Controversy over the finances of one Gulf Breeze's main revenue sources, Capital Trust Agency has enveloped city leaders,


The city of Gulf Breeze has had it good for years thanks to the financial markets skills of Edward Gray III.

And Gray, a former bank executive, has progressed from a modest $1-a-year post as mayor to becoming a master of the complex universe of municipal bonds with Wall Street chops. For substantially bolstering the little coastline community's coffers, thus helping keep its tax rates low, he has been paid about $2.8 million since 2007, according to public records.

Gray has connected Gulf Breeze's 5,770 residents at times with financial heavyweights such as Goldman Sachs, J.P. Morgan and Merrill Lynch in bond sales that provided capital for dozens of projects costing more than $500 million, from an assisted-living facility in Palm Bay to hotel and convention centers in Hillsborough and Broward counties.

One deal he singled out with pride last month in a presentation to the Gulf Breeze City Council: financing the Hyatt Hotel at Orlando International Airport. Said Gray, "The next time you pass through the large atrium surrounded by the hotel as you exit concourses C and D, take pride that Gulf Breeze financed this."

But now, an outside audit of Gray's compensation as executive director of the Capital Trust Agency by the city's newly hired accounting firm has dented the mutual admiration between him and some other leaders in Gulf Breeze. The audit last fall by the Pensacola accounting firm Saltmarsh, Cleaveland & Gund found apparent sizable overpayments to Gray that have continued for years. He has acknowledged some of those and repaid about $130,000. He has called the matter "a terrible oversight by me."

Still, Gray has rejected the audit's interpretation of the formula by which he's paid according to the volume of bond sales. That analysis calculates that he was overpaid by another $338,000 or so.

There's unease about what might come next, including the results of yet another audit that's underway to examine the books of Gulf Breeze Financial Services, a separate bond-issuing agency also managed by Gray under the authority of the City Council. Gray is paid for certain of the bond sales through GBFS. The results of the second audit, also being done by Saltmarsh, are expected to include an accounting opinion that GBFS has also overpaid Gray in an amount totaling at least $100,000, according to an individual knowledgeable about the looming report.

All this is shaking the very core of Gulf Breeze's power structure and turning the spotlight on its interwoven alliances. For example, the long-standing relationship with CTA and its sister agency, Gulf Breeze Financial Services, pays the city about $825,000 in a typical year, which is roughly 13 percent of the its entire annual revenue. In return for those fees, Gulf Breeze acts as the so-called public issuer of the bonds without taking any legal or financial liability.

Gulf Breeze Mayor Matt Dannheisser, an attorney, is a CTA board member, having been named to that job by his fellow council members last December. He has done legal work for the CTA and he was the city attorney for Gulf Breeze from 1990 until last September. And as a City Council member, he's also on the board of GBFS. He has described some of the alleged overpayments to Gray as "the most troubling matter" he has encountered on behalf of the city in his 25 years in various leadership and employment roles there.


Gulf Breeze City Council took up the issue of an outside audit that raised questions about financial services contractor Ed Gray.

Dannheisser later told a reporter, "Ed Gray has done more to benefit the City of Gulf Breeze than perhaps anyone else, for which we owe him a large debt of gratitude." Nevertheless, he added, "We owe it to our residents to delve into the matter and assure complete transparency in all our dealings."

Separately, the Gulf Breeze City Council has ended the dual employment of City Manager Edwin "Buz" Eddy, who for years has been paid by both the municipality and from Capital Trust Agency revenue, the latter in varying amounts depending on its volume of bond sales. The move is part of a new five-year contract for Eddy, who has been city manager since 1992, that eliminates his remuneration from CTA. He has been paid about $130,000 a year from three sources: his city manager job and his work for both the CTA and Gulf Breeze Financial Services, also depending partly on the volume of bond transactions. Under Eddy's new contract, he will still be paid $130,000, but will come only from the city.

Ending Eddy's employment by CTA is long overdue, according to a recommendation by the Florida Auditor General's Office. In 2003, the News Journal has learned, that agency advised city officials that for Eddy to be paid by both Gulf Breeze and the bond issuers might violate Florida's conflict-of-interest statute.

The agency's report, which examined several municipal bond programs in Florida, stated: "Given that the city manager is in a position to influence the city's decisions regarding the bond issues and its dealings with Gulf Breeze Financial Services and Capital Trust Agency, and is being compensated both by these entities and the city, it appears that this situation may represent a conflict of interest in violation of Section 112.313(7)(a), Florida Statutes."

