By Shereen Siewert | Wausau Pilot & Review
At the same time a private company was applying for a massive lead service line partnership in Wausau, its CEO was fighting a lawsuit alleging he and others violated the Rhode Island Uniform Trade Secrets Act, breached his fiduciary duty, stole confidential and proprietary information, and sent a “ransom note” for an $8 million payment to his former company, court records show.
Allegations outlined in the now-dismissed lawsuit were never disclosed to city staff or to the City Council, which unanimously approved awarding the project to Community Infrastructure Partners (CIP), the only company to submit a proposal for the estimated $80 million effort. Under Wausau’s process, CIP was not required to make such a disclosure or even specify the name of its parent company. Those details – and financial implications of the deal – emerged only after the City Council already approved the partnership.
Replacing the city’s lead lateral lines is an idea that is seeing widespread support from the community. Most residents recognize the serious health implications of lead in municipal water systems. But some in the community are asking pointed questions about the way the partnership was developed, while questions over the financial implications persist.
The process played out as a stark contrast to the way many deals involving private companies are typically handled in the city, which changed its Tax Increment Financing application process years ago after a Wausau Pilot report that raised previously undisclosed red flags about a developer planning a major riverfront project. Then, the Wausau Pilot investigation showed a string of financial struggles and lawsuits connected to the developer, prompting city leaders to overhaul their application process for agreements with private companies to better protect taxpayer dollars. The riverfront deal was never finalized.
Today, applicants who seek public funds for development projects in Wausau must answer a range of questions about their past successes, challenges and legal entanglements. The city’s application poses questions about current and former bankruptcies, lawsuits, criminal charges and outstanding tax liens and allows applicants to explain those situations in detail before a partnership is approved. The improvements the city made in the process aim to allow more transparency when using taxpayer funds to back large-scale projects and ensure the best possible partners are selected.
For the lead lateral replacement project, one of the city’s most ambitious endeavors in years, no such application process was followed. Instead, the city sought a request for qualifications on its website, received a single response, rated the company based on a qualifications statement and the City Council unanimously approved Community Infrastructure Partners, which received just a 6.8 rating on a scale of 1-10 by staffers who reviewed the company’s qualifications and readiness.
The decision on who would spearhead the highly-anticipated project was made by Council members in December. As Wausau Pilot previously reported, the Council voted unanimously to move forward with the partnership without the benefit of CIP’s 64-page statement of qualifications, which was not included in the meeting packet, and without seeing the one-sheet ranking results performed by four members of city staff that reviewed the company’s proposal.
Had CIP been asked to fill out the same type of application as economic development partners, CEO Shawn Kerachsky would have disclosed that he worked for years for Corvias, a company at the center of a national controversy over military and university housing, and that the company was at that very moment suing him and four of his colleagues, two of whom are also part of the Wausau project team. Instead, his statement of qualifications does not mention Corvias at all, but touts his years of experience working in this sector. The application process by the city did not require that information.
Kerachsky’s time with Corvias, where he served as managing director of a crucial business unit, ended in August 2022. During his tenure, according to court documents, he developed a competing partnership, pressured his team members to resign from Corvias and join him, and he ultimately announced his resignation.
Among the allegations outlined in court documents: that Kerachsky and his team used confidential information to build a competing business and maintained a “shadow IT” system without authorization while employed at Corvias. The company also accused Kerachsky of demanding an $8 million payment, upon his resignation, if Corvias wanted to “forestall the events he had put in motion.”
Corvias sued days later, naming Kerachsky, Eric Jones, Peter Littleton, Elizabeth Wheaton and Sean Agid as defendants. Kerachsky and his co-defendants faced a range of charges outlined in the complaint, from misappropriation to conspiracy.
Jaclyn Grodin, an attorney with Goulston & Storrs PC who was lead counsel for Corvias in the lawsuit, told Wausau Pilot & Review the case has been settled, while court records show a dismissal recorded in October, months after Public Works recommended CIP for the lead line replacement project. The company, Grodin said, has no further comment.
Kerachsky, when invited to comment on the allegations, emphasized that the details in the lawsuit are just that – allegations. He said the most germane point about the lawsuit is that it has been dismissed.
‘That’s not how it’s done’
Whether the City Council would have acted differently had the city performed due diligence ahead of the vote is anyone’s guess. But Shar Habibi, research director at In The Public Interest, said this is not the process municipalities typically use when choosing a private partner for a major project involving taxpayer funds. In The Public Interest is a nonprofit research and policy center that helps public officials, citizens and advocacy groups better understand the impacts of government contracts.
She also questioned why the same process designed for public-private development TIF deals isn’t used for utility projects. “Why not use the same process?” she said.
The answer is unclear. Public Works Director Eric Lindman said all notices for RFQs, or requests for qualifications, are posted on the city website. Interested parties then contact the city to get a copy.
“This is how we track who receives the documents and get their contact information,” Lindman told Wausau Pilot & Review.
Once responses are reviewed, they’re brought back to the Board of Public Works for consideration before heading to additional committees, if necessary, and City Council, he said. From this particular RFQ, the city had four companies who requested the document. Just one submitted a response, he said.
Had Wausau followed the same application process for this project as the city does in economic development deals, Kerachsky would have also been forced to disclose additional information, that the city wouldn’t just be doing business with CIP, but that CIP has a parent company. That company is AbTech Water Holdings, a name that does not appear in his statement of qualifications.
But none of this information appears to have been disclosed to Council members prior to the Council’s December vote, and even during that meeting, few alders had questions.
“Even if you’re doing good things for the community, you really have to ask questions,” Habibi said. “You should know who you’re working with and understand the financial implications, if only to justify the decision you’ve made on behalf of the community.”
