Bielarski: City must face reality

OPINION

BY ED BIELARSKI

On Friday, the City of Gainesville issued a press release in response to the Alachua County legislative delegation vote to advance Rep. Chuck Clemons’ local bill in the Florida House. I was surprised by the tone and content of the press release. Municipal press releases are typically factual and informative, not advocacy pieces. This one was a call to retain the status quo. It portrayed Gainesville as a City that was facing a state intent on taking control of GRU, despite City Commissioners and City leaders working diligently in recent weeks to take actions in response to the Joint Legislative Audit Committee (JLAC) guidance discussed at a February 23 meeting. Without any further frame of reference, the press release stated that JLAC members supported those actions, which include hiring freezes and zero-based budgeting.

Well, I’m here to say that the time frame to take responsive action should have begun more than a few weeks ago. In fact, the GRU fiscal crisis began well before February 23, and the City Commission has been less than forthcoming, responsive, or responsible in addressing fiscal concerns going as far back as the turn of the century.

The solution to GRU’s fiscal crisis needs to go well beyond the hiring freeze and imposing zero-based budgeting. GRU already has a pseudo-hiring freeze resulting from a 12%-16% vacancy rate because they can’t hire or retain workers. Zero-based budgeting has been around since I was in college in the ’70s. I oversaw the practice during my entire tenure at GRU. These “actions” taken by City leaders are akin to “offering a sleeve off of your vest to someone.” It’s meaningless. If you’d like to truly understand what GRU’s fiscal crisis is about, let’s start with the history of three of GRU’s key performance indicators (Long-term Debt, Electric Rates, and General Fund Transfer, or GFT).

Long-term Debt

From 2000 until 2015, GRU’s Long-term Debt quadrupled from less than $500 million to almost $2 billion. The main driver of that increase was the original Biomass Power Purchase Agreement (PPA), which was classified as debt in the form of a $1.1 billion capital lease, despite assurances that it wouldn’t be.

Payments under that PPA totaled $76 million a year whether the plant ran or not, meaning GRU was on the “hook” for $2.3 billion over 30 years with no ownership rights. If the plant ran, GRU was obligated for even higher power payments. When the plant ran, the PPA dictated that there would be no summer period shutdowns, nor would it be asked to operate at lower than 70 MWs. Those conditions necessarily damaged GRU’s existing fleet of power plants due to excessive thermal cycling.

Electric Rates

From 2000 until 2015, GRU’s average 1,000 kWh residential electric bills doubled from one of the lowest in the state at $77 a month to the highest at $140 a month. Somewhat under the radar of voters, commercial electric rates tripled during that same period.

General Fund Transfer

Despite GRU’s fiscal crisis, the Commission increased the GFT from $23 million a year in 2000 to $35 million a year in 2015. In those 15 years, the city siphoned off $493 million from GRU’s $468 million in profits. Imagine any business paying its shareholders more than it earned over almost two decades.

This was the situation I faced upon my arrival as GRU’s General Manager in 2015. In the face of such adversity, I was able to breathe new life into the utility when in 2017, I completed the termination of the Biomass PPA and the acquisition of the Biomass plant. The impact was immediate.

Long-term debt fell by over $300 million (as we exchanged $1 billion in contractual capitalized obligations for $680 million in bond debt). GRU’s annual Biomass obligations fell from $75 million to $36 million a year. Electric customers were afforded an 8%-10% rate reduction. Cash Flow savings from the deal were approximately $770 million on the financing alone, and over $1 billion when you included operational cost savings. The buyout was nominated as the Deal of the Year on Wall Street.

By the end of 2021, Long-term Debt had stopped its upward trajectory. The average 1,000 kWh residential electric bills fell from $140 to $123 a month, a 12% reduction. However, the City Commission couldn’t end its addiction to GRU customers’ monies.

From 2016 until 2022, the Commission extracted $220 million in GFT payments from GRU ($76 million more than what GRU actually earned). While the average GFT for the top 5 Florida municipal utilities is between one-third and two-thirds of their earnings, GRU was remitting 100%, up to 2 times their earnings, and I fought against it with the City Commission.

