Feathered Bastard

Florence "Evaluating" Purchase of Johnson Utilities, while AZ CorpCom Treats It Like a Done Deal

Florence is exploring the purchase of Johnson Utilities, one of the largest private water and sewer companies in Arizona, which services the San Tan Valley and parts of the town.

Some of the players involved are talking about the potential sale as a done deal. But there remain numerous unanswered questions about the proposed transaction, which has been the subject of rumors for weeks.

Earlier this month, Florence posted a notice to its official town website, announcing that it had "started the evaluation process for the purchase of the assets of Johnson Utilities," a move it first considered back in 2007.

According to its online statement, the town began to re-evaluate the purchase "late this summer," and then, in November, it "hired several consultants to help conduct a detailed inspection including an engineering assessment and financial analysis."

The statement does not cite a specific dollar amount. Yet it mentions that the possible purchase price will be "lower than Queen Creek's purchase of H2O water company earlier this year, based on a per connection cost."

In November, Queen Creek bought the much-smaller utility H2O, Inc. for $44 million, according to various news reports.

When Florence looked into buying Johnson Utilities in 2007, the local Florence Reminder & Blade-Tribune newspaper reported that the town council okayed a letter of intent to purchase with a tentative price "of $192 million over 30 years."

Asked about the purchase price currently being discussed, town spokesman Jess Knudson said the dollar amount was not being released.

"The purchase price is not public information at this time," Knudson said via e-mail. "Releasing this information would greatly reduce our ability to negotiate the best deal for our residents."

Knudson invited me to file a public-records request for the info, which I did, along with a request for any recent letter of intent from the town. This was summarily rejected by Town Clerk Lisa Garcia.

"In accordance with Arizona State Statutes," Garcia wrote in an e-mail, "documents and other items that are considered during an executive session discussion are considered confidential and are not disclosed to the public. Such items are not considered public records until such time as council action is taken on the floor."

Which is interesting, considering that at a December 17 meeting of the Arizona Corporation Commission, commissioners and staff, along with a lawyer for Johnson Utilities and an executive of the company, spoke about the potential sale as if it were inevitable.

Johnson Utilities attorney Jeff Crockett appeared before the ACC with Johnson Utilities executive Dan Hodges to discuss an unrelated matter. But both Crockett and Hodges mentioned the possible sale.

"As the commissioners are aware from meetings that we've had," Crockett said, "Johnson Utilities is in the process of completing a negotiation to transfer its assets to the Town of Florence."

He told the commissioners that the issue under discussion would become "academic" once the "transaction is consummated, after the commission has had an opportunity to review the application."

Hodges echoed this sentiment.

"As far as going forward," Hodges said, "we're positive that we have an agreement with Florence, and we're going forward with the sale there, so I believe this issue's going to be a moot point, as far as [Johnson Utilities] is concerned."

Commissioner Susan Bitter Smith made mention of the "transaction" between the utility and Florence, and Commissioner Gary Pierce noted Johnson Utilities' "agreement" with Florence.

ACC Utilities Division Director Steve Olea suggested the sale was unavoidable.

"Johnson will be owned by Florence, at some point in the not too distant future," he remarked, in passing.

Contacted by New Times and asked about his statements before the ACC, Crockett said "representatives of Johnson Utilities" had met with members of the CorpCom to "give them a heads up that the company was contemplating a sale of assets to the Town of Florence."

(Crockett later clarified that "three of the meetings were with commissioners and a fourth meeting was with a member of a commissioner's staff.")

The attorney said he was not aware of a purchase price for the company and was not involved in the actual negotiations.

However, he said that the town's press release, "thoroughly describes [the] kind of discussions" the two sides have been having.

Asked why Johnson waited to sell his company, Crockett said: "Mr. Johnson has run this company for the last couple of years. But he's at a point where I think he's interested in some estate planning, along those lines, so I can't really tell you what's in Mr. Johnson's mind in terms of the reasons for the sale."

ACC spokeswoman Rebecca Wilder confirmed that commissioners and staff had met with Johnson Utilities concerning the possible sale of the company.

Earlier, Wilder had informed me that the CorpCom will have to approve any sale of Johnson Utilities.

I called Florence Vice Mayor Tom Smith to ask him what he thought of people talking about the Johnson Utilities deal as if it were in the bag.

He did not agree with that analysis.

"At the present time, we're just looking into it," he said, adding, "It has to go in front of the council. It hasn't gone in front of the council."

Regarding the purchase price, he said, "Nothing's been agreed upon."

I wondered if he had concerns about the possible deal. He said he did but declined to be specific.

"I'm waiting for all of our reports to get back on the infrastructure, the whole thing," he said. "Until I get that back, I won't make a decision on anything."

One source privy to the inner workings of Florence Town Hall claimed that the deal is driven by Florence Mayor Tom Rankin, who was profiled in the three-part series I co-authored with my colleague Monica Alonzo, "Florence Exposed."

This source, who asked to remain anonymous, suggested that town manager Charles Montoya does Rankin's bidding and is helping move the deal along, despite worries some have about it.

