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Audit finds murky results in municipal bond pools

Consultants win and taxpayers lose when funds don't finance projects they're supposed to, the audit staff says.

Associated Press
Published June 17, 2003

GULF BREEZE - Some municipal bond pools in Florida are helping lawyers and financial advisers more than taxpayers, and that may threaten their tax-free status, state auditors say.

Florida has 14 pools that have sold municipal bonds and lent proceeds to local governments for public works projects such as streets and utilities, according to the report signed by Auditor General William Monroe.

Local governments can get lower interest rates through the pools than by selling bonds themselves.

Of 59 bond issues worth $3.8-billion sold since 1996, eight valued at $1.6-billion were audited. The report says only $150-million, or 9 percent, from those eight was lent. The bonds, meanwhile, earned $157-million in interest for sponsoring municipalities, which paid out more than $42-million in expenses.

"The basic problem was that once the bond issue was incurred, the money did not go out to finance the projects it was supposed to finance," said Jim Dwyer, Monroe's office manager.

Nearly half - $72-million - of the audited loans also went to out-of-state local governments with no apparent benefit to Floridians, according to the report. It also says bond consultants sometimes were hired without a competitive selection process or adequate documentation of fees and expenses.

Local officials say they have done nothing wrong and that the audit report is a politically motivated attempt to get the state into the bond business by focusing only on the least used pools.

"I don't want to say they ran amok, but they've made some statements that aren't true," said Gulf Breeze Mayor Lane Gilchrist.

The Pensacola suburb earns up to $1-million annually by administering bond pools.

Among the projects to which Gulf Breeze has brought its bonding expertise was a recent attempt to buy Florida Water Services, the state's largest water and sewer utility, which owns systems in Hernando and Citrus counties.

Gulf Breeze, along with neighboring Milton, planned to issue nearly $500-million in bonds to finance the purchase. The deal fell apart in March under the weight of legal challenges brought by communities that feared losing control of their water resources to two Panhandle towns with a combined population of 13,000.

Ed Gray, director of the Gulf Breeze bond program, said with the exception of two bond issues cited in the report, the city's pools, which have totaled more than $800-million, lent out at least 95 percent of their proceeds to local governments.

Dwyer said the Internal Revenue Service is investigating pools across the country and that practices uncovered by the audit could lead to a loss of tax exemptions. Darlene Malaney, assistant director of financial services for the Florida League of Cities, said the report was well received at the annual conference of the Florida Financial Officers Association last week in Orlando.

"Most felt the auditor general's report did a good job of distinguishing between those municipal bonds that have had bad press and the many good bond programs," she said.

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