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

Former City Auditor Carlos Holt speaks to the City Commission in June 2019


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.

  • Thank you Carlos!
    It’s a shame that those who actually caused this financial wreckage cannot be prosecuted. Or can they?

    • Not sure about any prosecution Citizen, just being a failure and making 90% bad decisions isn’t a crime. Of course if someone came forward with specifics and artifacts on something we don’t know about we could get the SA to at least listen to it.

  • We challenge Harvey and the commission to show good faith in their mandated mission of fiscal responsibility by rescinding their irresponsible vote to reward their incompetence with a record pay increase.

    • Thanks for the input Harold! That move really smacks people in the face.

      They wouldn’t need to spend so many hours at City Hall if they quit thinking up new things to spend money on and grow the government. Remember, they spent several hundred thousand dollars over 3 years on Internet Service Provider studies and contractor plans and were only a couple votes away from signing up for several million to be spent building it out before it would have crashed and burned. Several instances in this area already tried that and lost big time. You could tell from reading the first study it would be a disaster with all the hoops to go through. That’s what wannabe big shots with little to no business or industry experience try…thank god it didn’t pass!

    • HS, we might be closer to this than you think. The first task for any bankruptcy or workout manager is to take complete control of the checking account. The mayor and commission may find themselves having to justify every single expenditure by the end of the summer.

  • I would love to see this as a Florida law! Wouldn’t this be a clean, straightforward way to begin to limit the profligate spending of the City Commissioners and shut down the GRU piggy bank?

    “…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.”

    • Agree with that concerned mom! That way we’d have a clean utility without a yolk around its neck and no involvement from City Hall!!!

  • Why is the Alachua County Commission sitting silent and idly by? Is it the many city politicians and cronies that contribute to their Campaigns? Of Course when you have a commsioner interwoven with GRU and the city like the Cossioner that tok a salary while in office illegaly and never paid it back you can count her out, she’s one of them.Obvious no concoius or accontabily. How about the rest . The State need to look at this intety also.
    1) Why have they not succeded from GRU like UF?
    2) The County School Board could save millions by having the School’s hooked up to GRU and switch Utilty providers.
    Maybe even cut the school taxes. All other county building and County residential customer should have that option as well.
    3) At the very least suspend the GRU County tax . Research reperations and refunds to the customers that have been abused and forced to pay more than any else, with the surcharge. All other GRU customers have been paying less and the County sits on the sideline and says nothing. Even other Cities like Alachua pay less. Why. Taxation with no representation.
    GRU would not have to add power. They could downsize and start preparing for the immniet sale, which will be chatoic. Gainesville could do a trial run on what it’s like without fleecing GRU and the rate payers. Reality is here even in LaLa land, little DC, Little Portland , Gainesville. How envigorating for those bent over by the local governments for 2 decades.
    Mr Holt, God Bless You.

    • Good comments Captain! You’ve go a lot there. I thought Alachua did buy power elsewhere at one time. UF has at least been smart enough to maintain distance from City Hall. If GRU was on its own, had zero GFT, maybe they’d give it a try with part of it and. So you’re one of the one’s who pays double taxation. I know I’d be disgruntled over that.

    • CS, I think they are frozen in fear. The city is going to be looking at the school board and county budgets as the first potential source of money to keep their boondoggles going. The SBAC and County should expect that city will be beggingdemanding the county take over the city funding of any shared enterprise.

  • Excellent that “us” the taxpayers and voters acknowledge and do something regarding these actions which affect us all. Same thing is happening at Lake City Florida and people look the other way. Shameful

  • Well-articulated, Mr. Holt.

    Setting limits to GFT (ala Tennessee) would certainly be a logical move towards a balanced budget requirement.

    The question facing Gainesville residents; is there anything so important for city government to spend new money on than the debt it has compounded over the years?

    Wasn’t Moody’s drop of Gainesville’s credit rating from Aa3 to Aa2 a wake-up call?

    Gainesville envisions itself as an open-minded, inclusive, creative community.

    Why, then, cannot its leaders be open-minded and include new ideas for a creative solution to the debt levels being placed on the public?

