Palatka officials say state denied loan reimbursement after unbid change order, $1.03 million hit to utility fund

Palatka city staff told the City Commission on June 11 that the Florida Department of Environmental Protection denied a loan disbursement tied to a January 2025 change order for a water storage-tank project, and the city will need to cover $1,026,880 from its utility contingency unless the decision is reversed or other funds are identified.

Miss Pierre, who presented the audit update, said auditors completed on-site fieldwork and that the denied disbursement stems from a contractual compliance issue: the change order exceeded the grant/loan agreement threshold and was not competitively bid. The original contract for the project was $856,700; the contested change order was described to commissioners as 120% above that amount and therefore out of compliance with the state program’s bidding rules.

Pierre said the work was approved internally as an emergency because crews discovered inoperable valves between the tanks that reduced the city’s treated-water storage to less than 25% of demand, which she said created an operational risk if a major line break or fire occurred. The city’s engineer (Hansen) and Sean Bruno, the city’s water-treatment plant superintendent, told staff the valves needed replacement and that new valves had long lead times.

The Florida Department of Environmental Protection, Pierre said, disagreed that the circumstances met the loan program’s emergency exception. As a result, the state denied reimbursement for the change order; the city will not receive loan proceeds for that cost and will instead require use of fund 041 contingency balances unless other sources are found. Pierre said the allowable reimbursement under program rules would have been $331,000; the denied portion totals $1,026,880.

Commissioners asked about the financial impact and reserve levels. Pierre said the contingency balance at the time of the change order (late 2025) was about $1.7 million; she offered to provide the commission a current fund-balance figure and a percentage impact analysis to help gauge the budget effect. Commissioners also asked whether internal protocols were followed and how to avoid future compliance failures. Pierre said the grant administrator at the time was new and may not have been looped into communications; the city has since hired a grant administrator who is proactively coordinating with the grantee and reviewing change orders in advance.

Pierre said she had previously emailed recommendations to supervisors when the issue arose; those recommendations included requesting reimbursement up to the allowable amount ($331,000), identifying alternate funding sources to cover the change order, and pursuing legal recourse as another option. The city attorney and engineer have been involved in explaining the circumstances to the state, she said.

Next steps the commission asked for: staff to return with a clear statement of current fund balances and percentage impacts, a list of possible funding sources to cover the denied amount, and documentation showing steps staff will take to improve grant-administration and bidding compliance going forward. The audit finding will appear in the city’s upcoming audit report.

The commission did not vote on any remedy during the meeting; staff said they would provide follow-up information at a later date.