Bielarski: Fact or Fiction, Part 5

Letter to the editor

Is Commissioner Bryan Eastman correct in assessments made in his GRU by the Numbers?

It’s disturbing as a city resident, City employee, former CPA, CEO of GRU, and 45-year veteran of the accounting, finance, and management world to read a sitting City Commissioner’s series of claims about GRU’s board and management based on a witch’s brew of conjecture, urban myth, misapplication of accounting principles, purposeful lack of context, and whataboutisms.  

The importance of having factual, unbiased information in front of the public is the very foundation of our democracy. Without it, the community cannot make informed decisions about important issues –- in this case, GRU.

While there’s a lot of misinformation to unpack, it’s my obligation to set the record straight. 

Eastman’s claims

1. “Ed’s whole argument depends on his personal definition of ‘profit’ which doesn’t appear anywhere in GRU’s audited financial statements, budgets, or bond resolutions.  It’s an invented number – not recognized by any accountant.”
2. “GRU’s finances are simple: revenue in, expenses out. If reserves were tapped, that’s counted. It’s the same logic any household uses to balance its checkbook.” Therefore, “GRU has made enough to cover the general fund transfer, pay down debt and build reserves.” 
3. “The Commission didn’t take any extra money,” meaning in general fund transfers.
4. “GRU has been the bottom of the pack,” in terms of general fund transfers.
5. Ed has been the commission’s champion (in the past).
6. “It’s time to focus on what really matters: lowering rates, paying down debt, and planning for a reliable, affordable future.”

Facts:

Key Point #1: GRU’s audited financial statements clearly include operating income (often called operating profit) and income before capital contributions (known as profit).  

Eastman rests his argument on discrediting my substitution of the term “profit” for “income.” In accounting-speak, there is no difference between income and profit, or earnings for that matter. In GRU’s audited Statement of Revenues, Expenses and Changes in Net Position, the term “income” is analogous to profit. One reason I use “profit” is that it helps simplify financial jargon. 

Key Point #2: GRU’s finances are anything but simple. Contrary to what Eastman declares, sophisticated and complex organizations like GRU would never determine the sustainability of a general fund transfer/debt paydown/reserve buildup plan through a review of the “family checkbook.” 

In a misguided and amateurish attempt to thwart my long-standing claim that GRU paid $68 million more than it made in profit between 2018 and 2021, Eastman builds his own graph based on GRU’s Schedules of Net Revenues in Accordance with Bond Resolution –- a schedule not required by the audit, nor any generally accepted accounting principles (GAAP), commonly referred to as the Flow of Funds.  

The schedules are clearly notated to say that they “are in compliance with the bond resolutions and do not agree to the audited Statements of Revenue, Expenses and Changes in Net Position.” Put simply, it’s a schedule that reflects bond coverage ratios, not profits, and these schedules are limited in their acceptability in ascertaining whether GRU has “covered” the general fund transfer, paid down debt, and built reserves. That’s what audited financial statements are for, and the utility’s highly qualified financial professionals, CPAs, consultants, and I used audited financial statements to determine that the utility paid $68 million more than it made between 2018 and 2021 – a much different result than simply considering GRU’s “virtual checkbook.”

The most disturbing element of Eastman’s comments on this topic is his acceptance that depreciation/amortization shouldn’t be considered. For those who are unaware, depreciation/amortization is the loss of economic value of an asset over time. In finance circles, it serves as a proxy for the amount of money an organization ought to be re-investing in its diminished assets. Any board failing to understand this critical point can be catastrophic to the sustainability of an enterprise’s fiscal health, as it leads the governing body to think they have more money than they really do. Sound familiar?

Key Point #3: The City Commission continued taking the same amount of general fund transfer despite GRU’s diminishing profits. 

After the buyout of the onerous biomass power purchase agreement in November 2017, GRU went from owing $75 million a year whether the plant ran or not to paying $38 million a year on the debt of the plant, along with running the plant at a more optimal level – saving up to $1 billion from its obligations.  

That $38 million, while less than the $75 million a year, was $37 million more each year than what GRU had expensed on its books before the biomass plant went operational in 2013. The buyout still required the Commission to take a “haircut” on its general fund transfer. Despite my protests, the Commission refused to lower the general fund transfer until 2021, only after a double-notch bond rating downgrade from S&P in 2021 and a dressing down by the state Joint Legislative Auditing Committee in 2022/23.  

It bears repeating that it’s within this context that from 2018 until 2021, the Commission took $68 million more from GRU than the utility made in profits. That’s killing the goose that laid the golden egg, using GRU as a piggybank, and whatever other analogy you can muster. 

Key Point #4: Because the commission loaded $2 billion of debt on GRU’s books and accumulated over $100 million a year in debt service payments, GRU’s general fund transfer as a percentage of revenues is no longer a valid comparison.  

Whereas Eastman thinks GRU finances are simple, I think the concept that you can’t pay dividends out of profits you don’t have is the simplest.

Contrary to Eastman’s claim, two of the nation’s most prestigious bond rating agencies, Fitch and Moody’s, recognized the Commission’s excessive general fund transfers. Over the past several months, they have published reports on GRU’s debt, affirming GRU’s A+ and Aa3 (AA-) ratings. They both warned that the possibilities of downgrades are tied to any action requiring GRU to pay higher general fund transfers and placing at risk the financial plan centered on paying down debt at an accelerated pace (see below).  

Despite that environment, the current City Commission approved a referendum to be placed on the November 2025 special election ballot, which, if passed, would deliver a death sentence to the independent board and remove any limitations on the size of the general fund transfer.   

Key Point #5: From fiscal year 2015 through early 2018, of course, I was the Commission’s biggest champion. Thereafter, I was not.  

I was a Charter Officer of the City, tasked with carrying out the will of the Commission, which included:

1. Negotiating out of the biomass power purchase agreement.
2. Mitigating the upward rise in utility bills.  

Eastman’s use of my communications throughout fiscal year 2018 and prior are knowingly taken out of context. The Commission had not yet excessively transferred $68 million more than GRU profited to the City.  

However, in fiscal year 2018, the Commission embarked on: 

1. Maintaining the general fund transfer despite lower profits.
2. Pushing a green agenda through its Utility Advisory Board, whose stated goals included raising rates to slow consumption.
3. The establishment of a one-city concept that made GRU subsidize General Government even further. This is when the excessive profit transfer started.  

Following these events, I worked to educate the community about the perils of a high general fund transfer, the billions of dollars it would take to try and move exclusively toward renewable energy, and the dangers of continued subsidization of the City by GRU. Over the next three years, the City tried to fire me three times, finally succeeding in January 2022. Eastman doesn’t share a single one of my communications during that period because they don’t support his false narrative.

Key Point #6: While I can’t agree more that GRU should focus on 1) lowering rates; 2) paying down debt; and 3) planning for a reliable, affordable future; the GRU Authority has executed that, not the Gainesville City Commission.  

The referendum that the Commission approved to be on the ballot in November would remove the current limitation on the general fund transfer. If it passes, the Commission can burden GRU customers with increased transfers, which would necessarily increase rates and make the utility unable to pay down debt in accordance with their new plan. The increased general fund transfers would force bond rating downgrades and more expenses. If Eastman feels that lower rates, paying down debt, and being a reliable and affordable utility should be the focus, he should support sticking with the Authority governance structure. 

GRU CEO Ed Bielarski, Gainesville

Click here to read Part 1 in the series.

Click here to read Part 2 in the series.

Click here to read Part 3 in the series.

Click here to read Part 4 in the series.

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