Comptroller blasts Rahway Arts District

Report says RAD doled out contracts to former mayor’s firm without bid process

RAHWAY, NJ — The state comptroller’s office recently took a dim view of how the Rahway Arts District doled out contracts to a former mayor’s firm, when they should have gone out for public bidding.

According to a letter dated April 13 from the state comptroller’s office of investigation, the district failed to follow state bidding laws in two contracts involving work for the opening of the Hamilton Stage in the Union County Performing Arts Center, which opened in 2012.

“During the course of our review, it has become apparent that the RAD has not followed the procedural requirements of the Local Public contracts Law in its procurement practices, as required by law,” the letter said.

The comptroller’s office also found that RAD had a lack of adequate internal controls “and basic standards for entities handling public funds.”

Because of this, the comptroller’s office also warned RAD they “may” continue to monitor the district’s progress in the future to ensure they comply with “these fundamental principles of governance for public agencies in New Jersey.”

The comptroller’s office first began investigating RAD more than a year ago after the Department of Community Affairs was notified by an unknown source that RAD failed to follow the state required bidding practices.

At issue specifically was contracts awarded to two companies, one owned by former mayor James Kennedy, Skye Consulting LLC, which received $95,533 and another for $16,000 to a Madison-based firm, Front House Services.
As a result of these allegations the comptroller’s office launched an investigation, requesting documents from RAD as far back as 2009 from the Redevelopment Agency, RAD, and the Rahway City Council.

The city council came into picture, the comptroller’s office said, because of the recent decision by them to significantly increase the amount budgeted to fund the RAD, which oversees the SID.

Earlier this year the city expanded the Special Improvement District from 138 to 520 businesses, which increases the annual amount brought in from the special tax levied on these businesses from $30,000 to between $600,000 and $700,000 annually. The fact the SID is overseen by the RAD presented a problem to the comptroller’s office.

In the course of their investigation the comptroller’s office also found there was reimbursement issues involving former RAD executive director Rachael Faillace, who did not follow Local Fiscal Affairs Law when reimbursing herself for expenses.

The comptroller’s office said Faillace should not have made out checks payable to herself and then authorized and signed them.The executive director recently stepped down but said the move was not related to the comptroller’s investigation.
City officials have maintained the contract awarded to Front House Services was exempt from state bidding laws, while the larger one to Kennedy’s firm was for specialty services, which also is in the exempt category.

According to Rahway Administrator Cherron Rountree, the problems cited by the comptroller’s office involved issues that occurred in 2011 and the city enacted policies in recent months to ensure there is proper RAD oversight so this does not occur again.

Meanwhile, the question of whether the city will even be able to expand the SID is now mired in legal red tape since a contingent of business owners filed a lawsuit in February to block the move.

At issue is whether the city had the legal right to expand the SID to include 382 additional properties, many of which are not in the downtown area, but spread throughout the municipality.

Rountree explained at the Dec. 8, 2014, city council meeting when the measure was approved that as a result of increasing the number of properties in the SID property owners would be paying $981 a year, or an additional special improvement tax levy of $75 a month.

Officials explained that the motivation for increasing the number of properties in the SID was to provide more improvements and benefits for everyone in Rahway, and delaying the move would set progress back a year.
William Michelson, the attorney representing the Friends of Rahway Business, LLC, who filed the lawsuit in superior court on behalf of the property owners, said in February the lawsuit could take nine months to a year but he was confident that they had a good case against the city.

Michelson explained that there is no municipal, state or any other law that allows a municipality to create a “scattered SID,” let alone one that is not “contiguous” to the original 138 SID members located in the downtown.

He also noted that the property owners were entitled to at least 10 days written notice with respect to either the first or second reading of the ordinance changing the SID, but many of the property owners were not even aware of the change.
He also pointed out in court documents that the District Management Corporation, which has overseen the SID since it was formed 20 years ago, is not in compliance with New Jersey law.

For example, he said for an unknown significant period of time the DMC failed to provide information to the public about its budget, including money received and spent. The affected property owners also contend that the RAD, which is expected to take over the newly expanded SID, has been out of compliance with New Jersey law. Michelson said when the city council approved the expansion of the SID they did not have sufficient financial and budget information to make such a decision because the DMC and Arts District Board failed to produce it.

The attorney said if they had this financial information it would have allowed for an informed decision regarding enlargement of the SID and designating another entity to administer it. Furthermore, he said the city’s decision to expand the SID is “spot zoning,” or where individual properties are zoned “as someone wants them to be, but without relation to what the zoning is around them.”

“Spot zoning is not valid in New Jersey land practice,” the attorney added.