In what had been a week of sometimes heated rhetoric for the two leading candidates running for mayor of Mobile, incumbent Sandy Stimpson and challenger Sam Jones were forced to say something nice about each other.
With smiles on their faces toward the end of WKRG’s live debate Monday evening, the candidates were barely complimentary. Jones said Stimpson had picked a good Mobile Fire-Rescue Department chief in Mark Sealy, and Stimpson thanked Jones for his service in the Navy and as a member of the Mobile County Commission.
Aside from that, the two candidates differed on a range of subjects, including hiring executive staff who live in Baldwin County, sports tourism opportunities, the Mobile Civic Center and more, in two joint appearances over the past two weeks as the Aug. 22 election approaches.
Meanwhile, Stimpson also brought to light an Internal Revenue Service investigation into the appropriation of a 2006 bond issue, which his administration had to resolve.
On the first day of his administration, Mayor Stimpson said, his executive director of finance, Paul Wesch, walked into his new office to find a pile of letters from the Internal Revenue Service indicating outgoing Mayor Jones’ administration misused a tax-free bond, something that could have cost the city as much as $45 million.
“There was about a 5-inch file with a cover letter outlining the allegations of malfeasance over bond allocations,” Stimpson said in a phone interview. “Mayor Jones did not spend all the money as outlined in the contracts.”
Records provided by the city of Mobile show a decades-long practice of carrying over tax-free bond balances from year to year, which put the city on the wrong end of a 2013 IRS investigation into the issuance of a 2006 bond worth roughly $64 million.
The initial correspondence, addressed to then Finance Director Barbara Malkove in August 2013, outlined the IRS’ intent to examine the 2006 bond issue as part of a routine check for compliance issues.
“The primary purpose of this examination will be to ascertain the compliance of your debt issuance with the federal tax requirements applicable to tax-exempt financings,” the letter reads. “At this time, we have no reason to believe that your debt issuance fails to comply with any of the applicable tax requirements.”
The bonds were issued on July 26, 2006, “for the purpose of financing the cost of capital improvements for the city, refunding certain outstanding obligations and paying the expenses of issuance,” the IRS documents read.
The IRS would later send a Notice of Proposed Issue to the city in 2015, outlining the problems it found with the 2006 bond issue based upon the previous administration’s failure to properly allocate bond money. In essence, the IRS told city leaders the bond and previous bonds had not been fully allocated, therefore the 2006 bond would be considered taxable and the city would be on the hook for paying taxes and interest on it, amounting to nearly $45 million.
At issue for the IRS, according to the notice, is remaining money left unspent in the 2006 bonds and in previous bonds as well.
The IRS concluded that remaining money from a previous bond, referred to as a Series 2000, could’ve been used for the same purpose as the 2006 bond issue, which made the $63 million bond taxable, according to the documents.
“The Service has considered that the Issuer’s expectations and actions as of the issue date of the bonds were not reasonable and a prudent person in the same circumstances would have made further inquiry into the remaining capital project funds of the Series 2000 before they were 100 percent refunded with new money,” the documents state. “That inquiry would have shown that the capital project funds for several prior obligations were still outstanding, more than 10 years later. The Issuer should then have evaluated the needs for the governmental purpose of the Series 2000; made inquiries as to the capital projects still to receive bond proceeds; and assigned a portion of the capital project fund to defease the Series 2000. A prudent person’s decision to use a portion of the capital project fund of the Series 2000 to defease the obligations is supported by the fact that the capital project fund is still outstanding on the call date (Feb. 15, 2010) and even at (Sept. 30, 2014).”
Former Mayor Jones, did not return a call seeking comment for this story. Lagniappe has reached out to Malkove as well and will update this story with new information as it becomes available.
Bonds issued under former Mayor Mike Dow were also investigated, according to IRS documents, as the city’s failure to fully allocate bonds goes back more than 19 years. The statute of limitations on two bonds — one in 1998 and one in 2001 — had expired and the IRS dropped those investigations. Dow said he didn’t have enough information to comment at this time.
The city eventually settled the investigation after three years and $300,000 in legal fees, Stimpson said. While the IRS had initially asked for a $9.2 million penalty to settle the dispute, Stimpson said the city was able to negotiate a “nominal” fee. He did not disclose how much the city paid because the amount was confidential. It appears the settlement was one half of one percent of what the IRS originally asked for, according to a story in Bond Buyer.
As for why he waited until a year after the settlement and just about a week before the mayoral election to make the issue public, Stimpson said he wanted to give citizens a full picture of the city’s financial outlook to counter claims Jones has made on the campaign trail taking credit for the city’s currently positive financial position. The issue was settled a year ago and Stimpson said he thought then it might be best for the city to simply move on, but feels Jones’ claims about the sound financial shape he left the city in four years ago required the matter to be brought to light.
“I didn’t want to air a bunch of dirty laundry,” Stimpson said, adding, “We wanted to be forward-focusing.”
He went on to say the city was able to talk the IRS out of levying the $9 million fine by arguing that the people being punished were the taxpayers of Mobile and not the people who had actually failed to properly handle the bonds. He said they were able to show the city’s financial stewardship had improved and that also played into the much smaller settlement.
“We argued that not punishing the perpetrators but punishing the taxpayers was grounds for appeals,” Stimpson said.
Stimpson also mentioned that when his administration took over, all the files in the finance director’s office, other than the one stack on her desk, were gone and her computer’s hard drive erased.
