CAPE MAY – Three months after Cape May City officials asked the Cape May County Prosecutor’s Office to investigate the potentially illegal use of monies from an affordable housing trust fund, Prosecutor Jeffrey Sutherland’s office informed the city that “no criminal charges will be forthcoming.”
This comes after a three-month review by the New Jersey Department of Community Affairs (DCA) that found that the use of the funds was a violation of Cape May’s court-approved affordable housing spending plan. DCA then declared it had no jurisdiction to pursue the matter further.
With the state and the county prosecutor having tossed the ball back to the municipality, city officials must also deal with a demand by the Fair Share Housing Center (FSHC) that the disbursed amount be returned to the trust fund.
In a statement by its Executive Director Adam Gordon, FSHC states that “lack of prosecution isn’t a lack of civil liability. State law is clear that affordable housing trust funds can only be used for limited purposes to build and maintain affordable housing, and we want the city to take action to recoup these illegally diverted funds, so they can be used to benefit working families in Cape May who need access to housing.”
The FSHC has threatened legal action against the city if it does not replace the $100,000 disbursed from the trust fund.
Discussion of the trust fund and its purpose is part of the city’s 2019 Master Plan Reexamination Report. That discussion makes clear that the purpose of the fund is the “funding of affordable housing activities.”
There is no publicly available documentation that affordable housing projects or activities occurred in 2019 that warranted administrative support disbursements greater than the combined disbursements of the previous four years.
What Was Done?
In two rounds of disbursements from the trust fund, in September and December 2019, former City Manager Jerry Inderwies Jr. paid out bonuses to himself and five other employees.
Each person received the same amount in each round. The rationale for the payments was that they were for affordable housing administrative work, in 2019.
The city was not being reimbursed by the trust fund for work its salaried employees did to benefit the city’s affordable housing efforts. The employees themselves, including Inderwies, were given bonuses on top of their salaries.
The combined total dollars received by each of the six individuals in two disbursements was $16,314.99.
A seventh bonus was given to an additional employee, for $2,910, Dec. 31, 2019,the day beforeInderwiesleft the office.
The six individuals involved up to Dec. 31 included Inderwies, the city’s chief financial officer, the city’s purchasing agent, the tax assessor, the fire official secretary, and a technical assistant in the construction office. The final bonus from Dec. 31 went to a keyboarding clerk.
They each have varying salary levels and responsibilities, the first six of whom received the same amount of bonus for the same purported purpose and with all funds coming from the same account, which is intended to support the building and maintenance of affordable housing in the city.
In what ways the city manager and chief financial officer performed administrative work for affordable housing that earned them the same bonus amount as an individual in a clerical position was never clarified.
The trust fund receives monies from a developer’s tax. The details are spelled out in the city code. Funds must be disbursedin accordance with the rules outlined in a court-approved spending plan.
In 2019, Cape May’s audited financial statements show receipts into the fund of $317,941.87. It also shows disbursements from the fund of $104,217.69.
A review of the trust fund reserves in each audit financial statement since 2015 shows no disbursements from the fund in any given year that are anywhere near as large as those in 2019. From 2015 through 2018, combined disbursements were less than half of the funds spent in 2019.
The court-approved spending plan for the trust fund represents an agreement between the city and the FSHC. That plan establishes rules for how disbursements can be made. Any disbursement needs the review of the city manager and the chief financial officer, both of whom in this case were recipients of bonus amounts.
The City Council is responsible for a review of the disbursements for “consistency with the spending plan.” Before the expenditures can be made, the council must release the funds by resolution. As is always the case, any resolution action by the governing body must take place in a public meeting.
There is no evidence that the council was asked to or approved the disbursement of the trust fund monies.
Where Does This Leave the City?
Cape May has assured the FSHC that it will make the trust fund whole. There are only two ways for that to happen. The money must be returned by the individuals to whom it was paid, or any funds not recovered must be paid by the city, at taxpayers’ expense.
The city can work out voluntary agreements with each person or seek to compel the return of the funds through civil action in Superior Court. Two of the individuals who received bonus amounts no longer work for the city. One of those two now works for the county.
The city must also grapple with whether repaying the funds is sufficient recompense. Sutherland says no crimes were committed, or at least no criminal charges will be brought. That leaves the city with the responsibility of deciding if more needs to be done.
City residents may decide they want a public accounting of exactly what will be done going forward.
To contact Vince Conti, email vconti@cmcherald.com.
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