City Council Auditor Kyle Billy took center stage at the March 22, 2018 Special Committee to Evaluate the Sell of JEA. He dampened the prospects of a sale being a massive economic windfall for the city and predicted that the city would only garner about $1.7 billion to $5.2 billion in net proceeds.
The Council Auditor first discussed the JEA’s contribution to the city describing how the current contribution of $116.6m would only be filled partially by privatization as private utility companies have to pay ad valorem taxes. In forecasting JEA’s assets, it was predicted that a private utility would pay an estimated $60m in ad valorem taxes leaving a $57m hole in the budget.
Describing how they might spend the net proceeds, the Council Auditor described three examples:
Proceeds to pay off City’s General Fund supported debt which is approximately $850m. This would save approximately $90m in debt service within the current budget.
Proceeds to pay off the City’s Pension debt. If the Pension debt was paid down by $1.1B, it would reduce the City’s required pension payment by approximately $75m per year.
Proceeds could be permanently set aside to generate a revenue stream equal to the approximate difference between JEA’s contribution and the Ad Valorem taxes. At 3%, a $2B investment in a 30-year US Treasury Bond would generate $60m annually.
It was strongly advised, that proceeds from a sale, should “not be used” directly to fill the hole.
Continuing, the Council Auditor next discussed how JEA has benefitted the city over the many years. Listing the following benefits that include:
JEA has invested over $3.6B in Water and Sewer capital improvements to date.
JEA has guaranteed in the past $242M of the city’s variable-rate debt not to exceed a certain maximum amount of interest.
JEA purchased United Water, increasing JEA’s service territory and added 36k customers, increasing the general fund contribution.
JEA has performed joint projects with the City in saving time and money for drainage projects. Also, performed the project management function of the Better Jacksonville Plan $75M Septic tank remediation.
JEA has spent approximately $53M on electric, water and sewer infrastructure at Cecil Field assisting the City in creating Cecil Commerce Center.
JEA has spent approximately $20M to purchase over 5,000 acres of preservation land.
JEA constructed a chilled water plant at Hogan’s Creek to serve the new arena, baseball field and thru another plant downtown, the new courthouse and the Main Library.
JEA has coordinated the design and construction of a radio system that the City and JEA both use. JEA financed the $20.8M cost, billing using agencies within their monthly bills.
JEA has spent $1.1M to fund the initial construction of the JEA Science Theatre at the Museum of Science and History and additionally $775k later own.
JEA is performing and financing the City’s LED streetlight conversion.
By way of the 2016, new agreement with the City:
JEA is contributing 15M with a City match for Water and Sewer infrastructure.
JEA has provided 30.34 metric tons of Water Quality credits to the City, valued approximately $2M per year to help in achieving the City’s Basin Management Action Plan per state EPA requirements.
JEA has committed a contribution of 1M for sewer projects that the City undertakes to meet its environmental obligations.
JEA has agreed to provide the City’s Solid Waste Division a discount rate for landfill leachate disposal thru 2018/19.
JEA provides a discount on electric bills due to Service Extra Large Demand customers that include: The City, Duval School Board, US Navy, and US Marine Corps.
Other considerations were provided in how JEA is a benefit:
JEA is available for FEMA funds, Private Utilities are not. Private Utility companies actually pass these special expenses on to their customers by way of special assessments on their bills.
JEA is a pledged revenue for the City’s Capital Project bonds.
JEA is a pledged revenue for all of the JPA outstanding bonds.
JEA has a first right of refusal with Nassau and St. Johns Counties to purchase JEA Water and Sewer in their respective county if sold.
JEA has paid 6.1% of operating revenues to the city as compared to private utilities only paying 4.2% in taxes and fees to State and local governments. In 2017 JEA’s contribution was 6.7%.
JEA is influenced by the City as their annual budget is approved by City Council.
JEA’s contribution to the City has a guaranteed floor or minimum.
JEA shares in cost of providing City services like the Office of Inspector General, Office of Ethics, and Compliance & Oversight. Also utilizes the City’s Fleet Management and participates in the City’s Workman Compensation and General and Auto Liability insurance pooling.
JEA maintains its company headquarters downtown with approximately 2,000 employees whose jobs are well paid with benefits.
JEA provides the City with contributions based on sales outside of Jacksonville.
Private Utility companies are likely to challenge property assessments and pay lower than expected ad valorem taxes.
Lastly, the following are indirect or areas of concern that would have to be considered:
JEA with its services under “local control”, this value might be seen as “priceless”.
If JEA were sold, reversing this transaction due to seller’s remorse would be difficult at best.
The effect on the General Employees Pension Plan would have to be determined if JEA employees were pulled out.
A deal to sell JEA will be very complicated and could take years, during that time after much time and costs, a deal might never close.
Where will the funds come from to pay the cost of such a complicated deal?
In weighing both sides of the issue, the Council Auditors offered the following benefits to the city for selling JEA:
A Sell would provide a large sum of money without increasing debt or raising taxes.
Ad Valorem taxes and storm-water fees would be collected on JEA property.
The Duval County School Board (DCSB) would receive additional Ad Valorem taxes on capital improvements.
In continuing, the Council Auditor surmised that if the city-owned utility were put up for sale it would most likely be bought by companies based in South Florida, North Carolina or Canada as example by: Florida Power and Light based in Juno, Florida, Duke Florida owned by Duke Energy based in Charlotte, NC, and TECO owned by Emera which is based in Halifax, Nova Scotia Canada.
Billy said keeping JEA municipally owned will keep many high paying jobs in the city. Also, JEA’s top priority is serving its Jacksonville and Northeast Florida customers, especially in time of hurricanes or other natural disasters that cut electric and/or water service.
Back in February, the City Council had reported by Public Financial Management, a firm hired by the utility, that a JEA sale could bring between $7.5 billion to $11 billion. The City Council Auditors more conservative in their numbers to take into account $541 million in unfunded pension obligations, and to not include $600,000 in cash and investments as assets. Because the sale of a utility is a long process, the Auditor’s Office couldn’t guarantee that $600,000 would still be in JEA coffers at the time of a sale.
2007 09 13 00 Special Committee - Potential Sale of JEA - Valuation
2012 10 10 00 Special Committee - Potential Sale of JEA - Valuation
2018 03 22 04 Special Committee - Potential Sale of JEA - Agenda
2018 03 22 07 Special Committee - Potential Sale of JEA - Auditors Evaluation
Posted on Thu, March 22, 2018
by Carol D'Onofrio