In late February we began posting a series of articles review Santa Fe’s financial incompetence or malfeasance – your choice – in the procurement and management of the city’s streetlight upgrade contract and project. With Russia’s invasion of Ukraine we put a hold on those articles, writing at that time that “our mental energies are rightly focused on the Ukrainian people and Russia’s choice to break the peace in Europe; so, the posts scheduled for tomorrow and the next several days are on hold.”
With the most recent fiasco of Santa Fe’s inability, under Mayor Webber’s “leadership”, to account for several million dollars in cash expenditures, the resignation of the firm hired to help Santa Fe prepare its long-delayed annual required audit, and the announcement that the State Auditor will be intervening in the city’s finances “to prevent further financial crisis” we will, over the next several days, be resuming our series of articles on the city’s failure of governance under Mayor Webber and his appointees: Public Works Director Wheeler, City Finance Director McCoy, and City Attorney McSherry.
Today’s post recapitulates the first several articles in the series.
DID SANTA FE CORRECTLY ESTIMATE THE COST OF THE STREETLIGHT UPGRADE?
In February 2021, Santa Fe entered into a contract with Dalkia, LLC, to upgrade 3,355 of Santa Fe’s streetlights to LEDs, and also to maintain them for 15 years. The total cost of the loan financing Dalkia’s upgrade of 3,355 of City-owned streetlights – principal plus interest – is approximately $3,530,000. In a memo to the Governing Body discussing the Dalkia contract, Public Works Director Wheeler asserted that the “on-bill electric savings” associated with the conversion of these lights would pay for the conversion. Later in the same memo, Director Wheeler estimated these “on-bill electric savings” to be $550,000/yr.
A review of public documents show that Public Works Wheeler, City Attorney McSherry, and Finance Director McCoy grossly overestimated the cost savings associated with the Dalkia streetlight project. City Attorney McSherry and Finance Director McCoy presented documents to the governing body and its oversight committees asserting that the project would pay for itself in six years, with future savings accruing to the city’s benefit. A correct accounting shows that project savings are at most half that “estimated” by Wheeler, McCoy, and McSherry. A proper accounting shows that it will require at least 17 years to pay-off the loan financing the project and that almost all of supposed “energy savings” will be paid to the contractor, Dalkia.
IS THE DALKIA COST SAVINGS GUARANTEE A REAL GUARANTEE?
To protect taxpayers, state law requires that Santa Fe’s streetlight upgrade contract with Dalkia include a guarantee that the project’s annual cost savings meet or exceed the cost of the streetlight upgrade. Thus, if the streetlight project failed to gain a certain amount of savings, Dalkia would be responsible for making up the difference and Santa Fe would not be on the hook for loan payments that depended on those savings. The guarantee is supposed to be secured by a bond or financial guarantee issued by a responsible concern.
In fact, the Dalkia contract does not guarantee annual cost savings sufficient to pay the costs of the loan financing the streetlights, nor can the “guarantee” be used to make payments on the loan financing the upgrade. The guarantee is itself incomplete and insufficient to pay-off the loan financing the improvements. Finally, Santa Fe never received the required bond backing the utility savings guarantee.
DID SANTA FE SEEK APPROVAL OF THE DALKIA CONTRACT?
Santa Fe’s contract with Dalkia to upgrade the city’s streetlights to LED technology is a guaranteed utility savings contract.
State law recognizes that contracts like these can place taxpayers at great risk; so, the law governing these contracts includes numerous safeguards to protect taxpayers from being ripped-off.
One of these safeguards requires that these contracts be submitted for expert review and certification by the EMNRD before being signed.
Santa Fe ignored state law and did not seek or receive EMNRD certification of its Dalkia contract.
Over the next several days be on the look-out for posts addressing other failures of Santa Fe, and its contractor Dalkia, to follow state procurement laws and other state laws associated with the management of public works projects.