Where’s the scandal in Southern Shores?

By on August 24, 2010

Exposes seem to be a staple of local television news lately. One of the more recent was a report heavily promoted as “Scandal in Southern Shores,” suggesting vote buying, grounds for an FBI investigation and a fire department run amok. 

Besides the tone of the report itself, the real scandal was the spectacle that surrounded it. Attacks were publicly exchanged, and at one Town Council meeting a speaker’s unrelated criminal record was offered as a rebuttal to his persistent allegations.

Hardball negotiations and a poorly written fire department contract might have contributed to the bitter politics behind the upheaval. But malfeasance? There is no hard evidence of it.

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News analysis

Let’s start with the vote buying allegation. 

In the television piece, former Mayor Don Smith and ex-Town Manager Charles Reid called for an FBI investigation into vote buying. Smith suggested  a “quid pro quo” between Southern Shores candidates and the leadership of the town’s volunteer fire department. In return for votes by Southern Shores fire fighters, it was alleged, candidates would reward the department with generous funding.

By themselves, the numbers do not support the allegations. Hal Denny defeated Smith 816 to 352 in the November 2009 election. A landslide. Write-in candidate George Kowalski, a fire department captain, defeated incumbent Brian McDonald by a much smaller margin of 528-493, or 52 percent to 48 percent. 

As it turned out, 162 people who cast votes in the mayoral race did not vote in the McDonald-Kowalski race, indicating some confusion in casting write-in votes, or apathy toward the outcome in general. Even if you count their relatives, the 40 to 50 members of the volunteer fire department would hardly seem to be enough to turn the mayoral election.

Where did the money go?

Another part of the report involved how the fire department spends its money. The gist was that the fire department bought two expensive fire trucks just before its 10-year contract was about to expire in December of 2008. And in the same year, the board decided to start paying its chief, Bob Harvey, a salary of $70,000 per year.

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The story goes that having done all of this without the knowledge of the town council or management, the fire department then came to the town during budget deliberations to ask for a 75 percent increase in funding — $129,000 of which would be applied to debt service on the new trucks. The new contract would also absorb the chief’s salary. In addition, $50,000 was requested to buy new radios, required under Dare County’s new unified emergency communications system.

Southern Shores’ prior administration had hammered out an agreement with the fire department that would fund it with 2 cents of the property tax rate. After the elections, the chief came forward asking for 3 cents, even though the ink on the new contract was barely a year old. 

In the end, the town upped the ante to 2.75 cents. Criticism of the timing might be justified, but to suggest that the increase in the fire department budget led to the town’s tax increase is misleading at best. Of the 4.25-cent hike, 1.25 cents went toward the operating budget, which included increased health and retirement costs and hiring a police officer. The other 3 cents has been earmarked for a capital improvement fund.

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In reality, the $344,000 operating budget of the fire department was an increase of about 15 percent from the $300,000 negotiated in the 2009 10-year contract, with another 20 percent coming from Dare County under a separate contract for service to Martin’s Point. The rest consists of a one-time expense for the new radios and the debt service on the new fire trucks.

New truck purchases might have been ill-timed

For critics, the fire trucks are fair game. Essentially, the fire department can incur debt, in this case just before contract renewal, and push that expense on the town — after the fact. The town can either pay the debt service or refuse to renew the contract with the fire department. In that case, the town is left with no service and no easy method to quickly establish a fire department. The town does not own the assets of the fire department because it is a private corporation. The fire stations and equipment belong to the fire department.

Taking on the expense of new trucks at contract renewal time was probably a poor way to start negotiations and backed town officials into a corner. At one point, with negotiations at a standstill, the SSVFD sent a formal letter informing the town of their intention to terminate their services.

While one can make a case the fire department played hardball with the town, perhaps unfairly, the contract, including the new 10-year agreement signed in February 2009, clearly gives it  the right to take on such debt with little or no input from the town. As long as the fire department does not borrow more than the value of its assets, it can finance equipment and other items as it sees fit. While taxpayers and critics may not approve of this “right,” town leaders, including the former town manager, agreed to the clause in the 2009 document, even after contentious negotiations and apparent anger over the purchase of the new trucks.
 
The television report also highlighted Harvey’s new salary of $70,000 — pointing out that it exceeded the total of salaries paid out by all other Dare County volunteer fire departments combined. Several of the volunteer fire departments, such as Duck’s, are adjuncts to the municipal department. Others, like Buxton, cover a much smaller area. The volunteer fire department most similar to Southern Shores’ is Colington’s. Its chief is paid $60,114 on a $706,000 budget.

