Bipartisan legislative committee tells Mayor Ward to take drastic action on GRU debt or face removal from office

BY JENNIFER CABRERA

TALLAHASSEE, Fla. – A bipartisan Joint Legislative Auditing Committee (JLAC) today told representatives from the City of Gainesville, including Mayor Harvey Ward, that if they don’t take urgent action to reduce GRU’s debt, they could face removal from office or a reduction in state funding.

JLAC heard a presentation from Derek Noonan, the Audit Manager of Local Government Reviews and Special Audits for the Florida Auditor General’s office, describing the findings in the City of Gainesville Operational Audit. The audit had 18 findings, which are described here. 

“These are major, major items that the audit has revealed.” – Rep Mike Caruso

Following the presentation, Alternating Chair Rep. Mike Caruso (R-Boca Raton) said, “These are major, major items that the audit has revealed.” He said he was concerned with the golf course findings, the Reichert House, and particularly the findings on internal controls, but “Mr. Noonan, I think the audit doesn’t go far enough… If we could have sound effects in here with lightning and fire and thunder, I think that would more appropriately show the magnitude of what this audit has touched light on.”

Caruso said the audit “inadequately addresses the fact that the GRU (Gainesville Regional Utilities) is not sustainable.” He said GRU has $1.7 billion in debt, which “technically may be in default for breach of the anti-subsidizing clause.” He said the City is “using the GRU as its own piggy bank, without consideration of its own fiscal responsibility… without consideration of the hardship it places on GRU customers… I don’t think the magnitude of all this has been addressed.”

“We have a GRU that is on the verge of failing and a City that will tumble after it.” – Caruso

Caruso wanted to see a plan to meet the debt service and a plan to fund the City’s budget without a General Fund Transfer (GFT) from GRU: “The recommendations from the Auditor General are not strong enough… We have a GRU that is on the verge of failing and a City that will tumble after it.”  

Sen. Tracie Davis (D-Jacksonville) said, “Everyone should understand what is being requested because you’ve already heard words like ‘non-sustainability,’ and when you’re talking about a City [and] non-sustainability, please be ready for what’s about to happen. Please be ready for explaining what this 84% debt ratio is–because it’s coming.”

Gainesville Mayor Harvey Ward said he wanted to “recognize and thank the Gainesville residents who requested the audit of the City in the first place; they’re all dedicated neighbors who value our community.” He said the city commission had already voted to decrease the GFT by $2 million per year through 2027. “Already this plan has reduced the transfer to a lower amount than it has been since Fiscal Year 2009, even without accounting for inflation. Certainly we will continue to turbocharge that decrease in General Fund Transfer funding.” He pointed out that he is only one of seven votes on the commission.

“The beauty of a municipal utility, particularly in Florida, is that every high-level decision must be open and transparent.” – Mayor Harvey Ward

Ward boasted about GRU’s reliability, saying the system has never had a blackout, and added, “This past year, our electric system customers had access to power 99.99% of the time, which is an amazing statistic here in Florida… The beauty of a municipal utility, particularly in Florida, is that every high-level decision must be open and transparent.”

GRU General Manager Tony Cunningham said a big part of the plan to reduce GRU’s debt is the GFT reduction: “Another part of the plan are modest rate increases.” 

Sen. Keith Perry (R-Gainesville) asked whether the utility expects further debt downgrades; Ward replied, “We do not believe that if we stay on course with the program that we’ve laid out or do better than that, we do not believe that we will continue to receive downgrades.” 

In response to a question from Perry about what the City’s consultants had recommended, Noonan said that a report on generation needs had estimated that if the City keeps and refurbishes its existing generating assets, it will incur an additional $250 million in debt by 2045. If they build new plants to move to renewable power generation, it would be closer to a billion dollars. Ward said, “I would not say we’re moving toward a billion dollars in renewable energy, no.” Perry pointed out that the City is moving toward a goal of NetZero in 2045 and asked if it was “misinformation” that the consultants had estimated a cost of a billion dollars for that. Ward replied, “I am not ready to sign off, nor do I have any plan of signing off, on a billion dollars of new debt.”

Perry pointed out that at 82%, GRU’s debt ratio is much higher than is usual for utilities, and he said GRU paid $104 million, or 22% of its budget, just for debt in this fiscal year. He asked for specific plans to decrease the debt. “From what I’m reading… you’re moving in the direction of [increasing debt].”

GRU General Manager Tony Cunningham said the plan is a combination of reducing the GFT and “modest rate increases.” Perry asked how much those measures would reduce the debt; after Cunningham meandered in his answer, Alternating Chair Jason Pizzo (D-Hollywood) interrupted and asked whether the measures would even keep up with the interest payments; Cunningham said he didn’t know. 

