Public Financial Management is developing a valuation report for JEA, and a draft released to media makes the case that Jacksonville’s utility may have a “new answer to the old question of whether the city should sell JEA.”
The most telling paragraph in the 25-page draft of the potential sale comes at its close.
“In the past, it could be expected that the sale of JEA would not produce enough proceeds to satisfy JEA’s liabilities and still leave sufficient net proceeds to compensate the City for future economic and qualitative differences under a new ownership structure.
”Because of recent changes to the utility market and to JEA, those old expectation[s] are no longer valid. A more thorough, updated valuation of JEA, and perhaps an exploratory sale process could lead to a new answer to the old question of whether the City should sell JEA.”
Indeed, the report makes it clear that JEA can see a way forward to what, the report concedes, could be among the “largest and most complex” transactions in the history of municipal utility markets.
“While local control and presence are appealing, there is also a fundamental question of whether it is prudent for the City to remain in the utility business. It is a business that is changing rapidly due to technology and market forces. It may be more prudent to leave this business to larger, more nimble companies that have the ability to absorb risk and uncertainty.”
The sale of JEA, per the report, “very likely, in whole or in part, can produce substantial up-front net proceeds to the City – even after all of JEA’s liabilities have been accounted for. Current market conditions can be expected to provide for a greater net value of JEA to the City than at any time in the past.”
Among the challenges: contractual arrangements, including service and property deals; continuity of operations; commitment to the process, working through the sale, and securing regulatory permissions.
While the JEA Contribution of $116.6 million per year would be in doubt, incoming revenue could be created by doubling the franchise fee to 6 percent and imposing property taxes on the private owner/operator, the report says.
“Should a private entity take the place of JEA, the taxable assessed value of property in Duval County could increase by approximately 10% (the addition of ~$5bn net capital assets on the City’s ~$50bn taxable base). Based on current millage rates, this increase in assessed value will equate to approximately $101 million of additional property taxes receipts, of which $63.5 million would go the City of Jacksonville General Fund.”
Jacksonville City Council members were “blindsided” by explorations of the sale as recently as Tuesday, even as Mayor Lenny Curry‘s office has been open to this exploration since it was pitched by outgoing board chair and Curry supporter Tom Petway in November.
As of the end of September 2017, JEA had $4 billion in debt, and $5.3 billion in capital assets, per the study.
That $1.3 billion difference represents roughly what Jacksonville’s general fund budget, $1.27 billion in the current fiscal year, is.