Mayor has business relationship with city
WHITE CLOUD, MICH. - A 13 Watchdog investigation spanning several months found the mayor of White Cloud, Don Barnhard, is operating a business that has been dissolved by the state of Michigan for more than a decade.
Even as the business was dissolved, records obtained by our investigative team show Barnhard Construction continued to collect more than $100,000 in business income from taxpayers from 2006 to the present.
As we found this information, we also asked questions about the relationship between the city of White Cloud and Barnhard Construction.
Don Barnhard, or "Barney" as he's popularly known, has been the mayor since 2005 in White Cloud, a town of about 1,400 people in Newaygo County. He's paid approximately $2,200 a year to be the top political figure in the town.
Our investigation started after receiving tips from people who frequently saw "Barney" out working on public projects. Sometimes he would clear land and in other cases he would be in the middle of a street in the ditch working on public works projects like water mains, storm drains, and sewers.
The belief by some was that the mayor was getting all the work in this small town, a politician and a contractor at the same time.
In a wide-ranging interview with Barnhard in July, we asked him about the perception some have of him.
"You need to go outside and see my pickup that I am making so much money," Barnhard said.
Through the Freedom of Information Act, we found invoices provided by Barnhard Construction to the city totalling $101,310 since 2006. The mayor earned the money by either leasing his equipment or machinery to the city or by partnering with the city's department of public works or DPW to do various projects.
For years Barnhard either led public meetings or participated in public meetings where motions were introduced to approve money to his company without a bidding process. He would wait for other board members to approve bills to be paid as meeting minutes indicate he abstained from the votes.
It's a process the city's manager says is legal by the city's policies.
"A lot of the time it's in emergency situations," City Manager Lora Kalkofen said. "We have had some very large water leaks during the winter time."
"My Business Exists"
But the situation started to become cloudy when we looked at the state's registry of businesses authorized to transact business in Michigan.
Barnhard Construction isn't listed as an active business. In fact, records show it was automatically dissolved back in 1992.
We asked the mayor why his company wasn't updated.
"We switched into a different incorporation, a BHW Inc.," Barnhard said. "It's a BHW Inc. DBA (doing business as) Barnhard Construction, so it would be listed differently.
As we asked more questions and offered to look up BHW Inc. for him, Barnhard said he hoped the company was registered but definitively said his business existed.
"My business exists," Barnhard said.
Minutes later, in the interview, we found BHW Inc. is a company out of Fremont, registered by Barnhard's former accountant, that was also dissolved in 2002 by the state of Michigan.
Executives at the state's Licensing and Regulatory Affairs business unit told us they dissolved both companies because annual reports weren't filed in a timely manner.
Michigan law (MCL 450.1833) requires a business that is dissolved to "not carry on business except for the purpose of winding up its affairs".
We also found no "doing business as" filings for either name Mayor Barnhard provided us in the Newaygo County Clerk's office.
Better Business Bureau records show Barnhard Construction as "out of business."
"I thought the business existed," Barnhard said.
Getting the Business
Barnhard said he did make a profit on his business relationship with the city but says "it wasn't what it would have cost the city in other situations".
"If I work an excavator for three hours, I charge them for three hours," Barnhard said.
Several city leaders told us off-camera they were happy to give Barnhard Construction the business because it saved their taxpayers money. Our research shows Mayor Barnhard would often do work, at times, at half the cost others in the market could do it.
Barnhard disagreed he was taking business from other companies in the community.
"I am not undercutting anybody, I am underbilling and cutting myself," Barnhard said. "Usually the only thing I am doing is what the DPW doesn't have."
City leaders speaking to us off-camera told us they were "totally clueless" about Barnhard's business situation.
City manager Kalkofen also told us she was unaware Barnhard Construction wasn't listed as "active" in state records.
"That was news to me in regards to your questions," Kalkofen said.
We asked Kalkofen whether the city issued tax forms to the now-dissolved Barnhard Construction over the years. She told us in July she had provided 1099's to the business because she told us anybody who earns more than $600 in a year should get a tax form.
Through a Freedom of Information Act request, Barnhard Construction did not receive 1099 tax forms 7 out of 8 years since 2008, suggesting taxes were not withheld and income was not reported by the city to the IRS on $67,882 of Barnhard Construction's income.
In our research, generally payments to a corporation like the one Barnhard originally set up are exempt from having to receive a 1099.
But, the lack of a state-registered corporation is throwing the situation into question. The city of White Cloud paid Barnhard Construction. The mayor says Barnhard Construction is actually BHW, Inc. But state records don't show any indication BHW, Inc. was ever doing business as Barnhard Construction even though Barnhard's accountant set up the business.
We asked "Barney" after our interview in July to speak with us after he got his affairs in order. Over the last week, we left several messages and paid multiple visits to his house but we couldn't find him to see where he stood.
Though his initial interview did leave us with food for thought as we asked him if he paid taxes on the business income. Barnhard said he had but also told us "there's some things I definitely have to look into." If we had gotten a chance to speak with the mayor a second time, we were going to ask him again if his records reflect his taxes were paid.
As for the business relationship between the mayor and the city, experts from the Michigan Municipal League (MML) say Michigan's ethics laws when it comes to something like this are incomplete and unclear, especially with cities with populations under 25,000 people.
In its ethics handbook, executives at the MML say "the existence of a private business relationship between a public official and the municipality presents the opportunity for real or perceived abuse of public office. To protect the interests of all, the relationship should either be avoided, or should be fully and publicly disclosed."
But the law allows small cities, in some cases, to allow public officials to do double duty if the positions are legally compatible.
Whether what's happened in White Cloud was legal or violated any laws or ethics guidelines is something that could be investigated.