Holt: Legislature should consider measures that could identify financial issues in local governments more quickly

OPINION

BY CARLOS L. HOLT CPA, CFE, CIA, CGAP, Former City Auditor

Public outcry and elected official intervention have put the City of Gainesville’s operations, finances, and accounting methods squarely in front of the Florida Joint Legislative Audit Committee (JLAC). Citizens have become increasingly concerned in recent years as spending, debt levels, property taxes, and GRU rates have all increased (2nd highest in Florida). Prior missteps include a 30-year woody biomass Power Purchase Agreement (PPA) with a minimum daily cost of $194,709 (idle plant). At four years in, the City purchased the plant for $750m financed over 30 years, which added a large sum to the GRU debt load, with a pre-purchase City Auditor report (issued May 17, 2017) of projected savings of $28m annually in the first 26 years of the 30 years. Continued additional debt and spending increases by city leadership have further incensed citizens. General fund spending has increasingly relied on General Fund Transfers (GFT) from GRU at the same time GRU debt was growing. General Fund spending in FY21 was $137.8m, with $38.3m (28%) coming from the GFT.  

Although the attention of state officials is now front and center, earlier intervention using alternate means might have made things easier to rectify. Preparing for a JLAC meeting and asking for an audit take time. Audits recommended by JLAC must be placed on the audit plan, staffed, and worked as other audits are completed. Once underway, auditing a city or county is not a quick or easy process. Once complete, recommendations must be agreed to and acted on for any change to take place. Make no mistake, audits by the Auditor General are extremely valuable, and, in our case, did produce outstanding results. However, the process isn’t necessarily designed for quick action.  

Other states have different methodologies that add value in different ways and can be timelier for initial identification. An examination of state methodologies by Pew Charitable Trusts details other methods that should be considered by the State of Florida.

Florida is one of 22 states with some type of monitoring (via State Auditor actions). Eight of these 22 states can be classified as “early warning” states (Florida is not one of them) that have laws defining when local governments are in “fiscal distress” and have systems to identify signs that a locality is declining toward such a condition. Efforts to monitor local government fiscal health vary widely. The goal of states should be to avoid state intervention and/or the need to take over local decision-making authority. Eleven frequently-used indicators are found on page 18 of the report. The process is well supported by credit rating agencies (page 4) and includes pre-approval of debt issuances. 

The State of Tennessee uses measures such as review of adopted budgets, reports on debt, financial statements, requests to issue debt, and cash analyses. For fiscal stress situations, state officials may create corrective action plans, issue funding bonds, appropriate money to pay their debts, reduce expenditures, or even raise taxes. In some cases, Tennessee requires that local officials obtain state approval before writing every check.

Another measure Florida officials might consider would be setting limits on GFT as a percentage of municipal budgets, recognizing that in some states (like Tennessee) any transfer from a utility to a city or county government is illegal: “rates and fees shall reflect actual cost of providing services rendered… and no profit or source of revenue to a governmental entity.” The Nashville and Davidson County combined governments get $0.00 from Nashville Electric Service, which services 400,000 customers. Loans to local governments from a utility are also illegal in the state.

Gainesville citizenry should be very appreciative of the continued efforts by Senator Perry and Representative Clemons, along with the fine work of the Auditor General’s staff. All of us look forward to the fruits of these efforts via the improvement in our financial health and the discontinuance of wasteful spending while debt levels are at record highs. Additional efforts such as those suggested above might result in prevention before future missteps occur. 

Carlos Holt, a former City Auditor for the City of Gainesville, was fired in June 2019 after calling attention to a lack of financial controls in the City’s Reichert House program, along with multiple nonprofits that have received money intended for the Reichert House. He was part of the effort to ask the Auditor General to audit the City.