‘Fracture in the relationship’ between Wilmington mayor and treasurer lands in court

A festering dispute between Wilmington’s mayor and treasurer that centers on a $3.4 million loan that went bad took a strange turn last month.

Mayor Mike Purzycki and Treasurer Velda Jones-Potter had sparred publicly for months about how to settle the outstanding debt with JP Morgan Chase, but Purzycki upped the ante by taking the matter to Delaware’s Chancery Court, which is better known for resolving billion-dollar disputes between major U.S. corporations headquartered in Delaware.

Vice Chancellor Joseph R. Slights III has successfully mediated the loan matter for now, and the bank has gotten paid. But the judge was incredulous that a disagreement between two of the city’s top three elected officials landed in his lap.

During a recent teleconference with the lawyers in the case, Slights lamented that he was “sitting in a hotel room on a Thursday afternoon telling politicians how to do their jobs,” according to the court transcript.

Slights added: “Disputes like this ought to be resolved in a political process, in a republic, not coming to the third branch of government to have some judge tell people what their jobs are and what their jobs aren’t. I mean, seriously.”

Purzycki and Jones-Potter are both Democrats, but they’ve clashed on other issues such as the city’s OpenGov transparency website.

Purzycki accused Jones-Potter in April of trying to take credit for the website and sharing a link with the public after being given a preview of how it worked, even though she had no role in its production. Jones-Potter rejected the accusation that she distributed the link prematurely.

The power struggle that landed the two top city officials in court, however, stems from the collapse of the Wilmington Housing Partnership, a public-private group that the city has helped finance and monitor for more than three decades. The partnership has built or renovated more than 500 homes in the roughest neighborhoods of Delaware’s largest city.

But over the last two years the partnership, under board president and city developer Rob Buccini, had gone on a buying spree and assembled about 150 properties for demolition and/or renovation.

The strategy backfired. Donations dried up, including one for $400,000 from JP Morgan Chase’s charitable foundation.

Work stopped. Since homes weren’t being completed and sold, there was no revenue to replenish accounts. Contractors got stiffed. The city auditor conducted a review and found financial mismanagement.

The staff was let go and Purzycki announced in January that the city would take control of the agency and try to complete some projects. Most remain mothballed today.

“The partnership found itself in a terrible cash crunch that rendered it incapable of operating,’’ Mike Purzycki told WHYY then. “They had properties they started to rehabilitate that they couldn’t afford to finish.”

Mayor: Treasurer’s actions ‘threaten fiscal harm to the city’

Left in the wake of the partnership’s collapse was the debt to JPMorgan Chase.

In September 2016, just days after then-Mayor Dennis Williams lost the Democratic primary to Purzycki, the city had signed for the $3.4 million loan from JPMorgan Chase on behalf of the agency. The city had expected to repay the debt with money the partnership raised when it sold properties.

But with no revenue, the partnership couldn’t repay the city, leaving the government to pay the bank on its own or risk its credit rating.

In 2018, Jones-Potter had begun paying $10,000 a month in interest payments to avoid being late or defaulting. Purzycki’s lawsuit said she had no legal authority to make the payments.

Earlier this year, Purzycki and Jones-Potter began squabbling publicly over the outstanding note.

Purzycki announced that the city planned to issue bonds for road improvements and other infrastructure projects whose proceeds could be used to pay off the bank. The bonds would be paid off over several years, as is customary with government borrowing.

Jones-Potter countered that Purzycki’s move would increase the size of the $3.4 million debt substantially.

In April, Jones-Potter went further, announcing she had scheduled a $1.2 million payment to JP Morgan Chase and intended to pay off the full debt by its deadline using cash reserves — not by borrowing.

Purzycki objected, and in a letter to the treasurer said making the payment “would be infringing on the executive authority of the mayor and City Council.” He ordered her not to issue the check and threatened to file a court action to stop her.

City Council approved Purzycki’s plan but Jones-Potter still resisted. She sits on the city’s three-member Bond Committee with the mayor and Bud Freel, who chairs council’s Finance Committee and also sits on the partnership board.

