Gainesville City Commission cuts transfer from GRU to City, requiring budget cuts of about $19 million

Commissioner Bryan Eastman asks about other fees that could be used to increase the transfer


GAINESVILLE, Fla. – Yesterday the Gainesville City Commission, sitting as the General Policy Committee, voted unanimously to adopt a formula for transferring funds from Gainesville Regional Utilities (GRU) to General Government that promises to cut the debt-to-capitalization rate for GRU from 87% to 70% over 10 years and will require cuts of about $19 million to the FY24 General Government budget.

The presentation from GRU stated that the debt-to-capitalization rate is projected to be 82.1% in 2033 if no changes are made, so the 70% rate was described as a “stretch goal.” The original projection was based on previous votes from the City Commission that reduced the General Fund Transfer by $2 million per year through 2027 and raised electric rates by 3% per year and wastewater rates by 5% per year through 2027. Those measures were projected to reduce the debt by $91 million, but an additional reduction of $224 million, for a total of $315 million, will be required to get to the 70% rate. 

Formula uses proxies for property tax and electric franchise fee

GRU proposed a formula for calculating the transfer, now referred to as the Government Services Contribution (GSC), that would use an estimate for the assessed values of GRU properties included in the most recent Property Insurance Policy to calculate a proxy for property tax and use the electric system revenues to calculate a proxy for an electric franchise fee. 

Under the formula, the GSC would be $15.3 million for Fiscal Year 2024 and would go up to $16.78 million in FY 2025 before starting to drop. It would be at $10.78 million per year from 2027 to 2033. These reductions are projected to provide about $120 million to pay down the debt, while “modest base rate increases” will produce $76 million and GRU expense reductions are projected to produce $28 million. 

The plan has “significant assumptions,” including an assumption that GRU will not borrow more than the capital budget submitted as part of the FY24 budget, that future capital improvement plans will be funded on a 50% debt/50% equity basis, that no funds will be borrowed in response to the Integrated Resource Plan, that there will be no plant decommissioning costs, and that base rates “will continue as approved by ordinance.” The presentation did not address the expiration of the rate increases in 2027 or the amounts of the “modest base rate increases.”

Transfer cuts would leave “a big hole in the general government budget”

During commission discussion, Commissioner Casey Willits said he’d always thought of the GSC as a “dividend – what would be coming back if it was a private company,” although companies often invest their profits back into capital expenses or debt reduction instead of distributing them to shareholders. He said some people argue that the City could get more in property taxes and franchise fees from an investor-owned utility, so he is worried that “frankly, a GRU Authority board that is not appointed by City people up here, that may be the only argument they see” if the City Commission makes the transfer so low that the Authority could think that selling the electric utility could produce more revenue for the City.

GRU General Manager Tony Cunningham said the transfer “has always been represented as a proxy for property tax, franchise fees, and return to shareholders. In this instance, we looked at that, but there are instances where [a company], rather than giving a dividend, will buy back their own stock. The cost reductions here are going back into buying GRU debt; we looked at that as essentially the replacement piece for a ‘shareholder dividend’ – we’re buying back our own stock, we’re reducing our debt… We felt like that was an appropriate substitution.”

“It may not be all that everyone wants, but this is, I think, a very serious commitment that we’re taking.” – Commissioner Cynthia Chestnut

Commissioner Cynthia Chestnut said, “The JLAC asked for bold moves; I think we’re taking a bold move by paying down our debt by hundreds of millions of dollars over 10 years, I think, shows our commitment and our sincerity in trying to address the debt stabilization. It may not be all that everyone wants, but this is, I think, a very serious commitment that we’re taking.”

