North Canton CIC in Violation of its Plan and the Ohio Constitution

Prepared Comments Made to
NORTH CANTON CITY COUNCIL
July 9, 2007

In the spring of 2005, this council body authorized the removal of $1,500,000 from the city’s income tax fund and deposited the funds into an escrow fund from which annual payments of $100,000 are being paid to the North Canton Community Improvement Corporation (CIC). As of June 15, 2007, the account balance controlled by the North Canton CIC totaled $300,000. Payments by the city to the North Canton CIC will continue annually with the last payment being paid out on June 15, 2019.

Week after week I, as well as others, sit in the audience and hear council discuss how to deal with declining revenues and funding shortfalls for needed infrastructure improvements and yet the funds set aside for the CIC are left untouched.

I have addressed this issue on several occasions before this body and yet each of you on council chooses to allow these taxpayer funds to be used for purposes other than for support of city services as intended.

My message to you tonight is to provide notice that; one, the North Canton CIC is operating in violation of its own Agreement and Plan and; two, the financial support that is being provided to the owner of Abbott’s Bridal Shop violates Section 6, Article VIII of the Ohio Constitution.

I have addressed these issues in a letter to the Ohio Attorney General with a request that any and all financial transactions of the North Canton CIC be frozen until such time as these violations are investigated.

The North Canton CIC is in violation of its own Agreement and Plan because it is currently using funding sources never anticipated when the CIC was set up twenty-seven years ago.

The present CIC Agreement and Plan was drawn up in 1980 by the Cleveland Law Firm of Squire, Sanders & Dempsey and was crafted in anticipation of the issuance of Industrial Development Bonds (IDB). St. Luke’s took advantage of this bond financing on two occasions. The use of industrial bonds imposed no expense to North Canton or to the taxpayers and was a valuable economic development tool for the city. Sadly, city leaders have abandoned the use of bond financing as a tool for economic development in favor of using taxpayer funds. This was a costly move for taxpayers and the city.

The use of taxpayer monies to fund a CIC under the present Agreement and Plan is not adequate and actually puts the city in violation of state statute as Chapter 1724.10 (A) requires that a CIC prepare a viable plan that is approved by council.

In an OAG opinion, 67-056, the Ohio Attorney General states: “…that a political subdivision may not appropriate monies derived from tax action to provide for the maintenance or operating expenses of a community improvement corporation.”

The state statute regarding Community Improvement Corporations, (Section 1724.10 (A)) has a similar statement. “Any such debt shall be solely that of the corporation and shall not be secured by the pledge of any moneys received or to be received from any political subdivision.”

Taxpayer monies have been pledged from the City of North Canton and continue to be received by the North Canton CIC. These taxpayer funds were paid to the city to maintain city services and now have been diverted for a purpose other than which they were to be used.

Additionally, the Agreement and Plan of the North Canton CIC is being violated in other ways.

First, there is nothing in the Agreement and Plan of the North Canton CIC that allows for the promotion of retail development. The Preamble of the “Agreement and Plan” states:

“The Corporation and Municipality desire to incorporate the terms and provisions of the Plan into this Agreement so that this Agreement embody and constitute the plan of industrial, commercial, distribution and research development…”(emphasis added).

Providing added parking to benefit a private retail business does not meet any of the requirements delineated in the CIC Agreement and Plan.

Second, the Agreement and Plan clearly states that taxpayer funds are not to be provided to the CIC.

In Article III, paragraph (2), the CIC Agreement and Plan states:

“The municipality shall not be required to make any financial contributions to the Corporation and nothing in this Agreement and Plan shall be construed as permitting the Corporation to obligate the Municipality except as expressly set forth in this Agreement and Plan” (emphasis added).

In Article III, paragraph (3) the CIC Agreement and Plan continues with:

“All costs of the Corporation shall be paid solely from the funds of the Corporation and the Municipality need not contribute any moneys to the Corporation to meets its costs. In no event shall any moneys raised by taxation be obligated or pledged for the payment of any bonds or other obligations issued or guarantees made pursuant to this Agreement and Plan” (emphasis added).

In Article II, paragraph 5(b), the CIC Agreement and Plan has similar language:

“[The Corporation may] …acquire sites…for lease or sale by the Corporation, provided that any such debt shall be solely that of the Corporation and shall not
be secured by the pledge of any moneys received or to be received from the Municipality, State of Ohio, or any political subdivision thereof” (emphasis added).

The requirements of Article II, paragraph 5(c) were ignored by the trustees of the North Canton CIC when approving the application for financial assistance from the owner of Abbott’s Bridal Shop. This section of the North Canton CIC says:

“[The Corporation may] make loans to any person, firm partnership, corporation …and may establish and regulate the terms and conditions with respect to any such loans; provided the Corporation shall not approve any application for loan unless and until the person applying for said loan shows that he has applied for the loan through ordinary banking or commercial channels and that the loan has been refused by at least one bank or other financial institution” (emphasis added).

The trustees of the North Canton CIC never required the owner of Abbot’s Bridal Shop to pursue financial assistance through ordinary banking or commercial channels before seeking financial assistance from the North Canton CIC.

The specifics with regard to violation of the Ohio Constitution arise as well from the North Canton CIC’s decision to provide financial assistance to the owner of Abbott’s Bridal Shop. In the court case of C.I.V.I.C. v. City of Warren, the Ohio Supreme Court ruled that municipalities taking action “to raise money for” and “loan its credit to, or in aid of” private corporations violates Section 6, Article VIII of the Ohio Constitution. The North Canton CIC is an agency of the city and by extension this is what is taking place between the North Canton CIC and the owner of Abbott’s Bridal Shop.

In a OAG opinion, 71-044; the Ohio Attorney General states a that “municipality may not make an outright, unrestricted gift of funds to a nongovernmental organization, regardless of whether or not such organization may be generally engaged in performing a beneficial, public purpose.”

There are grave concerns with regard to the present operation and funding of the North Canton CIC. The Corporation must get its house in order before it can serve the City of North Canton. A twenty-seven year old document crafted for industrial bond financing of economic development projects clearly will not work, legally or otherwise if you are using other sources of funding for the North Canton CIC.

Using public monies to benefit private interests in violation of The Ohio Constitution and state law should raise a concern to North Canton elected officials.

This is not a legacy any of you wishes to leave behind given the financial difficulties North Canton is facing today.



Thank you,
Chuck Osborne
Resident
City of North Canton