State board packet reveals push to remove South Fork board members, hope that merger will help two “financially distressed” utilities serve ratepayers better together

BRISTOL, Tenn. (WJHL) — Sullivan County’s district attorney wrote last month he was considering action to remove South Fork Utility District’s (SFUD) director Garry Smith and “recoup amounts paid on illegal contracts” to Smith’s companies.

A March 25 letter to that effect is part of the agenda packet for next week’s meeting of the state’s Utility Management Review Board (UMRB). The packet also includes recommendations for removal of SFUD’s board and the utility’s merger with another “financially distressed” utility, Bristol-Bluff City Utility District (BBCUD).

Second Judicial District DA Barry Staubus informed Jeff Puckett, the director of the Tennessee Comptroller’s Office (TCO) investigations division, of his approach after a TCO investigation found numerous red flags related to financial decisions at the utility. Those included “questionable payments” totaling more than $1.6 million to companies owned by Smith, who also served as district manager for SFUD and a predecessor utility.

“I have decided not to initiate criminal charges against any of the involved parties at this time,” Staubus wrote. “I am considering taking civil action against Garry Smith to remove him from his position with the district and to recoup amounts paid on illegal contracts identified by your office.”

Staubus’s letter also asks Puckett to recommend the UMRB remove the SFUD’s members. It cites a Tennessee law allowing for that in the case of state investigations that find board members have either “knowingly or willfully” committed misconduct, neglected to fulfill any duties imposed on them by the law, or for “failing to fulfill (their) … fiduciary responsibility in the operation or oversight of the district.”

Since 2019, the monthly charge for usage of 4,000 gallons (a typical monthly usage) has increased 64% for customers of the utility. Its 2020 annual expenditures, after Smith took over of more than $1.7 million were nearly double the previous year.

TCO publicly released its investigation results on April 7. Sullivan County Mayor Richard Venable called for the board’s members to resign on April 9.

Board chairman James Graham responded through two news releases, claiming the board had no criminal intent and defending its decision to hire Smith and rely on what he called his expertise with utility issues. Graham said the district had significant infrastructure issues that Smith and his company were capable of addressing, though he also said the board recognized it should have bid the work.

Mike Dunavant, chief investigative counsel for TCO’s division of investigations, also formally requested the board’s removal in an April 14 letter to the UMRB. The management review board should take that action, Dunavant wrote, “given the substantial investigative findings involving numerous potentially unlawful conflicts of interest, purchasing practices, questionable expenditures and supporting documentation practices.”

Wednesday, a news release said SFUD’s board would resign after voting to merge with BBCUD at a meeting on April 26 at the Sullivan County Courthouse in Blountville. That 5 p.m. meeting is open to the public.

The UMRB board meets two days later. Its packet includes an April 19 letter from BBCUD’s board president, Judy Hodges, to Ross Colona, the board’s staff person. Hodges writes that “upon receipt of an Order from the Management Review Board, (BBCUD) will actively pursue a merger” with SFUD.

‘Counterintuitive’ recommendation for merger

The staff recommendation to the UMRB acknowledges merging two financially distressed utilities may seem questionable. BBCUD is on the April 28 agenda as well due to a “decrease in net position” on its latest audit and “financial distress.”

UMRB staff wrote that while “it may seem counterintuitive to merge two financially distressed utility districts, in this instance, Board staff believes that through managerial and technical efficiencies, the customers of SFUD will be better served by BBCUD without putting further strain on BBCUD’s current customer base.”

SFUD purchases its water from BBCUD and more than doubling BBCUD’s direct customer base, to about 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 website, Ham is a “circuit rider,” specializing in helping financially distressed districts “with financing, staffing and all operational matters.”

The UMRB would ultimately have to approve any merger between the two utilities.