Habibi said even if a municipality is confident in the decision they’re making, a paper trail is essential – if only to justify the decision being made on behalf of the community.
Last month, Dist. 3 Alder Tom Kilian requested the City Council reconsider its partnership with CIP. That effort was not successful.
But skeptics say that the “community” piece of the language is just window dressing.
“The community piece really appears to be a marketing term,” said Habibi, of In The Public Interest.” It’s still a public-private partnership and should be seen the same way.”
Kerachsky, in an email to Wausau Pilot, acknowledged that the label is a marketing tool. He also rejects describing the lead service line replacement as a public-private partnership, also referred to as a P3, at all, despite the city’s repeated use of the term in press releases and other announcements related to the project.
“A CBP3 is simply a marketing/branding construct,” Kerachsky said.
Wausau Pilot reached out to Rosenberg asking why the city did not require a formal application similar to other public-private partnerships for the lead lateral project.
“I’ve been trying to understand what you are referring to and [City Attorney Anne Jacobson] and I believe you are referring to a TIF application? That’s when we have developers fill out the applications. From that standpoint, this is different,” she said, in an email Friday to Wausau Pilot.
But she did not explain why.
A call for transparency
Force referred to last month’s discussion over whether to reconsider the city’s contract with CIP, saying Kerachsky – who appeared via video – seemed “defensive and argumentative, almost offended that some council members would question the contract with his company.”
“It was hardly good form,” Force said.
Force emphasized the need for community support for the project to move forward and said the information about lead line replacement is difficult to find on the city’s website. What he did find listed a phone number that was answered with a voice recording and an email for which he had received no reply, as of the Feb. 5 meeting in which he spoke. He also said the information on the website indicates that the lead line replacement will happen at “no cost to the homeowner,” an assertion made several times.
But the financing piece of the project is far from clear.
“According to the numbers we’ve seen on this [Water] Commission, that may not be true,” Force said, of the project cost.
“None of these critics in the community is opposed to replacing lead lines,” Force said, on Feb. 5. “They’re simply asking for communications and transparency about a project that will possibly affect all property owners in the city.”
“Credibility is paramount if this project is to succeed, and in my opinion, we don’t have it yet,” he said.
Certainly, deals between downtown or riverfront developers with the city are not precisely the same as those solving infrastructure-related problems. But in all cases, the projects rely on public dollars being used by a private company chosen by municipal leaders tasked with making solid decisions on behalf of taxpayers. They are all public-private partnerships, by definition.
Though all council members voted in favor of the partnership with CIP some questions and concerns emerged, even in December. As part of the discussion last year, Dist. 5 Alder Gary Gisselman asked how much city officials knew about the relatively new company, and also asked whether the group had the experience and capacity for such a large-scale undertaking. Rosenberg assured the group that the principals had extensive relevant experience, though with a previous iteration of the company.
An answer to infrastructure challenges, with some risks
Traditionally, infrastructure projects are built with public debt raised through tax-exempt bonds sold to individual investors and institutional investors like pension funds and mutual funds. The debt is paid back by people and businesses through either fees or taxes. Researchers say that public private partnerships have garnered national attention as a way to combat our nation’s infrastructure woes. But, some experts caution, they are no panacea.
There are multiple challenges involved. Publicly financed and operated infrastructure projects are transparent and subject to applicable sunshine laws. Financial documents, planning documents, usage projections, wages, construction contracts, and performance reports are public documents. The rules are different for privatized projects where much of this information withheld from the public view.
An Urban Land Institute report on successful public private partnerships edited by Stephen B. Friedman says few tasks require more attention and care than choosing the appropriate project team. Best practice, the report says, requires using a knowledgeable consultant and outside special counsel to ensure the agreement and the team are appropriate for the project. In addition, the report urges conducting due diligence about not just the project itself, but all members on the private side should be vetted prior to approval.
None of those practices appear to have been employed by Wausau in this specific process.
ITPI says such partnerships can be a win for the public and the economy, by creating jobs that lift families out of poverty and ensuring infrastructure is rebuilt. But unfortunately, the group says, many proposed projects are not structured as win-win propositions. Municipalities should take a hard look at how many jobs will be created, who will receive them, how the proposed deal will impact the municipality’s bond rating and additional risk factors involved.
Some states have public-private partnership requirements that municipalities must follow for procurement. City Attorney Anne Jacobson said according to her research, Wisconsin does have P3-enabling legislation for transportation projects.
“It is inapplicable here,” Jacobson told Wausau Pilot & Review.
How much will it cost?
Wausau’s proposed deal with CIP does contain some safeguards, with local inspections for completed work prior to some payments being made and an annual review under which city officials can alter or reject future work with the company. But there are many unknowns about the fiscal implications of the project, as the contract itself appears not to limit the city’s spending.
The language of the contract says Wausau will “pay and reimburse the manager, on a monthly basis, direct costs.” The manager’s base fee for each project is structured as a cost-plus fee, which will be invoiced each month with a 7 1/2 percent markup of the sum of the direct costs, the document states.
The fiscal impact of the project, when initially passed by the council in December, was not specified – the amount was left blank in the official document alders voted on. But city documents also show that a portion of the money being used is a loan, some of which may be forgivable. That leaves questions by the Water Commission and others about what the project’s true costs will be.
Habibi said council members should ask many questions and have a solid understanding of each aspect of the agreement before it is ultimately signed this week.
“The devil is in the details,” Habibi said. “It’s so important to understand who’s doing what, and the makeup of the financing and funding. If I were a City Council member, I’d go over this contract with a fine-tooth comb.”
Attorneys for CIP and Wausau have been working out the final language for the agreement, which will be discussed and ratified Tuesday. The City Council will discuss the matter and vote during a meeting set for 6:30 p.m. Tuesday. See the full packet, here.
