The Gainesville City Commission approved a plan that will put a $16.7 million hole in the general government budget for the next fiscal year and a $119 million loss over the next 10 years.
That money will stay on the ledgers at Gainesville Regional Utilities (GRU) instead of transferring to the general government side as part of the annual general fund transfer, now renamed the general services contribution (GSC).
GRU will use the $119 million to reduce its debt. Currently, the utility sits on $1.69 billion in principal debt and retains only 14% equity. The plan approved in the General Policy Committee on Thursday aims to reduce the debt by $315 million in the next 10 years.
By reducing that amount, GRU says its equity will rise to a targeted 30%. The equity percentage shows how much of GRU’s assets belong to the city after subtracting the utility’s debt. City staff also called the percentage the capitalization ratio.
In the current fiscal year, GRU transferred $34 million to the general government, and Gainesville has come under fire from Tallahassee legislators for transferring $68 million more in the last four years than the utility has earned.
Gainesville staff traveled to Tallahassee in February to respond to an audit by the Joint Legislative Audit Committee. One of the findings pointed to the GSC as a problem and said the city needs a formula to create the transfer each year.
Thursday’s meeting set a formula for the transfer, resulting in the $119 million loss. The formula combines a 5% franchise fee on the electric system’s revenues with a property tax type charge.
Instead of taking the tax assessor’s property value, the formula uses the totaled insured values of GRU assets at a 70% level.
The formula spit out $15.3 million as the GSC for fiscal year 2024.
Commissioner Bryan Eastman asked why not take a franchise fee on water, wastewater, natural gas and telecommunications. City staff replied that the electric system fee is the most common, and Eastman said he’d like to see the other systems looked at for a fee.
Commissioner Cynthia Chestnut and Mayor Harvey Ward said the plan follows under the audit committee’s direction for bold action. City Manager Cynthia Curry said staff will now figure out what to cut and reduce to make up for the lack of funding.
"It's odd for me as a new commissioner to even wrap my head around the size of cuts we are talking about,” Eastman said.
Eastman asked Steve Varvel, risk management director, how this cut compares to the 2008 recession.
Varvel said 85 positions were cut then, mostly coming on the administrative side. The impacts in that department, he said, left changes in structure that didn’t work out well.
"When you lose institutional knowledge and have less people to do the work, the work, quite frankly, doesn't always get done,” Varvel said.
He added that the proposed $16.7 million cut represents a higher percentage of the budget than the city cut in 2008 and the years after.
The other portions of the $315 million debt reduction would come from payments already scheduled to reduce debt, $91 million, a reduction in GRU expenses, $28 million, and from excess reserves coming from base rate increases, $76 million.
GRU General Manager Tony Cunningham said with the GSC amount set, his staff can now find the $28 million in expense reduction over the next decade -- $2.8 million annually. GRU will present its budget, and where those reductions may come, on May 15.
Cunningham also told the commission that GRU will grapple with other large projects in the coming 10 years, especially decommissioning old plants and handling its integrated resource plan. Those two projects will take funding that aren’t yet included in the projected borrowings.
The plan also assumes that all future GRU projects will use 50% capital and 50% debt to finance and the base rate for customers continues to rise as approved by the city commission in 2021 and 2022.
That rate plan includes yearly increases for both electricity and wastewater until 2026. Those rate increases will fund $76 million in debt reduction over the next 10 years.
Local bill filed in Tallahassee
On Monday, Rep. Chuck Clemons, R-District 21, filed a local bill that would hand control of GRU to an independent board. Gainesville residents and GRU customers would sit on the five-member board, appointed by Gov. Ron DeSantis.
Alachua County’s group of legislators signed off on filing the bill, with state Rep. Yvonne Hinson, D-Gainesville, in dissent.
If the bill passes the Legislature and governor’s desk, the city commission’s plan could change by the new board.
In a phone interview, Clemons said the new board, like the city commission, would not be allowed to sell GRU without a voter referendum. Also like the commission, the board can set rates and oversee all GRU projects and finances.
“It’s still the city of Gainesville; it’s just going to be operated in a different silo,” Clemons said. “So, the city still owns 100% of all the assets of GRU. This utility is owned by the people that it serves, and now, because of this bill, it will be representative of all the people that it serves and not just the city residents of Gainesville.”
The bill would give the new board control of all assets owned by GRU as of Jan. 1, 2022. Clemons said the measure prevents any changes in ownership before the board would take control on Oct. 1, 2023, if the bill passes.
That protection measure could trap the sale of GRU’s trunked radio system to Alachua County. The Gainesville City Commission approved the sale on March 2 for $8 million. Both commissions praised the deal, and Alachua County had planned to build its own system if the city refused a sale or delayed.
If the bill passes, the sale may need to be ratified by the new board.
Clemons said the independent board will eliminate a conflict of interest within the city commission: serving GRU first or the general government. He said the commission can now serve residents through general government services with all its focus while the board looks out for GRU and ratepayers.
Clemons said city commission control has led to only 14% equity left in GRU with 86% debt. A well-run utility, he said, should maintain 60% equity with only 40% debt.
“It’s a false flag to say that this independent board that’s only looking after the ratepayers will do something negative toward the users of the utility,” Clemons said.
He said the board will be able to make the right decisions for customers without worrying how actions impact the general government side.
The board will include one customer of GRU who lives in unincorporated Alachua County, one member who represents a commercial user and three Gainesville residents with an expertise in energy, finance, law or another connected field.
This situation is so difficult to wrap one's head around. I appreciate that Mainstreet Daily News has dedicated a reporter to learning about it and continually explaining the developments.
Commissioners, we are not in a recession, you are.
The sad reality is that city communists ran GRU into the ground, because their woke, environmentalist world view blinded them from reality. Who will pay off the GRU debt? It will be us, our children and grandchildren. This city could be one of the wealthiest and most prosperous, lifting all who are willing to work out of poor neighborhoods and poor housing. Sadly, unless the voters choose the city commissioners much, much differently, we will only spiral further into the abyss of democrat-run cities.