Due to the clearing of the hard drive, Stimpson described his administration’s task of reworking the previous administration’s fiscal year 2014 budget as traveling down a “dark tunnel.” Auditors had told Wesch the city’s general fund that year was “severely overdrawn” and if the proposed budget were to move forward, it would result in a $13 million deficit. Stimpson said he had to make tough choices to get the budget in order, including scrapping a raise Jones had proposed for city employees.
“It was with that information that I knew two things,” Stimpson said in a phone interview. “One was that the raise would be going out the door. I made the announcement at the end of December and we started to produce an amended budget, which was approved in February.”
Stimpson said he decided to get department heads more involved in the budgeting process. He would ask them where they thought they could save money and hold them accountable, he said.
Jones told the audience during the WKRG debate Monday that if it had not been for his expansion of the city’s tax base by promoting two annexations worth $30 million annually, the city would be in a different financial predicament.
In a previous debate, Jones took credit for Mobile’s financial position and criticized Stimpson for his reluctance to extend the 20 percent sales tax — also referred to as the “penny tax” — earmarked for capital improvement.
Monday, Stimpson explained to the audience he initially vetoed the penny tax because it had been misused in the past. Since the passage of the tax, Stimpson has taken credit for a robust program that includes consultants hired by the administration to help organize projects split throughout the seven districts.
Jones said the tax was earmarked during his time in office, arguing that the money was split evenly among four city accounts. Further, Jones said if Stimpson’s veto of the initial tax extension stood, it could have bankrupted the city.
The difference in capital spending between the two administrations is evident, according to annual budget documents. The majority of capital spending in the Stimpson years is due to the penny tax extension, which he initially vetoed.
Revenue in the city’s capital budgets has increased every year since 2009, when the amount of money in the account failed to reach $10 million. Since then, the city has seen that number climb to $51.2 million in fiscal year 2016.
The number of improvements and repairs has also increased in the capital budgets. In fiscal year 2009, the city spent just over $1 million, but spent more than $23 million in fiscal year 2016. Fiscal year 2016 was also the inaugural year of the city’s capital improvement program, or CIP.
Jones told the debate crowd he managed the city during the toughest recession in recent history.
On the general fund side of the ledger, the city has seen a more up and down pattern since 2009 when it comes to revenues. In fiscal year 2009, the city collected more than $216 million in revenue, nearly $152 million of which was in taxes. The city saw almost $205 million in revenue in 2010, $216.5 million in 2011, $217.4 million in 2012, $213.4 million in 2013, $218 million in 2014, $229.8 million in 2015 and $239.2 million in 2016.
Expenditures in each of the years have fluctuated, as have personnel costs, according to the documents.
The future of the Mobile Civic Center was a focal point in recent debates and discussions for the two candidates. Jones told members of the Mobile Area Lodging Association at a meeting in Theodore last week he had a plan to renovate the civic center that wouldn’t cost the city anything. He said he proposed offering a long-term contract to a management firm that would renovate the center for its own use. In the WKRG debate, Jones accused Stimpson of working to close and tear down the civic center.
“There is no doubt everyone here remembers you were going to tear it down,” Jones told Stimpson.
Stimpson, who indeed once announced his intent to tear down the 53-year-old building, called it the “worst mistake” of his time as mayor. He said he learned from the “test run” that the center needed to be saved. He said the city is currently evaluating all of its more than 300 properties and will unveil the results of the survey to determine the costs of renovation. At that time, Stimpson said there will be a public debate about the project.
While debating the merits of trying to keep the Mobile BayBears from leaving town, Jones told the crowd at WKRG’s debate he’d be interested in exploring the possibility of a “sportsplex” that would include an aquatic center and championship soccer fields.
Jones also said the city should look to find another team to sponsor the BayBears. Historically the team has been the AA affiliate of the San Diego Padres, the Arizona Diamondbacks and most recently the Los Angeles Angels of Anaheim. Team ownership is not dependent upon the team’s Major League Baseball affiliate, though. Stimpson said he’s hopeful the city can possibly work with a local ownership group to keep the team in place.
Jones hit Stimpson for hiring employees and department heads from outside the city, specifically Baldwin County. While Stimpson defended the practice, comparing it to the private sector, Jones disagreed.
“If you’re being paid by public dollars … and making decisions on the quality of life of residents, you should be a citizen,” he said.
Stimpson added that he would work to improve the quality of life in Mobile so that a larger number of people live here in the future.
The candidates were asked directly at the debate about President Donald Trump. Trump has been a hotly debated figure nationwide and the Jones campaign has jumped on apparent connections between the president and Stimpson. Trump visited Mobile twice — once during the divisive 2016 campaign and again after his election win — and both times the city was left with a taxpayer-funded bill of thousands of dollars.
Jones told the debate crowd he thought Trump was “in over his head” as the leader of the free world.
“He has created an atmosphere … that is not good for this country,” Jones said of Trump. “The man was not cut out for the job he has.”
Stimpson said his personal beliefs don’t matter because he’ll have to work with the president regardless, noting the White House controls a lot of money for municipal programs.
“A mayor has to be nonpartisan to help promote the city,” he said. “We need to take advantage of what the federal government has for us.”
The municipal election is Tuesday, Aug. 22. Also qualifying for the mayoral election were political newcomers Donavette Ely and Anthony Thompson. Every City Council district except Levon Manzie’s District 2 and Gina Gregory’s District 7 are contested. More information about those campaigns and sample ballots are available on www.lagniappemobile.com.