MUSKEGON, MI – The Muskegon city manager in a Facebook message stopped short of apologizing for the unapproved spending of $195,000 on gift cards intended to help businesses struggling during the coronavirus pandemic.
Frank Peterson used the City of Muskegon Government Facebook page to explain his side of the controversy that the city attorney determined to be “unlawful” and a violation of city policy.
Peterson’s 4 minute, 18 second videorecorded message posted on Tuesday, Sept. 22, was in advance of a city commission legislative policy committee meeting on Wednesday where the topic is expected to be discussed.
Gift cards ranging from $3,000 to $7,000 were purchased from 39 local businesses, most of them restaurants, in March when the pandemic was beginning to unfold locally.
Peterson said in his Facebook message that he wanted to share “a few personal thoughts” about what he called the COVID-19 “hospitality relief effort.”
“The idea behind the swift development of the hospitality relief project was born out of a recognition that the hospitality industry helped to build our vibrant downtown over the past seven years and contributed to the resulting spinoff of economic activity throughout the city,” Peterson said. “We recognized that many of these establishments were new — less than three to five years old — and were not in a position to sustain a prolonged closure without a level of assistance.”
He went on to say those businesses are critical in attracting conventions to the $21 million convention center under construction downtown.
“Our city team was laser focused on avoiding a total collapse of our local economy,” Peterson said.
Peterson could not be immediately reached for comment about the Facebook video.
He said on the video that the purchase of gift cards that could be used later seemed to be a “simple solution” – one that he ran past city commissioners via email, but not with a formal vote. In hindsight, he said, that was wrong even though the “intentions were pure.”
“I sacrificed good and sound communication for expediency,” Peterson said. “I thought there was consensus (among commissioners), but perhaps that was not the case.”
Related: City manager’s purchase of $195K in gift cards as coronavirus relief under review
When Peterson ran the coronavirus relief effort past commissioners in a March 17 email, the gift card program had a slightly different focus, according to a report on the issue by city Attorney John Schrier. Peterson had intended to purchase meals from 14 businesses for essential city workers between March 17 and April 2. He also planned to buy the gift cards from 40 businesses and use them as a “reward system” for essential employees in what would essentially be additional compensation.
Schrier noted that the cards could not be used on free meals for employees, and if they were used as compensation, they would be subject to payroll and income taxes and would have to be approved by appropriate labor unions.
The city’s finance director is holding $192,000 in gift cards until decisions are made on what to do with them. One business returned $3,000 worth of gift cards, according to a city official.
Most of the gift card purchases were made between March 17-18, weeks before federal stimulus legislation was approved.
Schrier’s report included letters from business owners appreciative of the gift card purchases.
“I take full responsibility for the program — both the positive impact on the local business community and the miscommunications with the city commission and the general public,” Peterson said in his Facebook video.
Related: Muskegon’s $195K gift card coronavirus relief effort ‘unlawful,’ attorney says
City policy requires Peterson to bring purchases over $15,000 that weren’t previously budgeted to the city commission for approval. Peterson noted in his July 23 letter to the group Muskegon Citizens for a Strong City that the individual purchases “were within my spending authority,” but acknowledged that taken together, they added up to a “large amount.”
Schrier suggested the city commission clarify its purchasing policy, including the issue of small purchases that are under the manager’s spending limit being combined into a big expenditure as well as timely commission approval of budget reforecasts.
The gift card economic relief program was put into a third quarter reforecast of the city’s budget, but the city commission never took a vote on it, Schrier wrote.
Furthermore, it was “unlawful” to use the city’s public improvement fund for the relief program, but its Economic Development Loan Fund could have been used, Schrier said. He added that the email communication with commissioners could have been a violation of the Open Meetings Act.
In his Facebook video, Peterson said he believes the gift card purchases will be seen in the future as key in helping maintain the downtown economy.
“I believe when the sun sets on the COVID-19 pandemic and our local economy continues to be vibrant and prosperous, many folks will look back on the hospitality stimulus effort as a key piece holding everything together,” he said.
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