Caruso asked how much of that would go toward reducing the debt, and Cunningham said, “Some of it will.” Caruso replied, “Some is a dollar… So we don’t know how much of the $42 million over six years’ time is gonna go to $1.7 billion of debt. And if all of it went, have we really touched the debt?… I’ll bet you in six years, we’re over $2.5 billion in total debt.”

“What is the justification for entering into a contract that the general public can’t know about, you won’t let them know about?” – Sen. Keith Perry

Regarding the Solar Power Purchase Agreement (PPA) the city commission just approved, City officials refused to disclose the price per MWh for the purchased power, saying that it is a “trade secret.” Perry compared the Solar PPA to the PPA for the biomass plant, which was also heavily redacted and was such a bad deal that the City ended up buying the plant to save money. Perry asked, “What is the justification for entering into a contract that the general public can’t know about, you won’t let them know about?”

Ward said the City had decided to sign a contract “that gives us reliable, predictable purchasing of power, or we can say we really like it when natural gas fluctuates by 300% per year.”

When asked what the cost per MWh is for natural gas, Cunningham said it’s typically $35-$40/MWh. When asked about the cost of solar, Cunningham said, “That’s the trade secret.” 

Perry responded, “Can the public make an informed decision when they don’t know all the full details?”

Rep. Yvonne Hinson (D-Gainesville), who is not a member of the committee but was permitted to ask questions, said, “I’m trying to figure out at what point we got into this outrageous debt, because I remember when we had a AAA credit rating.” Cunningham said that entering into the biomass PPA and then buying out the PPA roughly doubled the debt of the utility. Hinson continued, “Why would we move into a similar Power Purchase Agreement with redacted clauses, why would we do that?”

Cunningham said that not all PPAs are bad, that the agreement shifts risk to Origis, and that the cost of the solar power would be lower than GRU’s average cost of power. 

“We are in crisis… GRU’s been used as the piggy bank.” – Jo Beaty

During public comment, Jo Beaty said the “elephant in the room really is the general government budget.” She said citizens consistently call for cutting the budget so the GFT can be cut: “Our foundation is crumbling, and they’re in there hanging drapes and chandeliers. We are in crisis… GRU’s been used as the piggy bank.” She said commissioners do not welcome citizens who come to meetings regularly and consistently give the same advice.

“Our eyes are on it now. We can’t say we forgot, we can’t say we don’t know what it is, and a lot of these numbers don’t make sense.” – Sen. Jason Pizzo

Pizzo said the members of the committee would make themselves available to citizens and said he wanted Gainesville residents to know that “Our eyes are on it now. We can’t say we forgot, we can’t say we don’t know what it is, and a lot of these numbers don’t make sense.”

Angela Casteel read a statement from Nathan Skop, saying that the Gainesville City Commission has ignored citizens’ concerns: “As an illustrative example, when the state audit of the City of Gainesville was announced, it was condemned by the Gainesville City Commission. On November 13, 2019, Gainesville Mayor Lauren Poe told CBS4 that the state audit was a politically motivated request, calling it ‘a thinly veiled attempt to play politics with the residents of Gainesville,’ also saying that the audit was ‘a waste of time and taxpayer dollars.’ Poe said they ‘welcome the opportunity to put the claims to rest.’ The audit report was instrumental in exposing the material weaknesses, lack of internal financial controls, and lack of effective management oversight by elected officials.”

Casteel said that Skop has calculated that GRU residential electric rates are approximately $62 higher per 1000 kWh than FP&L. 

Faith Kerr pointed out that when bills are estimated, usage can be pushed into Tier 2 and billed at higher rates than if the correct amounts had been billed in each month. She said bills should be audited for everyone who has received an estimated bill. She added, “It’s literally like being in a relationship that’s toxic.”

Tyler Foerst said the City has a “large new staff not beholden to doing things the way they were, just because that’s how they were always done, and I have every confidence that they will bring the City into financial compliance.” He added, “GRU is sustainable because the GFT is being lowered systematically to address debt issues… The citizens of Gainesville have been absolutely clear, time and time again–they want GRU to remain a public entity.”

James Ingle said, “I feel like we’re going in the right direction; we realized we were in a hole, stopped digging, start getting things going, and I’m glad we’re taking these steps.”

After Brian O’Brien told the legislators that he was unable to get a copy of the final draft of the 2018 audited financial reports before the city commission voted to accept them, Pizzo asked Ward whether that was true, and Ward said it was “available at the commission level,” so Pizzo asked him the same question again. Ward said he thought he gave O’Brien his copy from the dais. Pizzo asked, “You still subscribe to the ten-day notice requirement before you put something on the agenda at the municipal level, right?” and Ward said, “We try to adhere to that, yes, sir.”