“We have to do something far more drastic [than the previous $2 million per year reduction in the transfer], and this is that. It cuts what had been intended as a general fund transfer by more than half for the coming year. That’s a big hole in the general government budget. That is actual services that we won’t be able to provide, probably. That is actual millage rate that people who live inside the city limits will be asked, probably, to shoulder.” – Mayor Harvey Ward

Mayor Harvey Ward said, “We have to do something far more drastic [than the previous $2 million per year reduction in the transfer], and this is that. It cuts what had been intended as a general fund transfer by more than half for the coming year. That’s a big hole in the general government budget. That is actual services that we won’t be able to provide, probably. That is actual millage rate that people who live inside the city limits will be asked, probably, to shoulder. So this is a very real thing; it is something that is going to have consequences for many years, but the positive consequence is that we will have a utility that will be better off financially, and that means to you… that at some point in the future, that could increase our bond rating, and that would mean we pay less in interest, which means you would pay less in rates and fees. That’s the idea behind this, to eventually create a utility that at some point down the road can charge you less, as a user, for the services they offer.”

Ward suggested adding a “trigger” when GRU reaches the 70% debt rate, whenever that happens, “to reappraise the formula.”

Commissioner Bryan Eastman said, “At least in recent history, this is by far the largest austerity measure that we’ve ever taken, as a City… This shouldn’t be downplayed at all.” He also suggested adding a “minimal” franchise fee on water and adjusting the electric side to the state average: “I think we are leaving a lot on the table in terms of not taxing any of those 4,000 acres of land that we’re talking about… and a number of other things we’re seemingly leaving out of this… Give us something that is a little fairer, while still being incredibly bold.”

Chestnut said she didn’t want to delay passing this resolution, but she also wanted to ask GRU to bring back some “figures for water for us… and we would still be able to adjust the resolution.”

Eastman’s initial motion did not attract enough support

Eastman made a motion to approve the recommended GSC formula with an added option brought back in an upcoming meeting with industry averages for franchise fees for electric, water, wastewater, natural gas, and telecommunications, to approve a 10-year period to reach the 70% capitalization rate, and to re-review the formula upon reaching the 70% capitalization rate, based on the methodology of any of the three bond ratings agencies. Chestnut seconded the motion.

Willits said he didn’t support the motion because both GRU and the City need the “finality” of establishing the transfer to develop their budgets: “I do fear that this motion is not going to provide enough finality for our entire operation to hit the goals” from “a whole new stakeholder, the legislature, which we don’t normally have.” He said he would probably support the motion if the legislature were not part of the discussion “because it makes a lot of sense, but we have to give them something this year,” and the City doesn’t currently know whether 70% is below what the legislature expects or goes beyond it.”

Commissioner Reina Saco also did not support the motion; she said that staff had worked hard to agree on a formula “that they can both work with,” and she thought the commission should be voting on the staff recommendation.

Chestnut asked Eastman if he would withdraw his motion and substitute the staff recommendation, which was to adopt the recommended GSC formula for a ten-year period to reach the 70% target capitalization rate. Eastman agreed but said he wanted to add the re-review when the debt rate reaches 70%.

However, Eastman said he wanted to make the point that “we are not taxing land at all, we have a zero percent franchise fee on telecommunications, a zero percent franchise fee on water, a zero percent franchise fee on wastewater, and we’re taking zero percent dividend out of GRU. The formula can’t have zeros within them, but I do want to add it on the record, what exactly we are leaving on the table, which is a lot of what would be given to us under any other formulation.” In the end, he agreed to substitute the staff recommendation for his motion. Chestnut accepted the substitute motion. The motion was further clarified to state that it was a request for staff to bring back a resolution that implemented the staff recommendation.

Slide from the April 13 presentation, showing the proxy for property tax included in the GSC formula

“I thought everyone out there should recognize that we cannot make up $19 million in millage increases alone, which we shouldn’t do because that’s going to really hurt–this is going to mean very severe cuts to things that we care deeply about within our community, and this is a hard day. It should weigh heavily on everyone.” – Commissioner Bryan Eastman

Eastman still had more to say, though: “I just want to keep reiterating–I thought when we made our charter officers permanent, I said that was the biggest decision we will have made as a commission, and here I am, having been here three months now–this is by far the biggest decision we will make. I mean, this is a $19 million cut to our government that will live beyond anything that we do, and I don’t like that we are leaving such a significant amount of what our residents should be receiving, as owners of this utility, on the table, but I understand sort of where we are and that we need to be moving quickly, so I guess I will support my own motion that I made, but I thought everyone out there should recognize that we cannot make up $19 million in millage increases alone, which we shouldn’t do because that’s going to really hurt–this is going to mean very severe cuts to things that we care deeply about within our community, and this is a hard day. It should weigh heavily on everyone.”

