Sources: NYO investigation centers on use of $2 million in city - News weather sports for Youngstown-Warren Ohio

Sources: NYO investigation centers on use of $2 million in city funds

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Dominic Marchionda Dominic Marchionda

We're learning more about the relationship between prominent developer Dominic Marchionda and the city of Youngstown.

It was on Thursday just after 9:00 a.m. when investigators from the State Auditor's Office, with help from the Mahoning County Sheriff's Department, served search warrants at Marchionda's downtown Youngstown office and Poland home.

Dozens of boxes, as well as brown bags filled with potential evidence, were taken from both locations. 

Sources tell 21 News that investigators from the state are looking into the legality of how more than $2 million dollars from the city's water and wastewater funds were used.

The money was given to Marchionda for three economic development projects:  Erie Terminal Place, Wick Tower and the Flats at Wick.

Several sources tell 21 News that the Flats at Wick project that involves student housing is at the forefront of the investigation.  

It was back in 2009 when the city of Youngtown gave $1.2 million in water and wasterwater funds to a subsidiary of NYO Property Group, money to go towards the purchase of the student apartments known as Flats at Wick.

Marchionda's company then paid $1 million to the city for a former fire station located at Madison Avenue and Elm near campus.

Mayor John McNally says the projects were approved by city officials long before he was in office.  But he feels the city has a good relationship with the developer Machionda.

"I'm very comfortable with our relationship with Marchionda.  I know, for example, on the Wick Building he's repaid the dollars we lent to him with the approval of city council.  He paid us back, I think, $2.1-million dollars.  Work on the hotel project is on-going and we fully support that," Mayor McNally said.

Under former Youngstown Mayor Jay Williams' administration, the former law director did get an opinion on whether water and wastewater could be used for economic development projects from a Cleveland law firm.

The law firm Calfee, Halter and Griswold LLP wrote and issued the decision for the city of Youngstown in June of 2011.

In a letter attached to the legal opinion and issued to President of Youngstown City Council Charles Sammarone at the time, Law Director Iris Torres Guglucello wrote,  "Surplus funds from water and waste water may be used for grants to fund projects that repair, extend or englarge water or waste water works, and that Council has broad discretion to determine, in the first instance, if a contemplated expenditure is for that purpose."

Current Law Director Martin Hume told 21 News, "The law allows us to use water and waste water for economic development purposes to expand the water and waste water systems.  And the city has used that to aid private developers in projects that involve putting new water lines and water and waste water type infrastructure.  In each of the projects that has been approved, there's been an analysis that has determined that the net benefit to the city is worth the investment that we're making."

However, there are several sections of Ohio Law that seem to disagree that water and waste water or "enterprise funds" can be used for anything other than what they were intended.

Ohio Revised Code section 5705.10 says,  "Money paid into any fund shall be used only for the purposes for which such fund is established."

Several sources explain it this way. Enterprise funds can only be used for the enterprise from which they are raised.  And you need to be able to show that there is a connection between economic development and the utility fund you're taking it from.

The search warrant and the affidavit to the search warrant remain sealed at this time.

21 News was told that Marchionda was not in the office when we called for a comment on Friday.

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