To Mayor Frank M. Gilliam, Room #706 City Hall, Atlantic City, NJ
On behalf of the members and supporters of LibertyAndProsperity.com, I again congratulate you on your election. We are writing to offer our help to audit, investigate, and dispute what we believe are outrageous bills submitted by Jeff Chiesa and his law firm during their 13 month “takeover” of Atlantic City. We also urge you to reject the State’s demand that Atlantic City taxpayers borrow another $55 million to bail out debts supposedly incurred by the previous Mayor which we believe are unlawful and unenforceable.
Our organization filed a lawsuit against former Mayor Guardian and the State Division of Local Government Services nearly two years ago. We asked Judge Mendez to do three things:
#1. Force Mayor Guardian to immediately introduce a balanced budget to City Council. (It should have been done by January 26).
#2. Declare that Atlantic City was insolvent, and force it to pay priority debts such as salaries and public school expenses before “unsecured debt” such as Wall Street bonds and casino tax appeal refunds.
#3. Set aside the new state law letting Atlantic City casinos pay fixed “Payments In Lieu of Taxes” for the next 10 years, rather than regular property taxes based on property values and the cost of government. We claimed that Article 8, Section 1 (part of the NJ State Constitution since 1875), requires casinos to be “assessed at the same standard of value” as all other taxable properties in Atlantic City and “taxed at the general tax rate”.
In 2010, Atlantic City failed to adopt a balanced budget. In October, 2010, Governor Christie’s State Director of Local Government Services sued Atlantic City for “gross violations” of the Local Budget Law. Judge Valerie Armstrong agreed and ordered the State to “supervise” Atlantic City finances.
We filed our lawsuit in April of 2016 when Mayor Guardian, with permission of the State “monitor” was again three months late in submitting a budget. In that lawsuit, we discovered the following facts:
a. The City was in still in “gross violation” of the Local Budget Law and ran deficits of roughly $80 million during each of its five years under state “supervision”.
b. In 2015, Mayor Guardian and state officials apparently made secret, unwritten (and probably unlawful) agreements for the State to loan $38 million for employee pension and health benefit contributions due in 2015. Neither City Council nor the public were informed of these agreements, nor have OPRA requests produced any written public records of them.
c. Edward Sasdelli, the State Monitor, had countless meetings and communications with Mayor Guardian and members of his administration on budget and financial matters which should have produce many documents. However, only one written record was released. That was a May 10, 2016 email instructing Mayor Guardian to prepare a balanced 2016 budget within two days! That email was not sent to any member of City Council. Mr. Sasdelli resigned one month after sending that email.
d. On May 29, 2016, the State enacted the Municipal Stabilization and Recovery Act (State Takeover Law ). Several days later, the Local Finance Board triggered that law for Atlantic City. It demanding that Atlantic City immediately prepare a budget for 2016, and prepare a balanced 2017 budget and a Five Year Plan balanced budgets by November 3, 2017.
e. Anthony Swan, the Atlantic City attorney, represented to Judge Mendez in August, 2016 that the Mayor would present a balanced budget to City Council the following week, that copies would be available to the public, and that a public hearing would be held before final adoption by City Council. None of that happened.
f. On November 8, 2016, the Local Finance Board declared that Atlantic City failed to meet the conditions it imposed five months earlier. It then gave its Director of Local Government Services, Timothy Cunningham, control of Atlantic City’s local government.
g. One week later, Cunningham, “designated former U.S. Senator Jeffrey S. Chiesa” as his “Director’s Designee” as defined by NJSA:52:27BBBB-3 “in charge of Atlantic City’s financial matters in accordance with the bipartisan Municipal Stabilization and Recovery Act (MSRA).”
#1 Payments to Jeff Chiesa law firm should be investigated and disputed.
During the past three weeks, I submitted routine OPRA requests to the following three government agencies that should have reviewed and/or paid Mr. Chiesa’s invoices:
a. Atlantic City Government
b. NJ Division of Local Government Services
c. New Jersey Department of the Treasury
Each of these agencies reported that they did NOT have any records pertaining to Mr. Chiesa.
I was informed by the New Jersey Division of Law that they have “more than 100 invoices” pertaining to Jeffrey Chiesa and/or his law firm, and that some “require redaction”.
I find this disturbing for several reasons. Jeffrey Chiesa was not appointed to be a lawyer for Atlantic City. He was appointed to be a municipal government administrator as a “designee” for the Director of Local Government Services.
I am an attorney and know that attorneys earn fees at attorney rates only when they provide attorney services. If an attorney does paralegal, or clerical work or delivers documents for a client, he or she can only be paid the fair rate of a secretary, a clerk or a process server. If I as a senior partner complete routine forms that can be done by a second year law school student, I can only be paid at the fair and reasonable rate for a second year law student.
I am sure that lawyers in the Division of Law have expertise in reviewing bills submitted by law firms for legal work done for the state. I am also sure that Mr. Chiesa and his firm did substantial legal work in negotiating settlements with casinos and other property owners who were entitled to tax appeal refunds.
However, much of the work done by Mr. Chiesa and his firm was routine, clerical work that did not require attorney expertise, or the overhead of a law office. The Division of Law does not have expertise in determining the fair and reasonable value of those services.
