DA considering civil action against South Fork Utility District Manager | WJHL
State board package reveals push to cut South Fork board members, in hopes merger will help two ‘financially challenged’ utilities better serve ratepayers together
BRISTOL, Tenn. (WJHL) – The Sullivan County District Attorney wrote last month that he was considering action to remove South Fork Utility District (SFUD) Director Garry Smith and “recover amounts paid on illegal contracts” to the Smith’s companies.
A March 25 letter to that effect is on the agenda for next week’s meeting of the state’s Utility Management Review Board (UMRB). The package also includes recommendations for the removal of SFUD’s board of directors and the utility’s merger with another “financially troubled” utility, Bristol-Bluff City Utility District (BBCUD).
Second Judicial District Attorney Barry Staubus briefed Jeff Puckett, director of the Tennessee Comptroller’s Office (TCO) Investigations Division, on his approach after a TCO investigation found numerous red flags related to the public service financial decisions. These included “questionable payments” totaling more than $1.6 million to businesses owned by Smith, who also served as a district manager for SFUD and a predecessor utility.
“I have decided not to pursue criminal charges against any of the parties involved at this time,” Staubus wrote. “I am considering filing a civil suit against Garry Smith to remove him from his district duties and recover monies paid on illegal contracts identified by your office.”
The Staubus letter also asks Puckett to recommend that the UMRB remove the SFUD members. He cites a Tennessee law allowing this in the case of state investigations that find board members “knowingly or willfully” wrongful, neglecting to perform all of their duties. imposed by law, or for “failing to fulfill (their) …fiduciary responsibility in the operation or supervision of the district”.
Since 2019, monthly charges for usage of 4,000 gallons (a typical monthly usage) have increased by 64% for utility customers. Its annual spending in 2020, after Smith took over more than $1.7 million, nearly doubled from the previous year.
TCO released the results of its investigation on April 7. Sullivan County Mayor Richard Venable called on council members to step down on April 9.
Board Chairman James Graham responded with two press releases, saying the board had no criminal intent and defending its decision to hire Smith and rely on what he called his expertise in of public services. Graham said the district had significant infrastructure issues that Smith and his company were able to fix, although he also said the council recognized he should have tendered for the work.
Mike Dunavant, chief investigative counsel for TCO’s Investigations Division, also formally requested the removal of the board in an April 14 letter to the UMRB. The Management Review Committee should take this action, Dunavant wrote, “in view of the material investigation findings involving numerous potentially illegal conflicts of interest, procurement practices, questionable spending and documentation practices at support”.
A press release on Wednesday announced that SFUD’s board of directors would resign after voting to merge with BBCUD during an April 26 meeting at the Sullivan County Courthouse in Blountville. This 5 p.m. meeting is open to the public.
The UMRB board meets two days later. Her package includes an April 19 letter from BBCUD board chair Judy Hodges to board staff member Ross Colona. Hodges writes that “upon receipt of an order from the Board of Management Review, (BBCUD) will actively pursue a merger” with SFUD.
“Counter-intuitive” recommendation for merging
The staff recommendation to the UMRB acknowledges that merging two financially troubled utilities may seem questionable. BBCUD is also on the agenda for April 28 due to a “decrease in net position” on its latest audit and “financial distress”.
UMRB staff wrote that “although it may seem counterintuitive to merge two financially challenged utility districts, in this case, board staff believe that through managerial and technical efficiencies, customers of SFUD will be better served by BBCUD without putting more pressure on the current BBCUD client. base.”
SFUD buys its water from BBCUD and more than doubling BBCUD’s direct customer base to around 6,000 could help pave the way for more efficient operations.
BBCUD has been managed by Tim Ham since mid-2019. According to the Tennessee Association of Utility District’s website, Ham is a “circuit rider,” specializing in helping districts in financial difficulty “with funding, staffing, and all operational matters.”
The UMRB should ultimately approve any merger between the two utilities.