NASHVILLE, Tenn. (WJHL) — A Tennessee Comptroller’s Office (TCO) investigation has found “questionable payments” of nearly $1.7 million to a Bristol utility’s district manager, Garry Smith, and companies he operates or has interest in.
The TCO released a report Thursday on the investigation into South Fork Utility District (SFUD), which serves more than 3,000 water customers in Sullivan County. SFUD was formed in 2020 when the Holston Utility District and South Bristol-Weaver Pike Utility Districts merged.
The potential conflicts of interest date to before that merger, as Smith was the contracted district manager for the two predecessor utilities starting in the spring of 2018 until he became full-time manager of SFUD following the merger. Though Smith doesn’t have a written employment agreement, the investigation noted he has been making $130,000 since May 2020 to operate the utility.
Gilda Burkett, a utility customer for about 10 years, said she was surprised by the allegations. She said she hadn’t experienced any particular problems as a customer, though rates had increased recently.
“If it’s coming from the customers to support whatever it is they’re doing it’s really not a fair situation,” Burkett said. “Nobody has the money (to subsidize malfeasance), so if it’s true it’s a cruel thing to do, especially for seniors.”
Almost 90% of the $1.7 million was paid by the two predecessor utilities between 2018 and 2020 according to the investigation.
TCO spokesman John Dunn told News Channel 11 the investigation revealed a wide variety of what he called “potential” conflicts of interest involving businesses owned or partially owned by Smith. The results have been submitted to the Second Judicial District Attorney General’s office.
“I’m glad that somebody saw there was an issue and they’re investigating it, and hopefully the truth will come out,” Burkett said. “It always does.”
Dunn said Smith “has a variety of business interests.” Smith is listed as the president of H.S. Martin Construction, which shows a Bluff City address for its headquarters. That website also says Smith is the owner of another company, Insurance Claim Construction Services. The Tennessee Secretary of State’s website lists Smith as the registered agent for H.S. Martin.
“He owns a couple of construction companies, has interest in a restaurant, a gas station, owns some buildings and equipment,” Dunn said. “The problem in this situation is that that utility district was doing business essentially with their district manager’s other businesses, and that creates a potential conflict of interest.”
News Channel 11 reached out to SFUD to ask Smith for a response. An employee said she was told to say “no comment” and that she would attempt to pass the message to him.
Tennessee Code Annotated 12–4-101(a) is cited in TCO’s report. That statute spells out prohibitions on directors of public entities with respect to businesses they have an interest in.
“There are very clear state laws that say if you overlook or superintend work in which you have an interest, a direct interest, then you’re breaking state law,” Dunn said. “That’s the situation here, where it appears that this district manager was superintending, overlooking work performed by companies in which he had a potential interest.”
Some of the questionable payments include money paid to Smith or his construction company for repair and maintenance services totaling at least $994,181, according to the TCO news release.
“Unfortunately, as we started to look at the invoices, many of them didn’t have appropriate detail to demonstrate what was actually done for the money,” Dunn said.
Payments with no supporting documentation totaled $247,911, while the investigation found most other invoices had insufficient detail of work performed.
“In our report, there’s a $30,000 invoice and all the invoice says is ‘draw on Turner Road,'” Dunn said. “Now that’s not really specific enough for you to understand what was done on Turner Road. What was the $30,000 for? Those invoices were paid, but we don’t necessarily know what benefit the district received without further documentation.”
Dunn said DA Barry Staubus’s office is left to determine what, if any, criminal proceeding might need to take effect. His office could also choose some sort of civil path.
TCO will remain involved as its utility management review board will take up the case when it meets on April 28. That board could require more training for SFUD’s commissioners or even go far as having some of them removed, Dunn said.
Reached late Thursday, Staubus said he plans to see what the management review board decides before proceeding with any potential civil or criminal action. His office has indicted a utility manager in the past, but Staubus said each case is different and he will need to learn more about the details of this one.
State Senator Jon Lundberg (R-Bristol) actually contacted the TCO a few months ago after complaints from SFUD customers about rising rates. He said he isn’t sure the investigation started after his call to TCO or before — but its results surprised him.
“To say I’m discouraged is an understatement,” Lundberg said. “These are not just oversights financially – these are pretty blatant disregards for ratepayers’ funds and I’m glad the attorney general’s going to be looking into this. We’ll leave it up to the court system to find out how this is going to be resolved.”
Lundberg said the constituents who called him said their rates had increased without any justification and that they were experiencing a lack of transparency about the situation.
“It’s discouraging but if there’s any solace it’s that the state and the comptroller took those questions sincerely and did a thorough investigation, and what they uncovered will not be the end right now,” Lundberg said.
SFUD is less than two years old, formed from the merger of the Holston Utility District and the South Bristol-Weaver Pike Utility District. The South Bristol district “was experiencing financial distress” when the merger occurred, Dunn said.
“Now the South Fork Utility District carries on that financial distress, unfortunately, and that also is a matter that the Utility Management Review Board will be taking up at its April meeting,” Dunn said.
Because ratepayer dollars are meant to fully support utility districts without the need for any other sources of funds, spending on items that don’t benefit district operations could impact customer rates, Dunn said.
“It’s hard to see an example of how this wouldn’t impact customer rates when you are potentially spending money on things that don’t benefit the district, and in this circumstance, we demonstrate that the utility district was actually paying the electric bill for a restaurant that the district manager owned,” he said. “That clearly did not benefit the utility customers or the district in any way and might have the impact of affecting rates at some point.”
SFUD also paid almost $10,000 in electricity bills for a restaurant in which Smith had a financial interest, which is in the same building as the district’s offices — which the predecessor utility districts rented from Smith.
The investigation notes the rent or lease payments totaled more than $47,000 until the changeover to SFUD, after which the offices stayed in the building but SFUD stopped paying monthly rent. The investigation tied together the salary and lack of an employment agreement with the lack of rent paid on the building Smith owned.
Board minutes don’t note an approval of Smith’s salary, which started at $2,300 a week and rose to $2,500 a week in May 2020.
“Without a written agreement, investigators cannot determine if they pay and benefits to the district manager are appropriate or if a portion of the salary is for rental payment of the district’s office space,” the report noted.
You can read the full investigative report from the comptroller’s office below:
This is a developing story.