The Duck Fire Department, which is a municipal department, is responsible for protecting property valued at $2.1 billion, according to the town’s budget. The SSVFD protects almost $2 billion of property; $1.7 billion in Southern Shores and another $285 million in Martin’s Point. The fire chief in Duck, a municipal employee, is compensated at $69,746 — almost the same as Harvey. The Duck fire chief also receives benefits. Harvey does not.

Duck’s total budget for the fire department, according to its online documentation, is $654,000. Included in Duck’s figures are $196,000 in fire department salaries and another $44,000 in benefits. The Southern Shores department’s total cost to the town — it also receives money from Dare County —  is $523,000. Duck’s budget does not include funding for the new radio system, which it intends to add to the 2011 budget via town borrowing.

Who owns the department’s assets?

The last piece of information we looked at was the ownership of the assets of the SSVFD. While it appears land was given to the SSVFD on two occasions for its two fire departments, and the Town of Southern Shores as well as Dare County have paid for all the buildings, trucks and other equipment, ownership of these assets is with the fire department. What the town might save in lower taxes (Denny speculated taxes would rise another 6 to 8 cents if the fire department were taken “in-house by the town), it cedes in ownership of fire department assets and control of its spending, especially for those high-priced fire trucks.

Under the contract with the town, either side can terminate the agreement with sufficient notice. Thus, if the town determined next year it wanted to create its own municipal department, it can do so and provide timely notice to the SSVFD. But the town cannot walk in and take over the equipment or occupy the two fire stations. Harvey said there are other stakeholders with whom the SSVFD has contracts, mainly  Dare County, which provides 20 percent of the department’s funding for coverage of Martin’s Point. 

The SSVFD also has “Mutual Aid Agreements” with almost all towns, and is especially active in providing such aid to Duck, according to Harvey. All of these entities are considered stakeholders, and the contract between the town and the SSVFD requires a stakeholder’s committee to meet, agree — even submit to arbitration if agreement is not possible — on how to dispose of the SSVFD assets.

Critics also might point to  the timing of another move by the fire department. Just before the new contract was signed, the fire department moved the real estate assets out of its corporation and into a new corporation called Fire Service Real Estate Inc. It could appear to some that this was an attempt by the SSVFD to hide or protect assets from the town.
 
Harvey called it a “risk management tool.” As a corporation, the SSVFD could be sued. One example cited by Harvey was if the outcome of a firefighting call was “not satisfactory” to the victim of the fire. By moving these assets, which are the corporation’s most valuable and are also unencumbered by debt,  the corporation has protected them, Harvey said. While the timing may have been inauspicious, most corporate attorneys would probably argue the move makes fiduciary sense for the SSVFD and its board.

Others have asserted the SSVFD is in no such danger, operating under agreements with the town and those that govern volunteer departments that restrict their liability to the amount of the department’s insurance coverage. Moving an asset out of the SSVFD and into a corporation controlled by a different board raised some eyebrows, especially when the council was informed of FSRE’s existence late in the negotiating game.

The Town of Southern Shores entered into a new contract with FSRE Inc.  If a termination clause is triggered between the town and the SSVFD, the fire stations will be “on the table” at negotiations, a move which relieved some of the concerns of the town’s negotiators.

A power struggle between the town and department

In the end, what we have is something fairly typical and lacking any verifiable scandal. Councilman Kevin Stroud said as much at a recent Town Council meeting. While he did not like the way the budget was presented, he said, “I don’t think there’s anything illegal going on. It’s politics.”

As towns grow, the power struggle between volunteer fire departments and municipal government is almost assured to eventually come to a head. This played out in Virginia Beach decades ago, and in Nags Head in the not-so-distant past. 

The Town of Southern Shores appears to have a well-run fire department available at a reasonable price. The town government has signed contracts continuing the existence of the SSVFD and giving it significant leeway in how it manages its affairs and money.

While the SSFVD may have pushed the envelope with the town in negotiations — perhaps even placing the town in a situation where Southern Shores had to sign a new contract it did not like — it is the relationship the town has chosen for its fire protection. Perhaps the real culprit is the contract itself — which allowed, and still permits the SSVFD to operate with significant financial autonomy.

Cover photo from the Southern Shores Volunteer Fire Department website.

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