In response to a question from Commissioner Desmon Duncan-Walker, Cunningham said that he had given JLAC members a high-level overview of the plan, saying they would reduce GRU’s debt by “hundreds of millions of dollars” over the next 10 years, “and got neutral to favorable responses from JLAC members when we did that.” He pointed out that there was no formal vote because these were one-on-one meetings. 

The plan can only consider “the known knowns”

In closing, Ward said that $315 million is what it will take to get to the 70% capitalization rate “with the known knowns–with what we know today… Any changes we make in between… then it has to be made up from one side of the ledger or the other… We would not be having [this conversation]… if we had not been directly tasked by the Joint Legislative Audit Committee with finding a formula. Period. That is a reality… The chairs directed that this be done.”

“This is going to be hard to figure out; this is not the last meeting that is going to be painful. We are going to have a series of workshops and votes for both the utility budget and the general government budget, and they’re going to be uncomfortable, and they’re going to be complicated and complex” – Mayor Harvey Ward

Ward also pointed out that this is separate from Clemons’ proposed local bill that would set up a governor-appointed governing authority for GRU: “This is bold. This is a big deal. This is going to be hard to figure out; this is not the last meeting that is going to be painful. We are going to have a series of workshops and votes for both the utility budget and the general government budget, and they’re going to be uncomfortable, and they’re going to be complicated and complex, and I encourage the community to reach out to us and continue to ask questions. It’s also OK for you to ask questions of the Joint Legislative Audit Committee. This is the result of direction–and I want that to be exceptionally clear, we are responding to them as requested… You are our bosses; you are their bosses.”

The motion passed unanimously. 

Eastman made another motion to re-review the formula when the 70% capitalization rate is reached, based on the methodologies of any of the three bond rating agencies. Willits seconded the motion. That motion also passed unanimously.

Chestnut asked the mayor to communicate the decision to JLAC, and Ward said he would do that by the next morning.

Ward previously promised a transfer under $10 million

At a legislative delegation hearing on March 17, Ward told the delegation that he expected the transfer to be no more than one-third “of what it has been in past years. I might not even vote for that much.” The transfer was about $35 million this year, so one-third would be under $12 million. Ward also told the delegation that his intent was for the transfer for FY24 to be “probably south of $10 million… Those are the kind of bold moves that I am interested in. I can’t speak for the other six members of the City Commission… I’m willing to entertain zero.” 

  • Here is my concern they are taking 15 million what happens if the profit from GRU is only 10 million this year that means they have again taken 5 million more than GRU made by doing that GRU has no cash reserves if they truly want to pay off the debt then only transfer 25% of the profits every year what ever the number is
    Ward had stated to the committee that he was willing to transfer less than 10 million I guess he forgot about that
    Still hope the state takes over

    • The formula has specific language limiting the transfer so that it cannot exceed net income. It also specifies that any additional net revenue is to be dedicated to either additional debt defeasance or to provide equity in future capital projects. The transfer itself has been a component of the base rate for some time. I find it interesting that no one ever considers that GRU’s internal cost structure might also be a contributing factor.

  • The commissioners don’t understand the difference between a luxury and a necessity.

  • “This is going to be hard to figure out.” No it’s not. It’s always a bummer when the bill comes due for having lived on someone else’s loaned money.