The panel voted 2-1 to move forward with Purzycki’s plan to go to the bond market, with Jones-Potter objecting.

Purzycki’s lawsuit contends Jones-Potter would not participate in negotiations to borrow the money, even after he met with her on Aug. 26 and “implored’’ her to do so. The mayor filed suit two days later.

The lawsuit claims Jones-Potter has overstepped the duties of her office and her actions “threaten fiscal harm to the city.” The suit also says the treasurer halted all payments to contractors for work performed on partnership projects, resulting in bills that are now past due.

Treasurer: Lawsuit ‘needlessly costly to the city’

Jones-Potter told WHYY all her actions have been legal and said she has a fiscal and ethical duty to safeguard city monies. She doesn’t regret any of her actions and charged that Purzycki is trying to steamroll her to the detriment of city taxpayers.

“How is it that the mayor should perceive he has the right to direct the treasurer and not allow’’ the officeholder “to exercise the professional judgment and discretion in fulfilling her responsibility to the public. That’s essentially what it boils down to.”

She added that “the litigation was unnecessary to begin with … and needlessly costly to the taxpayer.”

Jones-Potter said that beyond attorneys employed by the city solicitor’s office, the parties have at least four outside private attorneys at cost of “upwards of $450 per hour.” I wouldn’t be surprised if there wasn’t a quarter of a million spent.”

She also said the city needs to drill down on what happened to the partnership’s money with a complete audit and try to recover whatever assets it can to repay the city.

WHYY asked Purzycki about the controversy last week when he was at an event at the new 76ers Fieldhouse but the mayor would not comment. “No. I don’t really want to,’’ he said.

Purzycki’s office did not respond to requests about the cost of the litigation or Jones-Potter’s call for a full audit and recouping of partnership assets. The mayor previously said the money was “uncollectible.”

Judge: ‘Figure out a way to repair the fracture’

The lawsuit spurred a hearing before Vice Chancellor Slights and a teleconference. He persuaded both parties to hammer out a deal so the loan could be paid off by the Sept. 29 deadline.

They bickered over details but ultimately agreed after a Sept. 12 teleconference. The loan was paid off six days later and Jones-Potter said she has no intention of interfering in going to the bond market to borrow the money.

The Chancery Court case remains open but Slights clearly wants the parties to figure it out themselves.

Slights expressed his exasperation several times during the teleconference.

“Look, guys, I’m at a loss to understand how folks who are elected to office – and these aren’t newly created offices so we’re trying to find our way, you know, in some new state that’s just been created,’’ he told the attorneys.

“These are offices that have been occupied by people for a long, long time. And, you know, there’s been a fracture in the relationship, and as a consequence of that, things that should be getting done for the public good are not getting done.

“And it seems to me it is a real threat that that is going to continue unless the two principal actors figure out a way to repair the fracture in some way.”

Slights said he hopes that’s the case, but if not, he will perform his role as a judge.

“If we’re going to have this thing continue where we’re going to be either in court or on the phone with each other every couple days because some new thing has come up,’’ Slights said. “And the mayor wants the treasurer to do something she doesn’t want to do or wants her not to do something that she does want to do, then so be it.”

“But you, really, counsel, ought to be talking to your clients about whether there is a better way, because I’m at a loss to explain this, for folks who went out and campaigned and said, “I’m here to do your work, so elect me to this office.” And that goes for both of them.”

City Council President Hanifa Shabazz, the only other citywide elected official, said she hopes Purzycki and Jones-Potter can find a way to work together. Shabazz herself presides over a fractured council but none of their clashes have ended up in court.

“I’m just really saddened that we had to go to that point to do the business of the city. ‘Nothing personal, strictly business’ should be the attitude we should have. That’s the oath we took,’’ Shabazz said. “We don’t need the personal nonsense or the immaturity.”

Asked if she blamed either of her fellow Democrats, Shabazz said: “There’s not one side of anything. One side have generated more and everybody is responding but if we were doing our jobs and following the rules then we would be successful in doing the business of the city.”