good morning welcome to the first financial audit and oversight select committee meeting let me start with introductions to my far left brandon russell council research brian parks council auditor's office philip peterson council order joe carlucci district five ron salem group two at large good morning chris miller at large group five good morning nick howland at large group three let me also recognize we've got matt lassell here where did where did he go oh okay from the inspector general's office who actually requested that the council get involved in this capacity fee issue we've got uh robs zamatero i think i pronounced that correctly who's here from jea that is the water um person at the head of the head of the food chain for jea thank rob thank you for coming we've got uh joe de salvo here a board member mr de salvo we appreciate you coming and uh let me turn it over to president howland for some comments before we get started thank you chair salem i appreciate it am i on extra loud speaker right now or it's crazy it's like we're in an auditorium hold on i'm gonna swap we can all hear you all right how's this that a little better a little bit more normal all right fantastic um well welcome to the first meeting of uh the fao select committee i'm proud to be here i'm proud uh that you three have agreed to be on it um as you recall the the basis of this committee was um the fact that doge did a great job winding up all of its outstanding charges the sic had wound up almost all of its charges uh that it could work on except for the unbilled water capacity fees and uh so it stood to reason that we could combine those two into a new committee a select committee um called the financial audit and oversight select committee and by our council rule 2.103b a select committee is subject to uh it's limited to a single subject matter and a duration of 90 days and this one is charged with looking at those unbilled water capacity fees that the inspector general asked uh the auditors and uh council to look at um the important thing about this fao committee is um i think the people on it is a critical component of it um and you'll see it's chaired by and comprised of experienced council members and um all who uh have experience in finance governance and public accountability it's it's kind of the dream team i mean ron you've um kind of a long-standing finance guru on council um chris you're a former inspector general in the army and joe you're likely the next president so anything that we find that needs action that um needs to go multi-year um you can take that action so i'm hopeful this model will prove effective we stand up we look at one issue we have a time defined um period to look at it we make recommendations or turn into legislation and then we stand down um hopefully to stand up when another issue arises that merits the strength of this committee so hopefully it could provide a future council leadership with a flexible and efficient oversight tool uh so with that back to you chair thank you thank you uh president howell i'm told by um by miss mary that it's actually 60 days versus 90 days so okay so i think we've got all the introductions um i i want to begin this by giving mr parks who did a lot of the yeoman's work on capacity fees as much time as he needs to to go through the issue what the auditors have found and then we'll open it up to questions from um the committee and essentially anyone else that has any questions about this so um brian take as much time as you need all right will do thank you sir all right so starting off with our office was asked to determine the extent to which capacity fees may not have been collected in recent years and identifying any amounts owed to the city or ja based on our analysis performed by our office in conjunction with the work performed by ja the maximum amount not collected by ja since 2003 appears to be about 75 million on meters three inches and larger of that 75 million about 20 million is related to multi-family units we did some research into those multi-family units and it doesn't appear that a lot of them changed from maybe what the initial capacity was paid so that number may be more in the 55 million as the true maximum amount owed as indicated by ja previously there are still interpretations of the tariff customer specific circumstances and other legal items that may reduce the amounts that would have actually been owed and specifically and more importantly could actually be collected today an important point to consider is that just because a customer's average daily flow exceeds the capacity paid for by more than 20 does not mean that customer necessarily owes an additional capacity fee depending upon the interpretation of the the tariff document which governs how fees are supposed to be charged the customer would have had to increase expand or change operations for them to actually owe additional capacity fee as it relates to whether not an amount is owed to the city of jacksonville there is not an amount owed we did not perform specific testing related to meters three inches unless given the materiality of the capacity that could be grown within that meter size so giving some background to this it's important to note that everyone agrees that there is an issue with additional capacity fees potentially owed not being identified with additional compassion fees potentially owed not being identified in charge the disagreement kind of gets into the pervasiveness of potential overall financial impact and what options are available to address this at this point in time while ja has been working on aspects of this dating back to 22 as came up in previous meetings their work as it relates to all of the businesses more in the last 18 months