But city officials at the time evaluated the report and gathered legal opinions. They also consulted with the Florida Commission on Ethics, which didn't find a conflict of interest.

Still, the News Journal has learned that a city council member last month reported concerns about Gray's compensation to the Florida Department of Law Enforcement, which has made an inquiry and decided that the the issue is a civil matter, not criminal. Escambia County Assistant State Attorney Greg Marcille told a reporter, "If more information is discovered in this matter we would review that at a later date."

If the City Council presses Gray for further repayment, unfavorable publicity could damage the reputation of his company, Capital Trust Agency. CTA relies on the trust of investors to arrange bond financing for other municipalities in amounts that are many times the $6 million annual budget of Gulf Breeze.

The five-member City Council has essentially tabled the question of Gray's possible past $338,000 overpayment. Although three council members publicly expressed support for him at their Feb. 18 meeting, some on the volunteer panel aren't satisfied about whether Saltmarsh's audit of CTA was correct. They are expected to discuss it again at a regularly scheduled meeting on Wednesday night.

"I have lost sleep over this," said Council Member and Mayor Pro Tem Joe Henderson, a retired Navy officer. "I think we owe it to the community to look into it further."

Renee Bookout, an attorney who was elected to the council last year, told the News Journal last week, "I think we need to get to the bottom of this."

Gray was circumspect in an email response to News Journal questions about a possible ripple effect if the dispute over his past compensation continues. But he contends that the controversy, which may have to be legally disclosed in any future bond issue prospectus, could alarm potential investors. "It could be assumed an agency having internal disagreements may not efficiently process an application for bond financing," Gray said.

Henderson has been the most vocal member in asserting that Gray should probably repay the $338,000.

Gray expressed confidence in the outcome of the controversy. The city of Gulf Breeze is having a new contract prepared that officials and Gray agree will clarify his future compensation. He dismisses the lingering questions about his past pay as a misunderstanding due to an ambiguity in the original contract.

In an interview with the News Journal, Gray said that "the world of municipal finance and the unique enterprise" operated jointly by Gulf Breeze and his company "is complicated and difficult to grasp by anyone that doesn't deal with it routinely. Thus I am uncomfortable with it being discussed because of the likelihood the topic will be misunderstood. A misunderstanding can result in losing the trust of those you serve. That possibility is more disappointing for me than any other possible outcome."

Events leading to the current controversy over city of Gulf Breeze finances

1984: Ed Gray elected mayor at age 32; paid $1 a year. He describes the city's finances at that time as weak.

1985: Investment bankers and lawyers approach Gray about starting a program for Gulf Breeze to sponsor bonds that would create loan capital for other cities and some counties in Florida.

1986: Gulf Breeze's early shares of bond sales proceeds allow the City Council to cut taxes and start planning for amenities such as a recreation center.

1992: Gray leaves office as mayor.

1999: The Capital Trust Agency is formed so that Gulf Breeze and another small town, Century, can originate loans through tax-exempt bonds. Gray is hired as the company's contract manager.

2002: Gulf Breeze City Council hires Gray to manage its finance programs through his company, Municipal Advisory Services.

2002: Capital Trust Agency's financing transactions begin to increase and include projects such as hotel and convention centers in Tampa and Fort Lauderdale.

2014: Questions about Gray's compensation arise. City officials seek the remittance of about $130,000 that an outside audit calculates Gray has been overpaid according to his contract.

February 11, 2015: Further questions arise about another $338,000 in apparent overpayments to Gray, according to the outside audit. He disputes that interpretation of his contract.

Feb. 18, 2015: Gray makes an impassioned presentation to City Council in defense of his pay; he states that since 1985 his bond financing work on the municipality's behalf has gleaned about $31 million for its coffers.

March 2015: Another audit of the Capital Trust Agency's sister organization, Gulf Breeze Financial Services, examines its compensation of Gray.

A Pensacola News Journal interview with Ed Gray, executive director of Capital Trust Agency

Question: Given the current flap over your contract with the city and the Saltmarsh audit, how are you feeling? Hurt? Angry? Disappointed?

