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City legal bills double in fight with feds over RCSD’s past fiscal woes

A financial debacle that battered the Rochester City School District four years ago has long been put to rest as far as the district goes.

But it continues to dog City Hall — and city taxpayers.

“The fact that we even have to do this is absolutely ridiculous, but necessary,” Mayor Malik Evans told City Council last week.

The case is about what happened in 2019. The district was in fiscal distress and misled investors, claiming its finances were trending positively as it sought short-term financing. The city is responsible for district borrowing and relied on that information when authorizing the notes.

Last summer, the U.S. Securities and Exchange Commission brought charges against the city, its former finance director and others. More than a year later there is still no resolution.

Evans was speaking to City Council about his request for another increase in outside attorney fees, with bills now expected to reach $350,000 — more than double the last estimated, and a sum that likely dwarfs any fines that could be issued, if the SEC prevails.

"We have to take a principled stance to say that our employees should not be responsible for … things that they did not do,” Evans said, adding: "It just makes no sense.”

“It's getting awfully expensive, though, in the process," said City Council member Mitch Gruber, who leads the council’s finance committee.

“It may get more expensive if we don't get some type of help and relief,” Evans said.

In court filings the SEC has argued that the city officials’ claim that they did not know about the district’s troubles is false. The city’s financial advisors had warned that the district’s financial condition was worsening and "would continue to deteriorate “absent drastic changes.”

“It was the City that conceived of the bond offering because the city wanted to stop making the short-term loans to the School District that kept its finances afloat,” the SEC told the court, continuing: “The City also knew that the core claim in the bond offering – that the money was needed merely to address a timing issue in the receipt of aid from the State of New York – was indisputably false.”

Evans has asked Congressman Joe Morelle to intervene. City Council now plans to ask Senators Chuck Schumer and Kirsten Gillibrand for help as well.

“We need to amplify this and the unfairness of it,” Evans said.

Morelle could not immediately be reached for comment. The mayor said he hoped to recoup some of the city’s legal fees in whatever resolution is reached.

Brian Sharp is WXXI's investigations and enterprise editor. He also reports on business and development in the area. He has been covering Rochester since 2005. His journalism career spans nearly three decades.