    • Glad you enjoyed my editorial 2byMeta4! You made some logical observations. I too have been bewildered for years why “progressives” don’t sometimes pick up the task of cutting spending or programs when something becomes unaffordable and you’ve got to start somewhere. They’d have a lot more “cred” (as they call it now) if they did take part. At least the democrats on JLAC were working with Republicans and were quite serious about requiring bold action, now! It was surprising and enlightening, even Rep. Hinson inferred all on the table, even Reichert House she added. Hope this 2-sided support continues! Thanks for you feedback!

      • Thanks for standing up for us CH. It was depressing that the Sun’s first response to the JLAC audit was an article impugning Ms. Hinson’s character.

  • Mr. Holt
    I have a question that no one can answer even the commissioner for my area I live in the Hills of Santa Fe and have to have GRU I am in the 40% group who pays taxes to the city of Gainesville and can’t vote in their elections
    What can we do about this?

    • I don’t know if anything unless you are Annexed in like Ward keeps referring to, then you could vote. City officials all over want to do this, which basically moves the city limits out where you would be subject to all of their goofy practices, zoning, sanitary napkins in men’s restrooms, restaurants storing old food for pick up, no straws, other idiotic ideas. I wouldn’t want any part of that.

  • I’m curious about the cost of “beautification” projects like the gigantic planters, and the on-going cost of landscapers to maintain them, on the East side of G’ville, heading in on SR 20. Was that funded by the City? What about all those palm trees in the medians? And the rainbow painted crosswalks? And the celebrations of Pride Week, etc? Who pays for the special flags and banners and advertising for all that? And the reconfiguring of the streets around campus that adds to the congestion of the tens of thousands of employees and students trying to access campus every day?

    Seems like wasteful spending is just everywhere – and I wasn’t even digging deep to find examples!

    Also, I’d like to know more about Reichert House. I’m unfamiliar with that situation, but it sounds like it’s important information.

    • All paid for by your generous city of Gainesville, with your taxes and backing of ridiculous debt levels of course!!!

  • The statement about Nashville is false.

    Although a nonprofit business, NES contributes
    to the economic health of local governments.
    NES makes the largest tax equivalency payment
    to Metro Government, and also makes payments
    in lieu of taxes to all other city and county
    governments within its service area.

    • No. I cited you the TN code, updated in2019. You are looking at property taxes for the vast amount of property NES owns or uses, just as would be required if land used by a commercial entity or individual. Again, no profit or GFT is allocated or paid. Payment in lieu of property tax (pilot) is a regular “actual cost” bill owed just as it would be from any other property owner. They don’t get property usage free from the city/county (combined governments there) since utility is not owned by the city/county. Big difference, with an operation ~6 times larger than GRU, and >400,000 customers, property taxes (pilot) are $25m whereas in Gainesville with ~70,000 customers, GRU paid $38m GFT (52% more for an operation 18% or its size) to Gainesville, with none of it based on ACTUAL COSTS, like property taxes are.

      • There is actually a few things that NES gets from the city and county, and reimburses them for actual costs. They don’t get it free and don’t give those governments money for nothing.

    • See the audit by Metro Gov auditors showing every penny paid both ways was accurate for services rendered. In fact Metro Nashville & Davidson County paid NES $58 million for electricity for buildings, street signals and lights while NES paid Metro Gov only $26 million for property tax and trunk line, so NES actually received more, a net payment of $22 million from Metro Gov to NES. Therefore , the Metro Nashville government didn’t receive a dime from Nashville Electric Service.


    • What’s wrong “Doug”? See what someone who knows nothing Googles a topic and 5 minutes later thinks they are an expert! LOL!! And won’t listen to someone that really knows, and is an expert (I was Audit Manager of Nashville & Davidson County (Metro Nashville) when the linked audit of the payments was published)…I didn’t just Google it and 5 minutes later try to be a know-it-all.

    • CS,

      No it’s not a liberal or conservative method (nothing similar to red flag gun laws). It actually seeks to keep efforts to a minimum, by applying singular means early on BEFORE things are out of control. Imagine Gainesville getting some attention on this from the state 4 or 5 years ago before city budget had grown another $45 million of reckless spending. GF spending $107 million in 2016 and $154 million planned for 2023!!! It went up $9 million in 2018 alone!

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