Gary Taffet, both of whom at the time were working for the McGreevey campaign. They later sold the company before taking their appointments with the McGreevey administration.
Both non-profits, Leanza wrote, continue as separate and independent from the town, although Leanza was involved in establishing the second organization because of his expertise in that area.
Leanza expands on his report
During a question-and-answer session, Leanza responded to the Secaucus Reporter’s questions on the matter on Tuesday.
Leanza said he wanted to make it clear that the operations of the town are separate from those of the two non-profits. But he said he was not troubled by the close connection between town officials and the boards controlling the two non-profits. Iacono initiated the contact with Levinsohn. Barkala, the chief financial officer for the town, also acts as treasurer of the Friends of the Library. Her husband is treasurer of the Secaucus Youth Alliance.
“I wanted someone in charge of the finances that knew how to handle them,” Leanza said. “Since Peggy had been a member of the Friends of the Library for years, this made sense.”
Leanza responded to the following questions:
Was Levinsohn picked because of his political connections?
“We picked them because we thought they were the people who could get the job done,” Leanza said. “They had a track record for doing work like this. We weren’t thinking about their political affiliations.”
Leanza said if the move was political, why did Levinsohn need to hire a well-known political lobbyist to help him get the necessary waivers?
Why didn’t the two billboards go through the usual bidding process?
“Because, as a non-profit they don’t have to,” he said, “and considering what happened when we bid the construction of the library, we were right.”
(The contractor who won the original bid for the library construction was replaced after falling more than a year behind schedule.)
Leanza said that in seeking revenues for these two non-profits, the town was interested in providing revenue for the library and for the construction of a possible recreation center, not to steer any construction or design contracts to any particular vendors. Leanza also said the town had sought out Levinsohn only because of reports that the man could get the billboards approved.
“I think we had one shot at getting the waiver,” he said. “If we had bid this out and the contract had gone to another firm, that firm might not have been able to get the waiver for us and we would not have either billboard today.”
Friends of Library can’t pay town debt
In a series of questions about the details behind the lease of land for two billboards, the Secaucus Reporter has learned that the new public library cannot use revenues generated by one of two billboards to pay back a $1 million loan taken out for them by the town.
“The Friends cannot use this money to pay back a town loan,” said Town Attorney Frank Leanza during several interviews conducted before and after the March 11 special caucus meeting.
Members of the Friends of Library were concerned that if the billboard deal went bust, they might be responsible for the $1 million bond the town took out in order to provide the new library with furnishings.
Town officials revealed that it would be illegal for the Friends of the Library to pay off the debt, despite the fact the town had initially sought billboard revenue for that purpose.
“This is the first I’m hearing about this,” said Councilman Bob Kickey last week. “We were told when we took that bond out that it was not going to cost taxpayers any money.”
Pressed by lack of funds to furnish the newly constructed library, town officials had leased property to the Friends of the Library for the billboard and helped broker a deal with Matt Outdoor Advertising to construct the billboard there.
Councilman John Bueckner agreed with Kickey that the bond had been proposed with the proviso that the Friends of the Library would pay off the debt from billboard revenues.
The billboards came into closer scrutiny after two stories appeared in the Philadelphia Inquirer questioning whether or not town officials used political connections to get waivers to install the billboards close to each other along the New Jersey Turnpike.
“From everything I was told, the billboard was supposed to pay for the furnishings,” Bueckner said.
Councilman Michael Grecco recalled the council talking about funding the furnishings by bonding during early discussions.
“Then, when this billboard issue came up, we thought we would pay for the furnishings that way if we could,” Grecco said. “But since we bonded for the money as the town, we are obligated to pay the debt, not the Friends of the Library.”
Kickey and Bueckner, however, said that the billboard issue had not been thoroughly discussed by the council. “We were presented with this,” said Kickey. “We didn’t really talk this out.”
Kickey said he was concerned about conditions placed on the Department of Transportation waiver as to where the money should go.
“I think the DOT was worried about this money going into the municipal coffers rather than going to the Friends of the Library,” Kickey said.
Mayor Dennis Elwell said no bonding company would give the Friends of the Library a loan. So the city bonded for $1 million to cover the furnishings and expected the billboard to give the Friends some revenues that they could give then pay back to the city.
If the library had gotten the billboard revenue in one lump sum and used it to pay for library furnishings itself, there would have been no problem. But since the billboard revenue comes periodically, it was easier for the city to lend the library the money to the library all at once and be paid back slowly.
But the state waiver for the billboards says that the money must go to a non-profit and not the city. And statutes say that non-profits cannot use their money to pay back a municipal debt.
“We thought the billboard could offset the cost of the bond,” Elwell said.
Elwell noted that the town already does give the library a percentage of its municipal budget, but the Friends of the Library, a non-profit, can help out with extra costs. In this case, the new library was costing more money.
“The cost to operate the library for seven days a week is higher than what they had previously,” Elwell said. “The amount of money that we have to give them won’t increase enough to fully support the library.”
So what will the city do now – bite the bullet and just pay for the increase in library costs?
“Maybe conceptually we can’t do what we thought we could do, but maybe we can do something else,” Elwell said. “Our attorney is looking to get approval to let the Friends use the [billboard] money for programs.”
If the Friends pay for some of those costs, the town will not have to increase its budget as much for the library. And then the town won’t have to worry as much about having the loan paid back.
Elwell said the intent is to find a way to pay for the expanded services.
“We thought we could, but when we checked into it, it turned out not to be the case,” Elwell said. “But the offset is still there.” – Al Sullivan