with even more extreme focus in the past six specifically for our part we met with 15 around 15 ja employees throughout this process so that we get an understanding of capacity fees additional capacity fees in particular the problems with additional capacity fees and what ja was doing to identify and address the problem we received access to various ja systems which were beneficial as we work to calculate and validate the amounts that were not collected throughout this process ja and its employees have been cooperative and nothing we did would be possible without the work that they had done first ja's calculation of baseline capacity pay fees paid they spent a lot of time over the past year establishing the amounts paid by business account because first they had to figure out what had been paid this has been a longer process to undertake given that there's 25 000 plus business accounts since this was not tracked in a centrally located field they needed to go through so for prior to 21 they're actually hard copy documentation however they in their systems the amounts paid were logged within the customer system so they could back into the amount that was of capacity paid for based on the fees in charge in place at the time they paid given the you know 25 000 plus business accounts ja focused in on the 1679 1697 meters that are three inches and larger for their review to validate the amounts once they got the amounts paid they then discussed they spent time in 2026 pulling and validating actual usage on those three inches and larger the flow usage calculation is needed to flag amounts that may be owed by businesses although this work may appear appear simple at first there are many things that need to be accounted for such as meter replacements because if there's a broken meter billing adjustments also because of that getting data broken down into consistent time frames because billing periods are different for different services even with the same customer so as they worked to get that they got to a good set of data jay then had to flag and calculate what amount might be owed by customers to do this jay first had to establish the baseline capacity amount this was done by crediting the customer with the greater of the capacity fees paid identified by jay the average daily flow for 2005 2004 and 2005 given that 2000 there was not available earlier information jay then compared the baseline amount to the average daily flow information by year to figure out the first year a customer tripped the 20 increase limit to owe additional fees jay then took the average daily flow for 2025 and multiplied it by the capacity fee in place of the year they tripped 20 to determine the amount potentially owed so this is taking their flow in 2025 multiplying it by the fee in which the year in which they kind of went over that limit to calculate so that kind of reduces the amount that might be owed slightly so that they calculated a 25 million dollars based on that method which is reasonable when you're trying to determine what is the amount that's owed today potentially as part of our analysis to validate the data we recalculated the average daily flow for a sample of customers to determine if the data by ja appeared to match the customer bills based on this work we were able to get comfortable with the data from ja for the purposes of our analysis in general we re-performed the calculation with the same approach as ja the major difference in our approach was that we took the average daily flow by year and then and compared it to the baseline capacity each year that the 20 percent threshold was tripped we re-established a new baseline capacity amount for the customer based on that year's flow the increase in capacity over the 20 percent threshold in each year for all customers was then multiplied by the capacity fee in place at the time to determine the amount that might be owed for that year this resolved in approximately 75 million being owed potentially we also determined how much of the 75 million was applicable to family units as i mentioned before we were able to validate that there was not a lot of change so that might bring that number down other considerations to keep in mind is important to note just because a business is flagged as potentially owing does not mean in fact they owe additional capacity fees other things that are being analyzed by ja include the impact of different agreements exemptions and how the statute of limitations may impact the amount potentially owed as well as the need to ensure that everyone is treated fairly within the tariff at this point i can answer any questions and also ja is here as well i don't see anybody in the queue but i i have a few um you said uh you could go back as as far back as around 2003 2005 is that correct yes it's the flow back to that point in time yes okay and as someone went above the 20 percent that became the baseline for the future and then if they went above again that became the baseline going forward is that correct correct okay for our calculation method yes okay and then and again i i you can make a point on that on the 03 piece um when we were talking with you it came up as well as keep in mind that the fee for uh capacity fees prior to that time was not as much so the materiality of any amount before then it would be much less than now so whenever we were looking at it in our calculations you're in eight to ten million dollars per year kind of thing in recent years but in those other years it's more of a couple million dollar type impact so because the capacity fees have increased drastically about four or five years ago so why is that let me go back for a second because i've got uh president halliman in the queue okay um you're saying today