  • They’re telling you that there is another way they will be shoving it up your ass. They don’t care if you want it, don’t care if you asked for it, don’t care if you mind or not…just take take it no matter how painful it is. This is their own doing but the residents have to suffer for it.
    You idiotic voters, you know who you are, what you are and what you voted for. Follow them over the precipice and drag everyone else with you. That’s the Democrat’s way of doing things.

    • That’s kinda like our Governor, who cares more about getting his way than the people of Florida.

      • Yeah, that’s exactly why he won with a landslide victory. Your comment also explains why Florida is deep red and no longer a battleground state. Wake up and smell the coffee Bill. Your progressive ideology needs to disappear into the void.

  • Typical dividends paid annually by a private utility company that actually makes money would be around 3 percent of the stock price, maybe 3.5 percent. What is GRU’s valuation as a company, looking at its balance sheet? It sounds like it’s upside-down, like someone who owes more on their junker car than it is worth. GRU stock wouldn’t be worth a whole lot, if there was stock. It would probably make Lyft stock look a great investment.

    • Dude, a house with a mortgage – GRU bought the bio-mass plant – is not the same as the 100 large you borrowed from the mafia.

      • The house, in this case, is worth about $5 million on the open market. Look up ‘biomass plants for sale’ and you will see. At most, it’s worth what a comparable gas-powered plant would cost. I suggest you read or listen to Rich Dad, Poor Dad to learn the differences between assets and liabilities. I have studied accounting at UF, for what it’s worth.

      • Moreover, the useful life of a biomass plant is only 20 to 30 years. Let that sink in.

        • Here’s one for sale that is 34 years old.


  • State must step in and fix it. The city doesn’t have the power to fix the root problems.

    • Translation:

      “Please Gov DeSantis, more big government, We cant get our way any other way!”

      • And yet the teeny weenie City of Gainesville in a matter of days discovered a way to trim 15 million from their budget. Overpaid or too much government?
        Maybe you’re on their payroll since you’ve been doing construction for what 30+ years locally? Seems you may be one of the major beneficiaries of their continued reign of power. They do work out those “deals” for developers and construction types.

        • Not a developer and I have never been paid any where, any time, by a government for construction work, or anything else.

          • I stand partially corrected…”Construction” type then.
            Still, the over inflated prices are caused by government interference. Part of that government interference, in this county in particular, being the amount of greenspace mandated amongst other recently mandated “codes.” Job security I guess.

            Still, as much as you toot their flutes, there could be an argument you are on their payroll.

        • only because the state started to sniff around their finances and start giving them ultimatums.

  • Harvey said, “So this is a very real thing; it is something that is going to have consequences for many years, but the positive consequence is that we will have a utility that will be better off financially, and that means to you.”
    The only positive thing that will happen for GRU is if he and the rest of the clown commission is either arrested for acts of malfeasance that may be discovered or they all have heart attacks or suffocate behind the masks some still wear.
    Actually, that would be a positive for the entire city, not just GRU.

    • Gee, I can’t imagine why you can’t get candidates who agree with you elected here.

      • True. Stupid does as stupid tells them to.
        Guess that explains how local leadership keeps getting elected.

  • Ward: “We are going to have a series of workshops and votes for both the utility budget and the general government budget, and they’re going to be uncomfortable…”

    Welcome to the comfort zone of the GRU utility customers.

    How many workshops and votes does it take to do math using only black and red ink as opposed to that invisible ink the city has been using for years?

    • Nice catch! Wonder how many objections to the sure to be forthcoming tax hikes they’ll listen to?

      Liberal loonies, they’ll never learn because stupid can’t be fixed.

  • Poe, Arreola and Hayes-Santos gave drunk sailors a bad rap.

    Now Poe wants more money for his Sister Cities gig.

    • We can’t afford any more Sister City, New American City, etc. nonsense. All of those programs should be defunded and stopped. That’s rich that “professor” Poe is now trying to pass himself off as some sort of Gainesville brand ambassador to the international community (I’m sketchy on the details). Is that why he had to go to Israel?

  • The sooner GRU is placed in outside hands the better. City commission will ruin it for everyone.

