Nate Monroe: The enormous influence of JEA's outside consultants

Florida Times-Union (Jacksonville, FL)

COMMENTARY | Jon Kendrick, a JEA vice president over human resources, had been feeling uneasy, and he needed to get something off his chest.

It was early September, and JEA executives were crafting with outside lawyers the now-canceled cash-for-stock scheme that would, several weeks later, ignite public fury and play a central role in the ouster of CEO Aaron Zahn and the cancellation of the controversial push to privatize the utility. At the time, however, the stock plan hadn't yet exploded into public view, even though City Council auditors had already started raising questions about it.

It was also the source of Kendrick's apprehension.

"I don't know that I can put a finger on it, but it was just it was moving so fast ...," Kendrick later told city attorneys in an under-oath interview.

Get Nate Monroe's latest column delivered to your inbox: Sign up for Nate's It's Easier Here newsletterKendrick had gotten to know one of JEA's outside lawyers throughout the summer and early fall whom he came to trust over time: Kevin Hyde, of Foley & Lardner. Hyde, a former president of the Jacksonville City Council, shared with Kendrick "an outside interest in exercising our faith," Kendrick said, and as a JEA contractor Hyde had also been involved in legal discussions about the stock scheme with JEA executives.

So Kendrick gave him a call about the cash-stock plan that had been making him uneasy, the details of which Kendrick later relayed to city lawyers in an under-oath interview:

"So I just said, it's -- I'm not impugning anyone's integrity, but is this legal, and then I said is it ethical. And he said, yes. You're uncomfortable, but it's entirely legal and ethical.

"And then he said, but you will get blowback."

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Hyde was right and wrong. JEA indeed received tremendous blowback over the plan, but there is broad consensus among city attorneys, city officials and members of the public the cash-for-stock scheme was neither legal nor ethical.

At the time, though, Hyde's assurance was enough for one uneasy JEA vice president. "That gave me more comfort moving forward, I guess," Kendrick said in his interview.

The anecdote illustrates the degree to which JEA executives ceded control over key decision-making processes to outside lawyers and consultants during the controversial push to sell JEA in 2019, and how much deference utility managers granted to the judgment of these for-hire decision makers.

Consider:

– The utility had in essence contracted out a portion of its procurement department to an outside law firm, Pillsbury Winthrop Shaw Pittman, which hired consulting firms for millions of dollars worth of work under the umbrella of its contract with JEA -- a process that allowed privatization consultants to get hired without going through a competitive bidding process.

As part of a review of the $13 million in bills submitted by outside law firms and consultants, the city's Office of General Counsel has since found this workaround failed to comply with JEA's procurement rules.

– JEA also outsourced much of the legal analysis about human resources issues like compensation, as well as issues crucial to public agencies, like compliance with public records and Sunshine laws, to the law firm Foley & Lardner, and others.

In some cases, that legal analysis conflicted with interpretations by other lawyers, including the city's ethics director, especially when it came to the unusual degree of secrecy surrounding privatization. But usually it was the outside law firm JEA executives were more disposed to listen to.

-- JEA hired multiple outside communications consultants to help craft its combative, and sometimes manipulative, messaging around privatization, as well as to boost the profiles of JEA's executives by updating their social media accounts and booking them as speakers at industry conferences.

– JEA executives also pushed to outsource significant portions of the utility's payroll processes to a private company, though they ultimately abandoned that project after employees raised concerns they were being "bullied" into making a change they felt was not in JEA's best interest.

RED FLAGS

This mass outsourcing of public responsibility raised red flags in multiple ways.

Zahn, for example, was college friends with one of the lawyers at the Pillsbury firm who worked often on privatization issues, Zahn told city lawyers in an under-oath interview.

Office of General Counsel lawyers also seemed suspicious about Pillsbury's involvement in crafting Zahn's employment contract, though they didn't press the issue beyond questioning Zahn about it. It remains unclear how much work Pillsbury did on Zahn's contract.

JEA employees were also left out of the loop on important decisions while outside consultants instead did consequential policy work.

Testifying to a special City Council investigative committee, Pat Maillis, the director of employee services at JEA, said she didn't know the infamous cash-for-stock scheme even existed until the day the board of directors approved it July 23.

Maillis had been researching the general concept of a "long-term incentive" plan -- a key finding was that such plans were highly unusual in the public sector. But the information she and a consultant compiled on that issue didn't get presented to the board, she told the committee.

Then a series of revealing questions and answers took place between Maillis and City Councilman Rory Diamond, who chairs the investigative committee:

Diamond asked Maillis if she was in charge of compensation and benefit issues at JEA.

"Supposedly, yes," she replied.

So isn't it unusual she only learned the existence of a fully fleshed out bonus plan the day of the board meeting?

"Yes," she said.

Did you feel cut out of the process?

"Yes."

HIRED GUNS

The origin of the cash-for-stock scheme remains opaque. No JEA executive has ever taken full responsibility for directing the creation of it, and it appears multiple lawyers from multiple outside law firms took part in its formation.

These outside consultants were front and center in the strange twists and turns that took place at JEA in 2019. JEA executives prioritized speed and secrecy throughout the privatization campaign: Outsourcing utility decision making to private contractors provided both.

And even as the advice from these outside firms sometimes conflicted with the better judgment of JEA employees and city officials -- as Kendrick's phone call with Hyde indicates -- these consultants either proved persuasive to the executives, or it was simply their advice the executives chose to listen to.

It was the failure of JEA executives to listen to their own employees and to the public that got them in hot water in the first place.

Nate Monroe's City column appears every Thursday and Sunday.

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