you expect capacity fee uh amounts to be in that six to eight million ten million dollar range going forward that that we need to get fixed so that we can collect those dollars appropriately yes and i can't necessarily say going forward because i'd be projecting what you know increases will be but in the more recent pieces yes they're in that six to ten million dollar range because of the fact of what the um capacity fee rates are now where they are combined about thirty dollars where in the past they were at you know 461 and stuff like that so that is a drastic change in the rates based on the rate study done by ja where they have a consultant that comes in and does that piece and so i would defer to them on how that rate is actually calculated to build okay i'm going to go to president howland at this point thank you mr chair brian uh the 20 percent number did you get that because that was kind of ubiquitous in all the tariff documents when it was talking about water capacity fees or is that just something that you and jea agreed when it when it would trigger there is a provision through the chair to council president howland there is a provision in the water tariff that talks about once you go over a 20 percent that you may there there is other stipulations that talk about change of operation so it is not a you go up by 20 it's automatic there are also other times that you could owe for even not going up by 20 because you changed your use so there there's some different things that come in but that is a guideline that to utilize that we utilize for this analysis yes okay and did you get a chance to look at any of those tariff documents or contracts um for any of the select customers you chose with you know meter uh meters over three inches it is one tariff that dot that governs them all so so it's not like i have to go into a different where the other agreements could come into play is when you're dealing with somebody that might have some sort of agreement dating back to the 1980s or 90s and stuff like that you have some of that stuff that could come into play but the tariff document within the tiers applies the same okay and here's something that's been mulling over in my head for a while i hope i can enunciate it clearly but the the tariff document doesn't put the onus on the customer to report when they've exceeded the 20 capacity and then adjust their payments to jea right it jea still is responsible for invoicing the customer for additional capacity fees when the 20 threshold is triggered i think some of that might get more into a legal thing that i would want to be very careful on what responsibility the customer jea did have a responsibility to bill them and in the you know to at least flag and notify whether or not the customer is also responsible i would prefer to defer to legal and jea ultimately okay and the reason i ask that um is because we keep hearing the phrase uncollected water capacity fees and a collection is when something's been invoiced it's overdue and you turn it over to collections to collect it it's that's why in my memo i i suspected that that none of these folks over the past 10 or 15 years have received invoices for the water capacity fee increases so therefore it's not really uncollected it's unbilled water capacity fees i think is probably a more proper kind of way to term that uh unless mary or any anyone ogc who focus on contractual law feels differently um it's kind of how i'm thinking about it can i just jump in you know the question in my mind and you you bring up one very important point is if someone is expanding their plant and and they know their capacity is going to go up do they have a responsibility as well to contact jea and say hey we're going we know we're going to go above we're alerting you so that we can get our billing correct that's that's my thought it's it i don't think it's the only way to go but i think that that balances what you're saying okay with that let's go to was it mary were you gonna to the chair and through the chair to the council president so i'm happy to work with you offline and the auditor's office to talk about that i'm not as familiar with their documents and kind of what's at play here to want to render uh any legal opinions so to speak at this juncture but happy to kind of facilitate let's get that information together so we can get your response thank you because if you don't mind mr chair um because the auditors and ig have done the hard work of now identifying the issue and now quantifying the issue um now we need to determine i think if if any of it is indeed collectible um and in a scenario like chair salem says where if if they reported that they were going to have to you know expand so they would owe additional water capacity fees then maybe there is an element of um collectible revenue there um but otherwise if we determine that of that 75 million none of it is collectible because it's never really been invoiced um it's just unbilled uh what we got to do is as a fao work is work with jea to make sure that water capacity fees when they trigger the 20 threshold get billed appropriately moving forward from here and i can't say through the chair that that is exactly what jea is working on in conjunction with our office i imagine that at least some of this is going to absolutely be collectible i mean we're having to look at it in the context of statute of limitations and things like that and again as referenced in the memo from the auditor's office if there were any exemptions or agreements in place those are all things that we're kind of working through to kind of get to this legal question now of who owes and how much so that's part of the ongoing process that's occurring with our office thank you i just if