Bad development deals could have cost city millions, officials say.

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    MOLINE, IL (Quad-City Times ) — The mass exodus by department heads in Moline in recent years was attributable by some as the result of “micromanagement” by elected officials.

But those officials now say it appears there was another reason: Bad development deals could have cost the city millions.

Derke Price, attorney for the city, was involved in a comprehensive review of the city’s development agreements, including the terms of its Tax Increment Finance Districts, or TIFs.

Two “patterns” emerged from the study, he said.

In at least three TIF deals, former high-ranking city staffers were too eager to please outside developers — at taxpayers’ expense.

Price cited instances in which developers appear to have been overpaid, money obligated to the city was not collected and projected TIF revenues were intentionally inflated.

But former city employees who have previously declined to comment now are speaking out, denying the allegations made by Price, Mayor Stephanie Acri and 3rd Ward Alderman Mike Wendt, and standing by their assertions that another pattern had developed at City Hall: that some elected officials continuously undermined staff through an environment of mistrust and micromanagement, followed by directives that they not speak to the press during their employment with the city.

River Station proposal was ‘absurd’
In one agreement that resulted in a legal claim by the city of breach of contract (now in mediation), the former planning director and city administrator made a recommendation to the council that Price called “an absurd deal.”

The city is claiming it is owed approximately $1.5 million in back rent, interest and penalties on property it owns at 1601 River Drive, formerly occupied by Bass Street Chop House. It is referred to as River Station.

A 2003 TIF agreement obligated developer Kaizen Co. to certain rent payments and fees on the property.

Rather than pushing for payment when the developer was in arrears, Price said, former City Administrator Doug Maxeiner and former Economic Development Director Ray Forsythe recommended the debt be forgiven and the property be sold to Kaizen for $10, despite an agreed-upon value of $500,000.

Also, the city would have had to repay hundreds of thousands of dollars to the federal government, which supplied initial funding on the project through Housing and Urban Development, or HUD.

The result would have been: “Not only are we not getting a check, we’re writing a check to give the property away,” Price said.

So, why would city leaders recommend it?

“Relationships between staff and (Kaizen owner Kent) Pilcher were such that he was never made to pay. He got behind three years on base rent … no fees, no penalties,” he said. “That’s the pattern we’ve uncovered in this; the development staff was very solicitous of developers.”

Pilcher said he was not given special treatment by Moline staffers, writing in an email Friday, “My relationship with any/all of city staff of Moline, both past and present, has been nothing but at the highest professional level.”

As aldermen asked questions about the deals, Price said, another pattern emerged: Staffers involved took jobs elsewhere.

Maxeiner and Forsythe deny the allegations made by Price and say the recommendation for the River Station deal first came to city council from the Project Management Team (PMT) and Design Build Management Team (DBMT), made up of members from the private sector, city council members, Renew Moline and Acri.

“The memorandum and spreadsheet prepared by staff included all of the historical payment information, including the late payments and obligations related to the lease payments and also calculated the additional rent due,” Forsythe said. “Staff never hid any of the outstanding payments. Staff did indicate that it was a complicated formula, however, the information was presented numerically and in writing in the memo.

“The city leaders who recommended it were not staff, but rather elected members and private sector members of the PMT,” Forsythe said Thursday.

However, it is city staff that makes recommendations to council, including Forsythe’s first proposal that the city sell River Station for about $97,000 — still a distance from the $1.5 million the city claims it is owed.

Maxeiner provided a similar response, stating development projects in TIF districts were vetted by the Project Management Team.

“River Station was no exception. My staff and I discussed the developer’s request to purchase the land under River Station and took the item to the PMT to initiate the consideration process,” Maxeiner said. “Mr. Forsythe summarized the complex terms of the development agreement, identified the questionable assumptions used in the agreement and developed a recommendation based on the economic realities at the time, which was provided to the PMT in a two-page memorandum.

“The staff recommendation was to sell the property to the developer (Kaizen) for a figure approaching $100,000 and included a long-term parking agreement that would add thousands to the city’s income stream for years to come.”

Former City Attorney Maureen Riggs took part in the negotiations of the project over several years. Citing her current role as legal counsel for Pilcher, Riggs declined to comment.

The airport and Todd Raufeisen
In another development agreement, staffers authorized hundreds of thousands of dollars in payments, even though they were warned the payments were not eligible under the agreement, Price said.