The Division of Local Government Services does have that expertise. So does your Business Administrator and other department heads. Because neither Atlantic City nor the Division of Local Government Services have any records pertaining to Mr. Chiesa, it appears that none of them reviewed the necessity or reasonableness of Mr. Chiesa’s invoices and payments for non-legal work.
On August 16 last year, the Press of Atlantic City reported that the Chiesa Law Firm billed state taxpayers $2.8 million for its first nine months of work. Substantial additional fees were certainly incurred since then.
There are other issues. For example, I was puzzled as to why members of the Chiesa Law Firm did so much work opposing efforts by me and the attorneys for Atlantic County government to set aside the
Casino PILOT Law during the past nine months. First city officials representing all taxpayers should not take sides in a dispute by one group of taxpayers in the City against others. Second, there was no need for Mr. Chiesa’s Law firm to defend a state statute that was already being capably defended by the office of the New Jersey Attorney General. Finally, Melanie Walter, the Deputy Attorney General assigned to defend the Casino PILOT Law had fully prepared, briefed, and argued the defense of that statute during the summer of 2016.
I have also spoken to members of City Council who reported multiple attorneys from the Chiesa Law Firm sitting in on conversations that only required one representative of that office. I had an experience in December, 2016, where three attorneys from the Chiesa Law firm asked me the same questions about the same matter. A careful review of records will confirm or disprove any suspected abuse.
A final issue concerning the Chiesa Law Firm is who is paying them? If local taxpayers are paying, there should be records in City Hall. If the State is paying, there should be records in the Treasury Department. However, the Treasury Department also denies having any records of payments made to the Chiesa Law Firm. It is very important to identify the source of these funds and to make sure they are not coming from PILOT, ACA, or IAT funds intended to benefit the taxpayers of Atlantic City.
#2: Reject proposal to borrow $55 million more to bail out what appears to be unlawful and unenforceable $38 million debt supposedly incurred inm 1915 by Mayor Guardian while under State “supervision”.
I and other members of the public are puzzled as to why such a serious and controversial ordinance was on the agenda of a reorganization meeting on New Year’s Day. I urge all council members to vote it down. I urge you, as mayor, to veto it if they do approve it on second reading.
1. In my opinion, Atlantic City taxpayers do NOT have a legal obligation to pay this debt. This money was spent without lawful appropriation pursuant either the Local Budget Law or Local Bond Law. Both laws are part of a comprehensive statutory scheme designed to protect taxpayers.
2. The Local Budget Law requires municipalities like Atlantic City to adopt a “cash basis” (balanced) budget at the beginning of each calendar year. It appears that the State Division of Local Government Services approved budgets in 2015, 2016, and 2017 that did not appropriate funds to pay $38 million of employee pension and health insurance contributions for 2015. I question the authority of those state officials to demand payment of those funds now. I have no idea what the other $17 million is for, and I strongly doubt that the City Council members who approved this ordinance on first reading do either.
3. The Local Bond Law at NJSA 40A:2-3 does NOT permit borrowing for “current expenses and payment of obligations (other than those for temporary financing)”. The Local Bond Law also
requires certain procedures to protect taxpayers. They include adopting an ordinance in two readings, giving notice and holding a public hearing at the second hearing, and requiring a two
thirds affirmative vote for final approval. It appears that none of those procedures were used to incur the original obligation. Therefore, the City should not “refund” and pay a debt that is not legal or enforceable to begin with.
4. The State Division of Local Government Services improperly gave Mayor Guardian an unfair advantage in last year’s election campaign by allowing him to exclude that $38 million alleged debt from the 2015, 2016, and 2017 budgets. This delayed a massive tax hike until after his expected re-election. The Local Budget Law and Local Bond Law were designed to prevent this.
5. Finally, because this $38 million “debt” was not included in the 2015 budget , it was not considered in calculating the 10 year fixed PILOT obligations of Atlantic City casinos. If Atlantic City taxpayers are now forced to pay that money the entire burden of that tax hike will be on just 35% of Atlantic City’s taxpayers. That is because the casinos with roughly 50% of the City’s tax base are now exempt from most tax increases for the next ten years. Another 15% of Atlantic City’s properties either also pay PILOT or are affordable or public housing units that pay little or no taxes.
#3: Remove full year’s funding for disputed debt from “Temporary Budget” that needlessly appear on January 1 Council Agenda.
1. There is no such thing as a “Temporary Budget”. The Local Budget Law requires each town to introduce a “cash basis” (balanced) budget by January 26 of every year, and to finally adopt a budget by March. The Local Budget Law does allow towns to make “temporary appropriations” of 26.25% of the previous year’s appropriations so they can pay their bills during the first three months of the year when they are operating without a final budget.
2. Because there are many unresolved issues concerning $55 million of this debt, the City should maintain its bargaining power by only appropriating funds for debt service on a month to month basis until a final budget is adopted and those issues are resolved.
I understand that this is complicated, but I wanted to share my thoughts with you as soon as possible. Please contact me if you have any questions.
Thank you, and best wishes for an effective and successful administration.
SETH GROSSMAN, President
January 11, 2018