i can add one other piece to this that's very important to me at some point this data is going to go to the jea for analysis and determination and eventually to the board i would see that for them to make a determination of what's collectible what should be billed and those kind of things i think it's i've been very consistent about this whether it's employee issues or capacity issues ultimately our form of government says that seven member board is ultimately responsible my only concern is that discussion on where they go once they get all this information and make that determination is done in the sunshine so that everyone sees it understands it understands the thought process so that we all can be comfortable that that's a reasonable approach whatever that approach is let me go to uh vice president carlucci all right thank you mr chair um and yeah just to kind of piggyback on what's collectible not and mary you just kind of hit on this the statute of limitations right it's typically five years for like written contracts but i know there's a bunch of different you know caveats with that and brian you touched on it too so where do we how do we think we stand on that and if someone from jea can speak to that obviously we're we're looking at back until 2020 or 2003 so let's just assume statute of limitation applies in a five-year time frame now basically everything pre to 2021 is totally irrelevant for the sake of what's collectible do we have any idea of where we're gonna land on that through the chair to council vice president carlucci so first off yes they are their team is working on certain things related to it by the way in which we did the analysis the last four years were about 35 million dollars because again think about that fee change but ours was not reset setting a base in 23 so we'd have to do the analysis slightly different because we weren't factoring that in but that's probably a good guide but keep in mind that there are other legal issues that they're working through and it may be good to hear from them to kind of explain those processes of where they're going so that they can eventually bring a pro the everything to the board so the board can make the ultimate decision on how to handle right sure and through the charity if anyone's here from ja that would like to speak to that only because i i would be hard-pressed to think from since any amount of time y'all have never gotten into some type of legal argument or discussion about hey you got to collect this oh it's been 10 years sorry so do you have any light to shed on that uh yes thank you um this my name is rob zamantara i'm the chief water system officer for ja um i really appreciate the conversation and a lot of the questions because the questions that you're all are discussing here today are many of the things we've been talking about over the past several months so i like to personally compartmentalize the discussion into going forward and retroactively in the rears you know going forward we are modifying our billing system so it will be automatically tracked and all that data will be reproducible going forward is fairly easy we do have to extend a little bit to write a policy because you heard a lot of the questions whose responsibility is to you know bring the 20 to the light as a ja or the customers and things like that so even though the existing tariff language is very specific there's a lot of details missing so a policy for going forward will have to be written and that will be presented to our board in regards to going backwards we will do a separate policy for that but that is with legal guidance there's a lot of pitfalls and there's statute of limitations some of the businesses have changed hands there's specific agreements out and the list goes on and on as far as some of the issues and make which make the everything very complex so we will have two policies one going retroactively and one going forward and by the beginning of next year we hope to be in front of the board with those policies and in within those policies we'll be discussing a lot of the things that you guys have mentioned today such as calculation methodology how we set the baseline whose responsibility what is the customer's appeal process if they don't feel it's a fair invoice so customer outreach what our responsibility is as far as contacting our customers with the overarching goal to be fair and equitable to everybody not just the businesses we're discussing but the other residents that would be subsidizing it if they did not pay so don't know did i answer that question for you um yeah i mean i it's it's a hard question to answer because i'm while you're talking i'm just sitting here thinking like okay obviously you got to determine what the previous contracts have said if there's ownership changes and then going forward do you have to create a new contract who identifies the usage obviously it's way easier for jea to identify that i don't think it really matters at the end of the day as long as it's identified and then sent to the customer and said hey this is it you can appeal it if you want um but anyway so there's there's a whole once you start pulling the thread on this i think it just begins to show so many things that will unravel but ultimately i'm glad to hear that you have you know some type of framework you're working within to make sure going forward uh the most important that can get um really buttoned up and identified because that's a lot of money to you know quote unquote leave on the table and obviously y'all are incentivized to collect it right because these are these are dollars that are going to build your new treatment plants and your new infrastructure projects and whatnot so um yeah with that i'll i don't have