For more than a decade, the city has had a deal with Loblolly Mitigation Preserve to manage a lucrative wetlands mitigation bank that’s brought in millions of dollars for both parties.
The bank allows the city to pull credits from its own source rather than acquire them on the open market at higher prices during a time when construction projects were rolling with the Better Jacksonville Plan.
Although both sides benefited, an audit released Wednesday reveals the city should have benefited more.
The Council Auditor’s Office determined the city is entitled to at least $3.1 million from its wetlands partner due to the company operating outside the use agreement with the city.
However, the audit said, both sides didn’t always comply with the agreement reached in 2003.
“It’s just the same old story about not having enough contract management going on,” said Council Auditor Kirk Sherman.
A lucrative partnership
The wetlands mitigation bank started in 2003 when Loblolly Mitigation Preserve bought land from a developer for $12.3 million.
The same day, the city bought the land from Loblolly for $17.4 million and entered into an agreement with the company for credits to offset roadway and drainage projects that were underway.
Mitigation banks are authorized by permits issued by a water management district and the U.S. Army Corps of Engineers. As of June, there are 87 in Florida.
The local bank has served its purpose and more — it’s produced the credits the city used for projects and excess credits the city could sell to developers.
The city’s portion of sales goes into a trust fund dedicated to park improvements.
The audit showed that from 2003-13, the city earned back the price of the land and brought in another $8.2 million.
Loblolly has profited, too. It received a third of the credits and deals thereafter were split evenly until its credits ran out.
On top of that, the company received a management fee for further developing wetlands. During that 10-year timeframe, it earned $6.6 million in fees.
“In the end, everyone came out ahead on it,” said Sherman.
However, not adhering to the agreement raised some red flags.
Both sides had missteps
City Council Vice President John Crescimbeni said in 2013, he had concerns. When he was going through some of the reports, things “weren’t adding up.”
“The more I dug, the more convinced I was that something shady was going on,” he said Wednesday.
He asked for the audit. Instead of a sampling of parts of the contract, the history of the deal was examined during that 10-year period.
Some of the auditor’s findings:
• In 11 of 177 credit sales that Loblolly took part in with the city, the company didn’t have sufficient credits to cover its portion.
Auditors determined the company should pay the city $2.1 million. It’s the amount the city would have received in those deals had Loblolly not been involved.
The company responded those credits were covered by an affiliated mitigation bank, which the use agreement did not specifically prohibit. The auditors do not agree.
• Loblolly made an unauthorized trade of credits to cover its portion of some sales. Auditors said the city should receive $927,000 that went to the company and was never paid back. The company disagrees with the finding.
• The company made $1.6 million in excess management fees. Such fees should have been calculated by delivery date of those credits, not sale date. That either needs to be paid back or credited, the auditors suggest. Loblolly said the city re-characterized the definition and the fees were earned.
Loblolly throughout its responses made notes of instances where the city agreed to changes within the contract. Auditors maintain any changes to the use agreement had to go through the amendment process and be approved by council, which never happened.
The city has notified Loblolly the sale of any credits has been terminated until further notice while the issues in the report are fully addressed.
The audit points out the city and Loblolly both haven’t been in compliance with the use agreement. Changes along the way helped both, but weren’t done properly and ended up shorting the city at least $3.1 million.
Crescimbeni believes it will end up being more.
Sherman and Philip Peterson, the managing auditor on the report, declined to say whether any criminal activity took place. Sherman said his office at some point would go over the information with the Office of Inspector General and State Attorney’s Office, which would then make their own decisions on the matter.
“It kind of goes down to intent,” said Sherman.
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