  • Last I heard ,Commissioners your target number is ZERO. Nada. Zilch. You get an F
    Exit stage right.Babuy

  • Here’s how they’re going to play it…..First they will cut spending and reduce services and staff. Then they will blame it on the republicans when people get upset by the reduction in services and try to get some ‘special’ funding county wide tax referendum passed so they can continue their fiscally irresponsible ways. Fix the damn roads!!!

    • They’ve already raised the sales tax up to the maximum allowed by state law.

      Only lever left to pull is property tax. That’s not going to go over well with the citizens.

      City is going to go bankrupt. There is nothing that can be done to stop it. Just a question of when.

  • It’s the obama solution. Make sure the fix takes place after you’ve left office.

  • Hopefully the JLAC will hold Ward and Company to the ‘south of $10 million’ transfer he said he would support. Rather than the ‘north of $20 million’ this plan anticipates.

    Almost half of the plan comes from rate increases and squeezing GRU operations. Been there, done that. We already have some of the highest electric rates in the State. Does anyone have the impression that GRU hasn’t already cut expenses and delayed maintenance to fund the spendthrift city? And 40% of both those lines comes out of the pockets of non-city rate payers. So that part of the plan gets an ‘F’.

    The rest of the discussion was just bureacratic smoke screen attempting to justify weaseling out of the ‘south of $10 million’.

    Have they even whispered about $1 of specific expense they will cut?

  • Gainesville Sun earlier this week:

    “..GRU maintains a top-tier credit grade from all three major rating agencies, higher than Florida Power and Light and Duke Energy….Clemons has said publicly that the city is on the brink of bankruptcy, though there is no indication that is it.

    …While Clemons has stated that all members of the board must be Alachua County residents and GRU customers, the filed five-page bill doesn’t explicitly state that…

    …Nothing in the bill specifically states that it will help reduce electric bills for GRU customers.

    In February, the Florida Municipal Electric Association released a bill comparison report that shows Duke Energy having higher bills than GRU. It also shows that GRU was only about $2 higher than FP& L.

    Since then, however, the city lowered its fuel charge by about $15 a month, placing it closer to the investorowned utility average and lower than several other municipal utilities…

    …City officials, including the previous mayor, Lauren Poe, have said major utility providers like Florida Power and Light and Duke Energy have been increasingly interested in GRU’s territory and believe they are behind the constant push to remove the commission’s control.

    While lawmakers − some of whom have accepted tens of thousands in campaign donations from FP& L and Duke − have stayed mum on the subject, the new board would have the ability to sell off any utility asset…

    …Among the findings was the city’s overall debt, $1.2 billion of which falls on the utility side.

    About half of that comes from the purchase of the biomass facility, a decision JLAC members also criticized but one that saved taxpayers nearly $900 million over three decades. …

    GRU doesn’t supply the University of Florida with all of its power, as Tallahassee does with Florida State University. Furthermore, a majority of property in the city is also off the tax rolls…”

    • If the city commission hadn’t been in charge of GRU, the city never would have bought the biomess facility in the first place. Which would have “saved” like $2 billion. Just looking at very recent examples of their ineptness, they can’t manage to get an open container law passed or the police dog situation resolved. Saco wants to work only 20 hours a week. How will she have time to run GRU only working 20 hours a week? They can’t even get the basic stuff done. And they were all ready to sign us up for a solar energy con game. I rest my case.

      • Of course, they never should have canceled the open container law in the first place. That was the first big mistake in good judgment. The same for canceling the police dog program. They shouldn’t be wasting time now to fix things they shouldn’t have intentionally broken. It would be nice if we had police helicopters again, since we are having 3 or 4 downtown (or near downtown) shootings every week. But they’re too busy arguing about how some bars might lose a little bit of money or how dogs were used to catch runaway slaves 200 years ago. Those noisy police helicopters will just have to wait, even if there is a drive-by shooting every single night of the week. They lack good judgment. I wish that wasn’t the case, but it is.