For instance, as detailed in the recent cover story "Rankin's Law," Rankin and George Johnson have long supported each other.

Rankin has been known to play cheerleader for whatever Johnson wants, such as earlier this year, when Rankin urged the town council to grant Johnson the right to convey water to an undeveloped part of Florence, because Johnson was planning a development there.

The council complied, approving the deal in a 5-2 vote.

Back in 2007, Rankin was the loudest voice in favor of the town's purchasing Johnson Utilities.

He told the Casa Grande Dispatch that the purchase "would benefit Florence for generations to come," and he hailed Johnson as "a great partner with the town of Florence."

Six years later, history seems to be repeating itself.

My source tells me that Rankin and the town manager have told people at Town Hall that Florence will "make a lot of money," from the deal.

The deal is coming "like a railroad train," the source said, with few people asking tough questions.

One of those questions being: Can the town afford it?

Town documents report that Florence's budget for fiscal year 2014 is more than $47 million.

These same documents state that the "total financial resources available" for 2014 equals more than $78 million.

Financing for the purchase of utilities can come from different sources. Queen Creek's purchase of H2O was financed in part by the Water Infrastructure Finance Authority of Arizona, which provides low-interest loans to cities and towns for such purposes.

WIFA spokesperson Susan Craig told me that Florence has not contacted her agency concerning the possible purchase of Johnson Utilities.

Craig's colleague, Trish Incognito, WIFA's Chief Financial Officer, explained that alternatives to WIFA financing for a municipality considering such a purchase can include "funding it themselves," going to a bank, or going to the bond market.

Another consideration regarding the town's finances: the town is engaged in a legal struggle with the company Curis Resources over a proposed copper-mining project within the town's limits.

Florence is attempting to condemn land owned by Curis via a claim of eminent domain. Recently, Curis upped the ante, submitting a notice of claim to Florence for what it says the value of that land is: $403 million.

Then there's the question of the litigation Johnson Utilities is engaged in, such as the two lawsuits I addressed in a previous column, and whether the town will be on the hook for any future legal bills, if the purchase goes through.

Additionally, the relationship between George Johnson and Mayor Rankin continues to raise eyebrows. And in light of a possible sale, even more so.

As discussed in "Florence Exposed," Johnson and his family supported Rankin's candidacy for mayor in 2012 with donations totaling more than $6,000. Johnson once lent Rankin $5,000, and Johnson employs Rankin's grown son Robert.

At one time, Johnson employed Rankin's other adult son, Tom Rankin, Jr., known to family and friends as "Tom Tom."

Also of concern is J.U.'s track record with the Arizona Department of Environmental Quality, which has issued numerous notices of violation to the utility over the past decade.

The utility's customers have complained of "low water pressure" and "yellow water." The company endured a high-profile E.coli scare in 2012, and earlier this year, it garnered further criticism for releasing semi-treated wastewater into a San Tan Valley pond.

My source said a worry among some in the town is the unknown cost of any improvements that might be necessary to the utility.

As a side issue, it's worth noting that before Queen Creek purchased H2O, Inc., it put the matter to a vote of the town electorate, citing a 2012 Arizona Court of Appeals decision that stated such a purchase would have to be approved by voters.

But officials with Queen Creek and the League of Arizona Cities and Towns were unclear if that particular decision would apply to Florence.

(Note: The Arizona Supreme Court denied a petition to review that case in late 2012, allowing the Court of Appeals decision to stand.)

John Kross, Queen Creek's Town Manager said the town held its special election earlier this year on the advice of counsel. The proposed purchase passed by a landslide.

"In our situation when we were completing our deal with the H2O owners, in order to acquire the company, go through the next steps, we had to first put the question to our voters, which we did," said Kross.

But Kross said the situation may be different for Florence.

Ken Strobeck, Executive Director of the League of Arizona Cities and Towns, said it was unclear if the appeals court decision applies to all cities and towns.

"I remember the discussion after that case came out," said Strobeck.

He said that people wondered if "every acquisition by a municipality of a water or wastewater system" required "a vote of the people for that specific acquisition."

He added, "I don't know if that's ever been...answered satisfactorily."

Town spokesperson Jess Knudson did not respond to my question as to whether the appeals court case applies to Florence.

Nor did he reply to my inquiry about whether Mayor Rankin, given his ties to Johnson, would recuse himself from any future council vote or discussions concerning the purchase of the utility Johnson owns.

The exploration of this possible purchase may be expensive, whether or not Florence decides to buy.

In the minutes of the Florence Town Council from March 6, 2008, then-town manager Himanshu Patel stated that the town spent $309,419.85 "in costs associated with professional services" concerning the possible acquisition of Johnson Utilities, suggested in 2007.

Johnson Utilities, according to the minutes, offered to pay $219,096.46, as part of a reimbursement agreement with the town.

Mayor Rankin moved to accept the agreement and the motion carried.

Days later, he was defeated in a close election by councilwoman Vicki Kilvinger. It was the beginning of four years off the council for Rankin, who won re-election in 2012.

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Stephen is a former staff writer and columnist at Phoenix New Times.
Contact: Stephen Lemons