A Carrabelle city commissioner has raised questions over the high cost of repaying for upgrades to its sewage system.
At the Feb. 7 meeting of the Carrabelle city commission, Commissioner Brenda LaPaz provided a report on the debt load incurred by the city when it upgraded the city’s sewage system, a project begun in 1996 and completed last year.
The bottom line is that the city owes more than $27 million, to the Florida Department of Environmental Protection (DEP); about $19 million will be paid for by a federal Disadvantaged Small Community Grant. With interest, about $11 million must be paid by Carrabelle.
At the inception of the sewage treatment project more than 15 years ago, the Florida legislature appropriated over time $5.4 million to be placed in escrow. At the time, it was believed interest from that account, combined with increased receipts from new sewer customers, would repay the debt without raising rates.
LaPaz, the city’s water and sewer commissioner, demanded to know why that assumption was wrong.
She wrote that she became concerned in Oct. 2011 when she noticed the city’s yearly financial statement listed an outstanding bill of more than $27 million to be paid for by water and sewer revenues.
“I questioned this liability and asked the city staff, the city attorney, consultants, citizens who had attended past city meetings, and past commissioners,” she wrote. “No one seemed to know much about this liability except that it was understood that the sewer plant project would be paid for with grant money and with money given to Carrabelle by the state legislature which was deposited into an investment account at Capital City Trust.”
LaPaz said she was further disturbed when, in Nov. 2012, City Attorney Dan Hartman presented her with a payment notice from the DEP indicating Carrabelle owed a $184,830 payment Nov. 15, the first of 60 semiannual payments due over the next 30 years. She said the payment was later made without her knowledge.
In researching documents relating to the funding, she said she contacted DEP spokesman Brian Goff who said the final agreement and closing documents had been signed and executed in April 2012.
LaPaz said she was poorly informed by city staff and advisors about water and sewer finances.
“I then realized I was about to be thrown off the boat without a life vest,” she said. “Our mayor appointed me to preside over the Water and Sewer Department on Sept. 8, 2011, my first day as commissioner. In October 2011, I was told the water rates had to be increased because of an ordinance passed in April 2010 that had not yet been enacted.
“It would be up to me to inform the ratepayers. Now I have discovered closing documents that were signed without my knowledge,” LaPaz said. “These documents have extremely high loan amounts that will be the final responsibility of the people who receive city sewer service.”
She said city staff “had very little understanding of the financial complexity of these documents and (she) suspected that over the years, as each loan and grant agreement had been executed, no one took the initiative to review the documents in depth or to have an outside accountant verify if the numbers were actually going to come out as described in the original documents from 1996.”
She said city staff has agreed to work with her to find solutions to the problem of repaying the loan.
Former city administrator John McInnis, who worked for the city between 2005 and 2008, said the answer is simple as to why Carrabelle owes as much as it does.
McInnis said when he came to work for Carrabelle in 2005, Mayor Jim Brown asked him to look into the economics of the project, as outlined in a report prepared in the 1990s by, Baskerville Donovan, an engineering consultant for Carrabelle.
McInnis said significant portions of the community, including Carrabelle Beach and River Road were not included and a change order was approved by the commission to include those areas in the sewage system.
Even with these omissions in existing housing, the Baskerville Donovan study predicted significant growth in the county’s east end over the next decade. When the new sewage treatment system was planned, that prediction had to be taken into consideration, said McInnis, but when the real estate bubble burst around 2005, development of numerous housing projects, including thousands of acres belonging to The St. Joe Company, were stalled.
Many developers installed infrastructure that now sat unused in ghost neighborhoods. They had also paid tap fees to reserve sewage and water capacity.
“Because the tap fees had been paid, we built a plant that is bigger than what currently is being utilized,” said McInnis. “If they hadn’t built it the size that it is, and the development had happened as predicted, it would have been a bigger disaster.
“Everything that was put in the ground was approved by DEP to be grant eligible. The best deal was to ask for the grant and let the state pay 85 percent,” he said.
“The city really had no choice,” said City Clerk Keisha Smith, who did not work for the city at the time. “They were approving all these developments left and right. Our sewer system didn’t have the capacity to handle the development.”
There was no ‘hoodooism’
Carrabelle made its first payment, $185,000, in Nov. 2012, after the construction of the treatment plant and grid was completed.
Banks and Knecht met on Feb. 12 with LaPaz, Smith and Millender; and Jim Waddell and Russell Large, employees of Inovia, the city’s engineering consultant; to discuss Carrabelle’s payment options.
