By CHAD CAIN
Daily Hampshire Gazette
Staff Writer
NORTHAMPTON — When a judge shut down the Downtown Business Improvement District last month, the organization was left with tens of thousands of dollars in bills that BID officials say they will be hard-pressed to pay. And federal tax records show it’s not the first time the organization has been strapped for cash.
The controversial district operated on a tight budget from its inception, according to returns filed with the Internal Revenue Service. After ending its first year of operation $6,800 in the black, the district reported a $42,000 operating deficit in its second year and an $11,000 shortfall in the third.
BID leaders say those figures can be misleading and that the organization never spent more money than it took in. Those officials say the deficits stemmed from the fact that some fees owed by downtown property owners — the BID’s primary funding source — were late in arriving.
BID Executive Director Natasha Yakovlev said the BID was set up to spend money as soon as it was collected from member property owners on maintenance, advertising, holiday lighting and other items associated with its mission. The group’s operating cash came in batches as fees paid by participating property owners were processed four times a year by the city tax collector’s office.
Before the BID was faced with a costly legal challenge, said Charles Bowles, chairman of the BID board of directors, “We never spent more money than we took in.”
“We’ve never been flush with cash at any given time,” Yakovlev said. “We really were a very lean organization.”
The publicly available tax returns account only for the three-year period ending in June 2013, before the organization began incurring the heaviest of legal bills associated with the legal challenge brought by property owners Alan Scheinman and Eric Suher. The two alleged that BID creators had failed to obtain the legally required consent of a majority of downtown property owners before forming the district in 2009.
After Hampshire Superior Court Judge John Agostini sided with the dissidents last month and shut down the improvement district, the BID has ceased virtually all operations. The city is holding about $46,000 of the group’s fee collections this fall pending approval of a plan to close out the group’s affairs.
In recent weeks, the Gazette has sought to clarify figures contained in the tax returns and to obtain details about more recent finances from the BID’s leaders and accountant. While BID leaders answered many questions, the group’s accountant, Kelly Rose, did not respond to the newspaper’s inquiries about key points. Thus, while some details about the BID’s finances are clear, others remain fuzzy.
One key point that remains unclear is whether the organization was able to eliminate its deficit and close the most recent fiscal year in the black. The tax return containing that information has not yet been filed with the IRS and district officials said that information was being compiled by Rose. Bowles guessed the figures will be similar to last year’s forms. He stressed that the organization was not in the negative.
The tax returns show that the organization began with $114,000 in assets, a figure that dropped each year until it reached $38,000 as of June 30, 2013, the latest figure reported by the tax returns. Bowles said the $114,000 figure represents loans from the Economic Development Council of Western Massachusetts and the Greater Northampton Chamber of Commerce used to bankroll the organization before it began collecting fees. Those loans had been paid in full, and that the reductions shown in the tax return represent amortized payments, Bowles said.
The EDC confirmed that the BID repaid the $24,000 it loaned in seed money, while the chamber said it donated $25,000. It’s unclear where the rest of the start-up money came from.
One point that does seem clear is the BID does not have enough money to pay its remaining bills, particularly outstanding fees to its lawyer that Yakovlev said were in the “forty thousands” before last summer’s costly trial even began.
Since Agostini’s ruling, the BID has paid its employees wages already earned, but it has not been able to settle other contracts with vendors, pay off a $15,000 loan to Florence Savings Bank, or pay legal fees, Bowles said.
The BID hopes Agostini will allow the organization to sell off its assets, such as the holiday lights. The organization also wants the judge to grant it access to the $46,000 in BID fees being held at City Hall.
“We’re just looking to pay our obligations as far as that money will take us,” Bowles said.
When the plaintiffs recently filed a motion seeking an additional $200,000 to cover legal fees, Bowles said, BID leaders threw up their hands.
It’s a sum the BID simply can’t pay, especially with its assets frozen pending a decision by Judge Agostini on whether the organization will be allowed time to close up shop, said Bowles.
That decision could be coming soon. Lawyers for both sides are working toward a mutual agreement that will enable the BID to settle its affairs, though those discussions do not involve the plaintiffs’ request for legal fees, said Harry Miles, the BID’s attorney.
Bowles hopes the agreement will enable the BID to settle most of its financial obligations aside from the hefty legal fees it owes to Miles. Yakovlev said the BID has racked up about $110,000 in legal fees since its creation five years ago, not including a five-day trial in August and other legal action since then. A good portion of that bill, about $75,000, has been paid in previous years.
Miles said his firm did not bill the entire $110,000 in fees for representing the BID, adding that the total likely reflects payments to other attorneys. He said he didn’t have the final tally in hand this week.
As for the plaintiffs’ request for $200,000 in legal fees, Yakovlev said, “it’s definitely not there.”
What records show
Over the three-year period for which records are available, the BID collected about $1.26 million in BID membership fees, according to federal tax records.
Of that total, about $495,300, or 39 percent, paid for maintenance and repair operations downtown, fulfilling what many BID proponents felt was the group’s top mission to keep downtown clean.
Another mission was the marketing of downtown and event sponsorship, and the BID spent considerable sums in these areas. According to the tax records, some 27 percent of its budget, or nearly $326,700, went for this purpose.
A smaller amount went to staffing costs, which included the salaries of the BID’s full-time executive director, office assistant and bookkeeper. Those costs totaled roughly $73,500 in each of the first two years and $91,900 in the third year.
The figure jumped in the third year because Dan Yacuzzo, then the BID’s now-deceased executive director, became an employee of the Economic Development Council of Western Massachusetts and the BID had to reimburse the EDC for taxes and benefits such as health insurance and retirement contributions. Yacuzzo’s salary that year was about $54,000, up from the $48,000 a year he made when first named to lead the BID. Bowles said the BID contracted with the EDC to make it more economically affordable to offer fringe benefits.
BID board member Peter Whalen called the BID a “very thin” organization when it came to expenses. He said mounting legal fees sapped its ability to address more issues downtown, although the organization always kept up with its bills.
“We spent the money we brought in and then we had our wish list,” Whalen said.
BID trustees say it was the looming legal fees that hindered the BID the most and forced the board to cut back on services. Bowles said the BID cut back on staff for maintenance, reduced its advertising budget, and lowered funding for programs such as Restaurant Week.
Final months
This was especially true in the last six months, when the BID cut its fees in half and did not begin billing new members who were forced to join by state law until October. “We cut back our expenses to lean up the operations, which is why we don’t have a pile of debt there,” Bowles said. “We don’t have huge deficits, other than attorney fees.”
Whalen said the BID also stopped trying to add events and programs in the last couple of years. That meant shelving plans for a public Wifi system downtown and an downtown ambassador program to welcome visitors.
“Without legal fees, more could have been accomplished,” Whalen said. “We spent about 90 percent of our time talking about lawsuits.”
Chad Cain can be reached at [email protected].