Answer: Regarding the Saltmarsh audit, I feel the same way about it that I feel on many topics I deal with…..I have not been one to seek headlines and seek out being noticed, both positively and negatively. I am also aware, the world of municipal finance and the unique enterprise we have operated since 1985 is complicated and difficult to grasp by anyone that doesn't deal with it routinely. Thus, I am uncomfortable with it being discussed because of the likelihood the topic will be misunderstood. A misunderstanding can result in losing the trust of those you serve. That possibility is more disappointing for me than any other possible outcome.

Question: Do you think that critics of your compensation should take note that the previous auditor, a prominent Pensacola firm, didn't ever raise the issue?

Answer: Whether other audit firms correctly interpreted the contract or not, at this point, is immaterial. Important to me is the fact we will address any ambiguities and move ahead to continue our successful operations.

Question: When did you know that an issue would be raised, and how did you find out?

Answer: I did not know there was an issue regarding the compensation calculation until the Saltmarsh auditors, while doing their review, asked me to meet and discuss their findings to date. I was both stunned and confused how the method for my firm being paid for over 12 years was now being interpreted differently. If I recall correctly, this was in late October 2014.

Question: The issue of whether $338,000 is still owed all stems from the brief Section 7 of the contract. Did you ever, until recently, think that could be interpreted in the way Saltmarsh calls "actual."

Answer: Certainly not; particularly in light of my having been paid this way since January 2002. The contract paragraph in question describes the compensation to be received for "each bond issuance of CTA". Thus the minimum I have been paid for each bond program is the basis of the compensation calculation. The contract is incentive based and does not penalize me if financings result in smaller size deals being originated. This paragraph assures certain minimums are paid regardless of the size. CTA and the City benefit because the ongoing fees resulting from the financings also guarantee a minimum annual income being earned to benefit the agency and the city for as long as the bonds are outstanding. Most bond issues today have a schedule of bonds spanning 30 to 35 years.

Question: Are you aware, and have you made anyone with the City of Gulf Breeze aware, that if litigation or similar action arises from the dispute that disclosure must be made in future bond prospectuses which might discourage potential investors? In other words, have you let city officials know that long-term disagreement over Section 7 could damage CTA in a measurable way?

Answer: It is questionable whether any litigation or similar action would be a disclosure matter since it has no relevance to the project being financed by the bond issue. That would be a decision of the legal firms specializing in such matters. It could, however, be a reason to choose alternative agencies through which to do business. It could be assumed an agency having internal disagreements may not efficiently process an application for a bond financing. Our reputation for being responsive and knowledgeable in generating capital in the bond market is one I value.

Question: Is there a simple compromise here before things potentially spin into another orbit, as in a complaint to state ethics authorities or even the FDLE? In other words, could you negotiate a partial payment amount satisfactory to you and any city officials who are critical?

Answer: It is important to understand the CTA board is the governing body contracting my firm to manage its operations. This board is the other party to the contract. The board has been appointed by the City Council to administer the governance of the agency. This board has no disagreement with the compensation being paid over the last 12 years. The board is in agreement the contract should be revised and we remove any ambiguities that may exist. I cannot control, nor do I have any reason to attempt to control, others that may want to involve other authorities. The authority I answer to has decided how to address the matter and I will abide by their decisions.

Question: A new contract is being drawn up. Will that encourage you to continue in this role with CTA, or are you thinking about handing off management of the organization?

Answer: I intend to remain in my role with CTA many more years, or as long as the board is in agreement to retain me. I enjoy helping projects such as the Vince Whibbs Community Maritime Park, a charter school helping children of migrant workers, senior living facilities all over the state, and so many other financings benefiting communities throughout Florida, become reality. Did you know as a result of the contributions CTA has committed to the Take Stock in Children program in Escambia and Santa Rosa counties, we are among the largest sponsors providing these scholarships to deserving students? We have also contributed substantially to scholarship programs at both PSC and UWF. A lot of good has come from the enterprise we operate, even beyond the added income we provide to Gulf Breeze. I have appreciated the opportunity to serve the city, CTA, the citizens of Gulf Breeze, and the borrowers that have chosen CTA or Gulf Breeze to structure financings to meet their capital needs. For my work, I have been compensated well and fulfilled my commitment to achieve success for the agency. Underlying all this discussion is the fact the city is financially better off and I am, too, which discourages me from apologizing for success, and encourages me to continue the legacy as it is sometimes called.

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