Following public comment, Perry said it’s understandable that the City wants to be NetZero, but he wanted to know how much it would cost and how much it would add to the debt. He did not receive an answer.

Legislators recommend large budget cuts, property tax increases

Senator Jason Brodeur (R-Lake Mary) said the City needs to have an “immediate conference” and stop transferring money from GRU. He said they needed to cut the general government budget by about 25% “and put all that money toward getting ourselves out of debt” and “look at raising taxes… You’re in a big hole, and you didn’t get here overnight.”

“Because what we haven’t really heard is how you get rid of this debt… And it’s not a plan for the future; it’s a plan for right now… You’ve got to get this solved today.” – Sen. Tracie Davis

Davis said, “I’m lost for words… I’m looking at this group here, but I’m also thinking about the communities in Gainesville that look like me, that cannot afford what you are talking about… It’s accountability, it’s transparency… I personally am having a hard time seeing you be able to be sustained for years to come if you don’t change now. Because what we haven’t really heard is how you get rid of this debt… And it’s not a plan for the future; it’s a plan for right now… You’ve got to get this solved today.”

Hinson said, “They don’t have a plan to pay down the debt, and they didn’t seem concerned about it. That bothers me.” She said the commission needs to take a hard look at their budget and possibly get rid of positions that haven’t been filled. She concluded, “You need to find this money now.”

Sen. Corey Simon  (R-Tallahassee) said, “This isn’t rocket science; it’s numbers. The more you operate in the dark… the less trust they have in government… You’ve got to at least start to have an honest dialogue with the folks and not turn off their microphones when they show up at your commission meetings and have people arrested, and all that other nonsense because we don’t like what they’re saying. There’s validity to what they’re saying… Currently your lack of transparency shows no confidence in what you’re doing. So I just urge you… let’s get it fixed. Let’s not kick the can down the road.”

“If it’s too expensive for you to be in the electric business, get out of it” – Sen. Jason Pizzo

Pizzo offered to take a look at the Solar PPA contract and suggested that GRU shed some assets they’re “not good at. You guys got your hands in too many things… If it’s too expensive for you to be in the electric business, get out of it… I think you guys took on too much responsibility.” Pizzo asked the City representatives to give him a concrete plan by July, and Ward said, “We absolutely will have a different plan to show the auditors when they come back, late summer.” 

“I certainly will support drastic changes, bold moves.” – Ward

Ward said that since they have to pass a budget by September 30, he would prefer to come back with a plan by October 1, but “Yes, we hear you… I believe we can have a plan to you for the next fiscal year, absolutely… We certainly intend to do things prior to that… I certainly will support drastic changes, bold moves.”

Caruso said, “I was hoping you would come here today with a plan for sustainability… We’re not hearing that.” Caruso said he was concerned about the 40% of GRU’s customer base that doesn’t get to vote for the city commission but generates profits that make up part of the City’s budget. “It’s taxation without representation… That’s how this whole United States thing started… I hope you have an emergency workshop to deal with this and get it to us long before October 1.”

“I’m telling you, go back and make those bold moves, or we will take action. What action? We will write letters to the governor, ask him to remove you from office and put people in that will take the bold actions to save GRU, to save the utility, to ultimately save the City.” – Rep. Caruso

Caruso said that as a CPA, he has worked with companies that are in financial trouble, and in his experience, “If they deny the issue, they totally fail… So if you’re in denial, GRU’s done. If those corporations would only accept marginal corrections, they didn’t have a chance. They were out of business in months. Those corporations that took bold moves, it caused pain, it’s things you don’t want to do, but you’ve got to figure out how to survive here… I’m telling you, go back and make those bold moves, or we will take action. What action? We will write letters to the governor, ask him to remove you from office and put people in that will take the bold actions to save GRU, to save the utility, to ultimately save the City.”

Caruso said he might attend the budget workshop, “and if I feel like it’s not being appropriately addressed, I want to look at the appropriations, your City’s request for state funds, because I don’t feel like the money that you’re collecting from your taxpayers is being spent wisely. That’s how critical your situation is.”

Following the meeting, Rep. Chuck Clemons told Alachua Chronicle, “The Auditor General’s report was an indictment of the decades-long mismanagement and malfeasance on the part of Gainesville officials. The shock and dismay is bipartisan – the evidence is clear that it has been one false promise after another which has led to the reckless and unsustainable debt incurred by the city and GRU. Today’s testimony by Gainesville officials makes it highly apparent that they are unwilling to face the realities necessary to avert an even greater catastrophe.”

Perry told us, “It’s completely unacceptable for the City to approve another PPA that is not transparent to the public, given what happened with the biomass plant. Residents of Gainesville should be speaking up to their elected officials in an effort to stop the signing of the contract amendment that was approved last week by the city commission.”