The deal involved the Metropolitan Airport Authority in a project by developer Todd Raufeisen on airport land for construction of a hotel and fitness center. That project also resulted in lawsuits by all parties, which are not yet resolved.

Raufeisen, meanwhile, was sentenced to 72 months in federal prison in a case that has not been tied to the airport. He pleaded guilty to money laundering and wire fraud in 2017, accused of stealing about $1.7 million from investors in his projects.

The city’s own TIF consultant, along with an attorney representing the airport, warned staff against paying Raufeisen, Price said, because of “discrepancies” in his claims of money owed.

Airport Authority attorney Roger Strandlund last week confirmed that the airport saw suspicious invoices and its board found Raufeisen in default of their agreement. The city, however, continued its relationship. Strandlund declined to speculate on why staffers chose to do so.

The city was billed $250,000 by Raufeisen for consultants, Price said, but the consulting work appeared to have been performed before Raufeisen’s development agreement with the city.

The city paid the $250,000 to the developer’s creditors in bankruptcy court, Price said.

“We don’t know what we got for our money,” he said. “Another $100,000 was paid to (a local architect), but the city doesn’t know why.”

Again, members of the city council asked questions. Former staffers responded, he said, by “marginalizing” those who had warned the city against paying.

“This was too generous to the developers … to the detriment of the municipality,” he said.

In the Raufeisen case, former city administrator Lew Steinbrecher pushed for payment, Price said. Steinbrecher abruptly announced his retirement in 2016, leaving the city the next day.

“It’s clear direction from Lew to pay it; $350,000 we paid that’s unexplained,” Price said.

Again, why?

“The development community is pretty tight-knit,” Price said. “The only thing I can speculate is it was driven by relationships.”

Asked whether the relationships between city staff and outside developers drove the recommendation the city sell the River Drive property to Kaizen for $10, Price said, “Absolutely. Otherwise, it’s inexplicable.”

Forsythe denies the assertion by Price that he had personal relationships with developers in Moline.

“I had professional relationships, trust and common interests in bettering the city of Moline, which is an important part of economic development,” he said. “I always had the city of Moline top of mind as projects were negotiated.”

Steinbrecher said Thursday that his decision to retire from the city had nothing to do with Todd Raufiessen or the development project. He also maintains the payments were eligible under Illinois TIF law.

“At the time, it was a prudent expenditure and clearly an eligible upfront expenditure under the Illinois TIF statute,” he said. “It was deemed a prudent reimbursement of upfront engineering costs and the staff kept the city council informed of these negotiations at that time.”

‘Phantom revenue’ at Overlook Place
“One of Ray’s (Forsythe) parting gifts was TIF #6,” Price said. “He was negotiating that while negotiating for a new job.”

The #6 agreement relates to the construction of Overlook Place, which is at the site of the former hospitals on the 7th Street bluff.

Forsythe’s revenue projections for the TIF were based on the senior-housing development that has been completed and a second phase of development, which never materialized.

In fact, the city never had an official agreement for the second phase, Price said, but Forsythe projected revenue from a potential development, anyway.

The cash-flow projections were based on future developments that were neither being built nor were they tied to an agreement, resulting in what Alderman Mike Wendt, Ward 3, called “phantom” revenue the city did not have coming.

“In this case, Ray only included the upside to the development with no cost to the city, therefore resulting in this phantom $4.1 million surplus,” Wendt wrote in an email. “So, in essence, when the council was making our decisions regarding TIF #6, we were doing so based on false numbers provided to us by Ray.

“ … this was either merely incompetence, or he just wanted projects to look better than what they really were, so council would support them.”

Forsythe denies inflating projects before his departure from the city. In an email, he said “prior to my departure the developer had submitted plans that indicated a Phase 2 was anticipated.”

“For the council to rely on a document that was never considered to be a future spending guide makes no sense to me,” he said. “In addition, the (TIF) spreadsheet should have indicated that a Phase 2 was anticipated and additional revenue (was) forecast. The council should have noticed that the spreadsheet indicated an additional phase would have been needed to guarantee this additional revenue. The finance director should have been able to guide the city council to more accurate forecasting.”

Questions without answers
One of the “patterns” discovered during the city’s review of development agreements, Price said, was that some city leaders would “marginalize” outsiders who expressed doubt about city deals.

When the city council started asking questions, he said, the same response didn’t work.

“You’re not going to marginalize the council,” he said.