any other questions mr chair i just wanted to mention a couple other things i think it's important to the committee um rob that we get some type of report periodically from your team on progress 30 every 60 days let's say okay we can kind of put that in place mr president mr chair i would just recommend that if that's the case the report would potentially be to the council or one of the standing committees because as you know this committee will end in 60 days unless extended by the president 60 days through the chair puts us uh what august um september 20th well you made the memo effective july 1st so we're looking at very beginning of september but the finance committee if you wanted to select a standing committee is the most likely based on its charge okay it would receive the reports after that date yeah and and i think i actually put i'm establishing the fao select committee effective july 20th so i think we have a little bit more um you're calling for their final report on september 18th ah perfect yeah good because i think then if um september 18th 19th 20th it just has to be done by then and and the charge of it is to is exactly what we're talking about here with a plan you know to move forward that's acceptable to council for uh jea board to you know to end this issue and this investigation and jea board to implement um so you're right some kind of report uh luckily it's after the the heavy lifting of the budget is due um so the first second week of september something like that okay that's number one and i think it's important once you have a a a plan in place for for particularly going forward that the auditors are are going back in to audit that progress and make sure that everything is going as as we think it is and uh that may be sometime early next year in the first quarter once everything is set up i think it's important uh that would really close the door so to speak on this for the auditors to go back and see that everything is in place uh with that let me go to councilmember miller thank you mr chair i'm through the chair i just like to start out with um an observation that that that i really do appreciate how well it appears the auditors and the jea personnel are working together um as well as the inspector general office it seems like everyone's trying to find that that way forward as as well as um general counsel and the the legal team um that they're working with as well because in my opinion and and as i think we all share uh this is important this this money um doesn't belong to us so it's not a situation where we're trying to recoup uh things that are um coming back to us personally obviously um as like with most uh fees these these belong to the taxpayers and are used in a way that should go in line with what the taxpayers should be able to expect um to that point what could you could you put on the record mr parks or or whomever um what's the normal what are the normal uses of these capacity fees that are collected or someone from jea rob could someone speak to that i just want on the record for people to understand why is this import important that we not only get it fixed going forward which thank you also for those efforts um to make that so but that we also go back and recover what is legally recoverable um there are good reasons for doing that if if you would just share with us a little bit about what these fees are used for through the chair um so capacity fees are specific to the plant capacity um so to kind of i guess overly simplify it um when it when you build a new plant um as people connect to it they kind of purchase their portion of the plant their little slice of the pie per se those capacity fees help go and pay for that infrastructure that we have bonded up front so whenever somebody pays for a capacity fee whether it be water or wastewater specific to the plant capacity and the capital improvements that went into building that facility um it has nothing to do with their um consumption their monthly bill those are not fees that are involved in this it's specifically just for the infrastructure at the facilities uh through the chair thank you um and also along the lines of um the goodness in in going through this process is um because it had been brought to our attention it had been brought to your attention and um and we need to put things in a better place um i did want to just follow up and ask um you know and i don't want to get into the the details of things here but um it's to me it's not only important that we fix it going forward and as i said recover what we can but also um what do we learn through this through the chair accountability wise um i see a lot of things the inspector general looks into and then and then those who were responsible for doing it and there was set responsibility and people who should have been on top of this um what has happened in that regard so um to put it in context um i mean i believed it to be a 30-year issue um brian pointed out he had found this tariff language back to 1971. so this tariff language has existed for 55 years there's never been a program um at the city or when it went over to jea um to collect the work i want to be clear it's additional fees they're not the capacity fees for new connections so these are additional fees for customers so you know we are addressing and discussing a 55 year old issue um which i'm glad has been brought to light um i want to you know staff that brought it to leadership's attention in 21 22 um you know proud that they did so they didn't try to just dismiss it um so when we talk about accountability it's definitely a miss um i don't think anybody at jea or anywhere else is trying to say that it was not a miss um unfortunately i think it's been there for so long it