Council Auditor: JEA sale could net City more than $5 billion

As the City of Jacksonville continues to examine whether to privatize JEA, they’re getting a new look at some of the costs and benefits that would involve.

The City Council Auditors Office believes the City would stand to profit anywhere from $1.7 billion to $5.2 billion from the sale of JEA, based on the sale price estimated in a prior Public Financial Management Report and some of the liabilities the City and JEA would have to settle.

What JEA pays 

Annually, JEA contributes to the City’s budget, and this year that amounted to $116,619,815. The Council Auditor estimates that, while a private company taking ownership of JEA would have to pay property taxes- which JEA does not- that revenue would still fall about $57 million shy of what JEA would directly pay in. The Council Auditor says there are ways to make that up, but those options involve using the sale proceeds- pay off General Fund supported debt, pay down pension debt, or set up a permanent revenue stream with the sale proceeds are the three recommended options.

The Report clearly states that the City should not consider using the money for annual, recurring costs. Instead, the Auditor cautions that sale proceeds should go toward one-time expenditures or be used to create a recurring revenue stream.

JEA has made other financial contributions to the City over time: investing $3.6 billion- by JEA’s estimates- in to the Water and Sewer System to date, spending around $53 million on infrastructure to create the Cecil Commerce Center, purchasing around $20 million worth of preservation land, constructing chilled water plants in conjunction with the Better Jacksonville Project, partnering in a radio system that is also used by JSO and other entities, funding $1.15 million in initial construction of the JEA Science Theatre at the Museum of Science and History, performing and financing the City’s LED streetlight conversion, and more. There is even more through the 2016 interagency agreement, including JEA matching the City’s $15 million contribution for water and sewer infrastructure.

Additionally, JEA participates in some City services, like Fleet Management, and contributes to the Inspector General, Ethics Office, and others.

Special City considerations 

JEA offers the City a break on some elements, including landfill leachate disposal. The City, School Board, Navy, and Marine Corps also receive savings through “JEA’s General Service Extra Large Demand rate rider”.

Coming off two significant hurricane seasons, the Auditor’s Office points out that JEA is eligible for FEMA reimbursement, because it is municipally owned. An Investor Owned Utility would not be eligible for that money, and some utilities add a charge on to customer bills to recoup what they pay out during the storm seasons.

Because of the municipal ownership, the City Council also has the opportunity to question and influence JEA’s annual budget, which would likely not exist under an IOU. The report says there’s also “considerable value” in local control of the company, as opposed to ownership by a company that’s based out of another city, state, or even country.

“Would these companies based in other cities, states, and another country make Jacksonville a priority on a day to day basis or after a natural disaster? Would they work closely with the City on infrastructure projects? The CEO would certainly not be just across the street,” the report says.

They additionally believe there’s a benefit to having a company with a Downtown headquarters, according to the Auditor.

“If JEA were a company thinking of moving its headquarters and 2,000 jobs to Jacksonville, the Office of Economic Development would likely ask the City Council to approve millions of dollars of incentives to lure them here,” the report says.

The timeline of orchestrating such a deal is also something the Auditor says needs to be considered, not only because it could take years, but because there will be turnover in the Council and potentially other posts that could influence or completely change the work ongoing at the time. A big concern from the Auditor is that, if the City decides to pursue the sale, it could end without a deal and the City facing a steep bill. Between attorneys, consultants, financial advisors, investment bankers, regulators and other factors, the report says there are several areas where the deal could break down and potentially millions of dollars in costs that rack up.

The Auditor went so far as to recommend that, if the City were to pursue a sale, they require the company they negotiate with to cover these costs if the deal breaks down and the fault is not on the City.

Recommendations 

If the City decides to sell JEA, the Auditor is recommending the sale proceeds not be used for one-time expenses and that the City require the buyer to cover the costs of orchestrating the deal, if it falls through.

Additionally, the Auditor recommends the City engage an actuary to study what taking JEA’s employees out would do to the General Employee Pension Plan.

If the City decides to stay with JEA, the Auditor recommend forming a task force to determine if there needs to be any changes in the City’s current agreement with JEA. The questions to consider should include whether JEA should contribute more annually, what additional revenue streams they could create, whether electric line undergrounding should be pursued, if JEA should become a natural gas utility, and other areas.

There is no timeline for how long the City Council’s study of this matter is expected to last, and ultimately when there will be a decision reached.