Sadly, after the Biomass buyout, the Commission wanted nothing to do with any meaningful reduction in the GFT. There was no political will to reduce the GFT and increase property taxes, or, God forbid, reduce city spending. From 2016 until 2023, while I was trimming GRU expenses, the City increased general fund spending from $104 million to $154 million a year, some $50 million (two-thirds of the annual cost of the Biomass PPA). In those 8 years, they’ve added almost 300 employees, almost 20% more than the size of the previous workforce.

While City government is out of fiscal control, GRU’s average 1,000 kWh residential electric customer is now paying over $180 a month, triple the bill in 2000, with no reduction in sight.

Worst of all, from 2000 thru Fiscal Year 2023, GRU will have paid the city almost $800 million in GFT payments. If not for these GFT payments and the Biomass PPA, GRU could be a debt-free utility. You read that right. Instead, GRU is so highly leveraged that Fitch needs to see debt reduced by $200 million more over the next 3 years and a total of $400 million over the next 5 to 10 years, or there will be more rating downgrades.

Mayor Ward participated in this irresponsible, reckless, and destructive governing behavior during his six years as a City Commissioner, voting for those unfunded GFTs and excessive city spending. His only claim to fiscal responsibility is his vote in 2021 to reduce the GFT by $2 million a year. However, the reality is that in the face of $1.7 billion of debt, that plan would take almost 150 years to pay down GRU’s debt.

Despite Mayor Ward’s complicity in GRU’s fiscal crisis, he stunningly gaslights the community with his quotes in the press release:

• Ward’s comment: “Political appointees would deny Gainesville voters the right to elect members of GRU’s governing body.”
  • My response: GRU’s failed governance has led to the need for appointees from another responsible body in order to protect the rights of all utility customers. This is not a unilateral action without cause. The 40% of GRU customers outside the city have no method of grievance and no voting rights and are thus disenfranchised, ironically, by a city that holds equity and fairness as its guiding principles.
• Statement from the City’s press release: “In addition to decisions on utility budgets, rates and operations, local control of GRU enables municipal leaders to reinvest utility revenues to support infrastructure, maintenance, grid resilience and storm hardening measures.”
  • My response: Local control in GRU’s case has led to budgets that include GFTs greater than what the utility can afford, electric rates that are the highest in the state, and operations that subsidize City services. That’s wrong. What’s even worse is that local control of municipal leaders has resulted in GRU owning 5 power plants that are over 50 years of age. This is inexcusable.

The real question is, “What’s the plan going forward?” Here are my suggestions:

The city ought to substantially reduce GRU’s GFT payments over the next three (3) years to what the utility can afford. For example, a $17 million annual reduction over the next 3 years will net $51 million toward the $200 million debt reduction requirement. Unfortunately, it only gets you a quarter of the way to the goal. A full $34 million annual reduction a year over the next three years will net $102 million toward the $200 million debt reduction requirement. That gets you half the way there. There’s a strong likelihood that a longer period of reduction will be required, maybe forever. Whether it’s a $17 million or $34 million reduction, more is needed.

GRU needs to look at expanding its transmission interconnections to access more low-cost power. Ultimately, there needs to be a plan to exit the power generation business, given the burden of replacing 5 power plants over 50 years of age. With almost 2 million MWh of electric load annually, every $1 reduction in the per-MWh cost of generation equates to $2 million saved. It needs to happen. The City is in no position to continue acting on the “Net Zero by 2045 goal,” which is pegged at a cost of $3.6 billion, over 7,000 acres of land for solar farms, and another biomass plant.

Operating under an independent board would remove the burdensome requirements of serving a commission that regularly uses the utility to subsidize the City. Hiring practices, procurement, and IT services could be streamlined. An independent board would allow GRU to operate more like a business. Thousands of man-hours would be removed from commission meetings, both public and private.

A big caveat here: The City cannot fully swap the loss of the GFT with increased property taxes.

There must be a critical analysis of the annual $50 million increase in City spending over the past eight years, along with adding almost 300 employees. That will mean layoffs and an evaluation of the richness of the City’s defined-benefit pensions.

Without a plan from the City Commission with these goals, I will support Clemons’ GRU Customer Relief Bill. You should, too.