became business as normal um so i think the focus at jea is fixing the problem moving forward making sure that we are you know that we are catching all those things in the tariff um i don't have a an excuse or anything to say that hey this is you know why it was missed or whatnot um so i can't speak on behalf of that but i can say that everybody um from the auditor's department to the inspector general to the current staff leadership at jea everybody's committed to making sure this going forward is does not happen again through the chair thank you very much yeah i'm going to go to joke i just want to make a point it's important that we get this done right i mean we just went through a rate increase um and i understand this is completely separate from rate increases but there's a we don't want the perception that we've got 55 million dollars here that we're not going to collect and we just raise the rates on the rank and file homeowners etc so i just think it's important we do everything right make sure if this ever happens again we jump on it fix it um and and i know this was uh maybe not a priority a few years ago and and i commend everyone that identified at this time and fixing it um mr lassell you're back there did you want to make any comments or um you're the one that sort of got us into this and i would welcome anything that you have heard that uh that you're comfortable with or anything else that you want to recommend before i go to mr carlucci yes matt lassell inspector general through the chair to the entire committee first and foremost i'd appreciate all the um the effort that's gone into fixing this problem we identified the problem was brought to us uh and again we reached out to the council auditor's office because uh we just did not have the capacity in house to be able to adequately address this issue so very thankful for the auditors for the phenomenal work they've done and jea has been um very cooperative with us we we released a report in june of this year highlighting the issues highlighting the um again it is a 50-year-old problem so we appreciate that and this administration meaning the current board and the current ceo at jea has been very cooperative with us in trying to rectify this and make it right i have assurances from the ceo that this whole process in terms of going forward and going back is going to be in the sunshine in her response to our report she was pretty clear that everything was going to be done out in the open and in the public view which is one of our primary recommendations was that so i'm appreciative of that but going forward uh is really for our from our perspective the issue has been identified the issues being worked uh great work by the counselors the city council auditor's office so um unless there's any questions for me i i don't see we'll still continue to monitor this but in terms of recommendations going forward we've we've made them and jea has adopted most of the recommendations we've made are you supportive of the auditors going back in at some point once this is resolved and just making sure everything is good absolutely it'll be very in terms of a follow-up we'll follow up with the auditor's office and get kind of a time frame of when that's going to happen and then we can make that part of our our report okay mr vice president carlucci okay thanks uh this question yeah is it back to just and someone might have already said this but we're throwing a lot around whoever from jea or our otters what's like an average number that y'all collecting capacity fees a year so i know it's probably fluctuating it does fluctuate um over the past 30 years um we've collected over 9 billion um so that's i'm sorry say that say that again so over the past 30 years since 1997 we pulled our total amount so the total amount over the past 30 29 years we've been around is in excess of 9 billion so that's what we have collected for new connections um these are the additional fees the folks that have increased um if in recent years we're in that 60 million dollars a year is what we collect okay so on average um 60 million a year yeah now and that number has varied greatly over the past 30 years but right right right i gotcha okay cool i'm just trying to build some context around some of the numbers here um that's all i had but the the increase in capacity fees that 60 million is the standard capacity fee the increase is six to eight to ten million dollars a year just so we get our numbers correct yeah that i i'm not as comfortable as brian with that number um because i what's going to happen and you kind of saw it in the report when they went back and started auditing multi-family um the number went from 70 million down to 55 million because they didn't meet the tariff requirement i have we're going to have to go in and audit each one of these accounts individually and i just i don't feel like the number is going to be that large um you're probably in the order of magnitude of two to three million a year um but we just looked at flows um due to time and expediency we looked at flows to try and get a ballpark figure when you start going in and looking at contracts um exemptions um certain schools systems are exempt um it's going to be a i think a lower number but that that's an estimate the other issue i just wanted to mention the uh city council uh survey of the ceo um mr teal and i had a call late last week uh and uh the select linked is finalizing their report we hope to have uh hope to have something in the next uh two weeks i would say is that a fair assessment and we will then coordinate with the jea board some type of presentation on that on that information okay anyone else have anything we stand and adjourned thank you thank you everyone well that