Wendt said some still tried.

“When I asked certain questions, the answer I got was, ‘It’s too complex,’ ” said Wendt, who is the in-house attorney for Ruhl & Ruhl. “They didn’t like that we were asking questions.”

Price and Wendt either stated or implied that it was the pressure to respond to council inquiries that drove some city officials from their jobs.

“People didn’t like being asked questions (such as): What the hell did you get the city into?” Price said. “When questioned about it, they never gave an answer. They left.

“The people who pay for this are the residents.”

Maxeiner, who is now city administrator for East Moline, denies giving city council members the runaround or avoiding questions.

“I have never met Mr. Price but find his allegations that certain individuals left the employment of Moline to avoid having difficult discussions laughable,” Maxeiner said. “I can state without a doubt that my reason for leaving the employment of Moline had nothing to do with River Station or attempting to avoid difficult discussions.”

Forsythe stands behind his 14-year tenure with the city and the many development projects he completed, and he also denies leaving in order to avoid questions. He had planned to retire from Moline, he said, until turnover on city council and in the mayor’s office changed the environment.

“Prior to my departure, several newly elected officials didn’t support or trust staff, oftentimes interfered with the day-to-day operations and management of staff and inserted themselves into operations with very negative attitudes,” Forsythe said. “At one point, I was told that I could not meet or discuss projects with developers independently or speak to the press.

“Council members were brought directly into negotiations and, in my opinion, were performing duties outside of setting policy and establishing priorities and goals. It wasn’t until a developer threatened to exit negotiations with the city on a substantial project that Mayor (Acri) changed her position and allowed staff to resume the lead on negotiations.”

Forsythe continued to decline media interviews after leaving the city, but he said it wasn’t because he was avoiding tough questions.

“I have intentionally not responded to previous requests for comments by the press in an effort to move on from the experience that I had and support remaining staff,” Forsythe said. “I worked hard for the city of Moline as evident by the positive reputation I have with coworkers, previous elected officials, residents, other communities and city partners and the Quad City development community.

“It was very disappointing to me to see the dramatic change over the last two years I was there and what has continued after my departure. I am very concerned that my personal reputation and work ethic are under fire with the most recent comments by Derke Price, whom I have never met or communicated with.”

What happens next
Alderman Wendt put forth his summary of the TIF review and its possible connections to the timing of staff departures:

“On multiple occasions you (the Quad-City Times and Dispatch) asked publicly, in the paper, why some of these staff members left Moline, and now, through the diligent work of our current staff, we have found multiple issues that our previous staff did not want to share with council or the public and clearly this is why they refused to answer the council’s questions at the time.

“… we all feel that the information we were provided by previous staff had multiple errors and that accurate information must be shared with the public.

“It is now clear that, in many instances, these former staff members took it upon themselves to only provide some of the information, some accurate, and some not, to try to steer council to make decisions they wanted, which wasn’t necessarily in the best interest of the City of Moline.

“When the council continued to ask these questions, many of these staff members left rather than provide the correct information and deal with the fallout of their errors and mismanagement.”

Mayor Stephanie Acri supplied a more forward-looking approach, writing in an email Thursday that the city may be able to recoup some of its losses. She did not respond to questions related to former staff and their relationships with developers.

“We are actively pursuing reclamation of the money that is rightfully due to Moline’s citizens,” she wrote. “The Council and I discovered the misapplication of TIF funds, and we exercised our oversight responsibilities to bring the decades-long practice to an end.

“This is the type of leadership the residents and business owners of our community expect and deserve.

“The Council and I are dependent on the work done by city employees to carry out Moline’s good governance. The vast majority of city employees dedicate themselves to the work of building a more vibrant community. I will not speculate about the motives or why the misapplication took place.

“Our focus remains on ensuring that the definitive steps we took of implementing TIF protocols and document-retention rules that are more stringent than the state requirements in an effort to prevent this from happening again.”

Maxeiner and Forsythe deny any “misapplication” took place, as alleged by Price and Acri.

“I stand by the professionalism and integrity of my staff while I was in Moline and find the timing and motive for Mr. Price’s assertions questionable,” Maxeiner said. “I will also add that Ray Forsythe was a tremendously valuable team member in a high-performing organization during my tenure in Moline and his legacy is evident on numerous successful projects in downtown Moline.

“I too have a proven history over a 28-year career in this profession and have never had my integrity challenged.”

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