        This also goes for the single-family-neighborhood zoning BS – bad judgment. Poe knew almost no one wanted it and that it would be overturned, but he wanted to put on a show for his commie turd friends before he left, and that’s all that mattered. Not good judgment.

        • The City Commission majority that passed the zoning change is out. That’s how it works in a democracy, and you should try to keep up if you’re going to post every day slamming the city.

          In a democracy, you don’t call the State of the feds to fix local problems. The voters are the ones ultimately responsible and will take that responsibility one way or the other, and it’s up to them to decide how. What is wrong with you guys?

          • Our city commission has been and is defective in terms of having good judgment. Not every family winds up on the Dr. Phil show with a child who tries to burn down the house, but some do. That’s us. They have no business running GRU.

          • If what you allege is correct than voters will remove them or pay the consequences, the same as state voters will for reelecting Ron Napoleon. Should I instead be advocating for him to be removed by the feds?

            What is it that you don’t understand about democracy and those ultimately responsible for it, citizens?

    • Just like seeing it on the internet, if the Gainesville Sun says it, it must be true.

      • You’re trying to bring Tally here because you can’t win local elections. Advocate for change at the ballot box all you want – that’s what I do and that’s the American way – but cut the dictator crap.

        • “Cut the dictator crap” probably describes how a lot of folks felt about the way the commission treated people during the entire time that Poe was mayor for two terms. It’s only better now because they literally know the state is watching the meetings. If we are to have a dictator, I am glad it is a Harvard Law grad and former military US Marine officer (instead of a paranoid woke Antifa-supporting revolutionary communist with a complete lack of common sense and delusions of grandeur). Interesting bit of trivia: It has been 100 years since the Gainesville klansman mayor kidnapped and castrated the town Catholic priest – 1923 to 2023. That’s just another one of those “poor decisions” made by Gainesville leaders.

  • This action is all talk. No specifics as to how they will accomplish this. Wait for an INCREASE in taxes to offset this reduction.

  • They claim they want to cut expenses, yet they are considering on April 20th, a contract for Solar power, the details of which are not widely distributed. In fact Attorney Childers had to SUE them to get the contract unredacted and that just took place this week that they agreed to release the contract. Anyone know where to find this to review?

  • Our city commission’s grasp of public finance, costs and budgeting appears limited and that is scary and expensive. For example, so-called dividends (A.k.a. transfers) usually come from actual earned revenue/profits over costs (ebida or ebidta ) not from siphoning funds away from financially struggling operations that are suffering from marginally funded, massive debt service that flattened any fantasy of an (un) earned dividend ( transfer).

    When elected commissioners vote for a budget that fails to recog ize that it is not supportable by utility income, any so-called dividend or transfer from utility is not in the 10s or 5s of millions of dollars, it is actually a negative number. Every unearned dollar transferred by vote of the commission majority simply increses the losses and costs of the operation. Decreasing the transfer appears politically attractive and it is, but it still increases the negative return and deepens the budget decrement and declining city financial condition.

    There are truly effective ways to deal with Gainesville government’s self-inflicted financial problems, by reducing spending, reducing excess management overhead that was sharply expanded over the last years, reducing all city operating costs, starting with honest competative biding for services and city assets rather than privately arranged deals outside of competitive bids.

    Eliminating all travel and allowances for management and commission will not affect operaitons. The city funds a very expensive IT operation that can provide all day conferences anywhere, and check their budget for some claw back. Reduce the number of non-emergency use of and purchase city vehicles. Fire and emergency have their own funding operation paid for independently by direct asessments. Check the cost of all consultants and cut them off.

    Cities frequently cut their budgets by substantial amounts to deal with reality when costs exceed income as did we so many times in the past without noticeably affecting pubic services. And please dont engage in the usual threats that by cutting spending important services will not be provided, just reduce what you spend in the suites to fund the work in streets.

    This may be useful: https://corporatefinanceinstitute.com/resources/valuation/ebitda-margin/

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