Two days later, LaPaz sent a report to Smith and Millender outlining her take on the discussion.
“City staff appeared to have no understanding of the financial complexity or meaning,” LaPaz wrote. “I explained to DEP administrators that city administrative transactions/functions were not reported to the city commission. Explained that city administration has made no preparations in recent years to secure or plan for additional sewer revenues to supplement payment of upcoming loan. Explained that Carrabelle’s mayor is a kind gentleman, but unfortunately the mayor is intellectually deprived and unable to understand the importance of this debt.”
McInnis, who as city administrator and later city manager was instrumental in the design and installation of much of the sewage system, and who trained Millender as his replacement, said he had reviewed LaPaz’s notes. He disagreed that transactions were not reported and said that the city reaped positive effects from the upgrade of the sewer system.
“There was nothing involved in that sewer project that was under the table,” he said. “We talked about it and everything was approved by the commission. We brought all the invoices to commission meetings where they were approved. There was no ‘hoodooism’ on the part of any commission when I was there.
“At least now, there are no beach closures,” he said. “Now you can go swimming at Carrabelle Beach. I think overall the commissions did a good job and took care of the water problem, paving projects and parks. Had everything gone the way everybody said it would, there wouldn’t be a problem.”
Smith and Millender said that debt was considered in a Comprehensive Water and Wastewater Rate Study prepared for the commission by Camp Dresser & McKee Inc. (CDM) and presented in October 2011. The last paragraph of the study noted that sewer rates “will be insufficient to operate and maintain the current wastewater collection and treatment system once debt service payments begin.
Millender said the amount of debt reported to CDM at the time of that analysis was an estimate because the sewage project was ongoing.
In her report, LaPaz warned of dire consequences if payments on the loan are not made in a timely fashion.
“Failure to make payments will result in the state stepping in to use state revenues from the general fund as well as employee salaries to make payments,” she said in her Feb. 14 report. “When asked for clarification, Ms. Knecht explained city staff would be laid off and their salaries would be applied to each payment in addition to the state revenues in the general fund and sewer revenues.”
In a telephone interview, Banks denied the DEP would seize salaries to pay the loan.
“Oh no, we would never do that,” he said. “We’re not going to tell them anything they have to do internally other than raise the rates to a sufficient level to cover the debt.”
Banks said the state could intercept state revenue sharing which might indirectly affect employee salaries. In the city’s 2012-13 budget, state revenue sharing produced $46,000. He said LaPaz may have been confused by an anecdote related during the meeting about another municipality that chose to lay off staff to meet budget shortfalls but insisted the DEP could not seize city salaries.
“That is not within our purview,” said Miller.
Banks said he was pleased Carrabelle was being proactive with the problem.
On Feb. 15, Waddell sent LaPaz, Large, Smith and Millender a memo concerning ways to generate additional income that came out of the meeting with DEP.
He suggested implementing a readiness-to-serve fee for all residential lots where sewer is available, a measure LaPaz suggested in her report. He also suggested lowering the base volume allowance; increasing tiered rates for sewage flows over the base amount; increasing income from reuse accounts and the Florida Department of Corrections; and examining the feasibility of a bulk sale of raw water to St James Bay Golf Resort for irrigation.
In addition, he suggested expanding, where feasible, Carrabelle’s service area for water, sewer or both, but pointed out this option relies on grants for implementation.
“Targeted areas include the Lighthouse Estates area where an existing customer count would make an immediate impact to revenue,” Waddell wrote.
Millender said rate increases seem inevitable and may amount to more than $20 per household monthly. But she said the city is working with DEP to make the transition as painless as possible.
“The DEP has given us four years to do a rate study,” she said. “The increase can be done over several years and other options may arise in the meantime.”
In a memo to the commission, also presented at the Feb. 7 meeting, LaPaz said she intends to bring four motions before commissioners at the March 7 meeting.
“These motions will give more leadership to the entire board of commissioners and provide a more hands-on governing board,” said LaPaz. “The motions will minimize the risk of damage to the integrity of the few city staff members who presently conduct the city’s major financial business. Most importantly, these motions should help minimize the financial risk to the city of Carrabelle’s future.
“The manner in which city business is conducted is ultimately in the hands of this commission, unless the commissioners desire to remain complacent,” she said. “In that event, the voters can decide for us at the next election.”