Letter: City needs to cut spending to avoid rate increases

As evidenced by the five (5) GRU debt downgrades since 2012, it is abundantly clear that the approach being taken by the Mayor and Gainesville City Commission with respect to the financial management of GRU is not working.  As stated herein, I believe that a different approach is both necessary and required to prevent further financial harm to the utility and GRU customers.

The most recent two-notch debt downgrade could have been avoided if the Mayor and Gainesville City Commission had taken immediate action to avoid the debt downgrade (before it happened) by making a substantial reduction to the General Fund Transfer (GFT) when they clearly had multiple opportunities to do so but chose NOT to do so.

As stated in the credit rating action, S&P was less than enamored with the $2 million reduction to the GFT put forth by Commissioner Harvey Ward (Mayor Poe was the last to vote, entering the fourth and thus swing vote on the motion).

As you may recall, I told the Mayor and the City Commission that the motion made by Commissioner Ward was not a solution and would result in another downgrade, which they needed to OWN as a result of being oblivious to the reality of the data being presented by GRU management.

As we now know, the latest GRU debt downgrade will cost GRU customers another $32 million dollars in additional borrowing costs. This $32 million is on top of the $27.6 million of additional borrowing costs resulting from the prior GRU debt downgrades.

The root cause of the current two-notch debt downgrade is the ongoing financial mismanagement of GRU at the hands of the Mayor and Gainesville City Commission, the unnecessary expansion of City government, and the ongoing spending addiction of the Mayor and Gainesville City Commission, who continue spending more and more money that they don’t have at every single meeting.

The financial harm being caused to GRU customers is undeniable but is conveniently being ignored by the Mayor and Gainesville City Commission.

With Fitch and Moody’s downgrades hanging in the balance, it is imperative that the Mayor and Gainesville City Commission consider different approaches and alternatives to the “status quo” in order to protect the financial health of the utility while avoiding the imposition of regressive utility rate increases on GRU customers.

As presented during public comment at the last City Commission meeting, the slide below provides a fiscally responsible alternative to address the problem created by the Mayor and Gainesville City Commission. The proposed alternative reduces the GFT by $12 million (as suggested by GRU), avoids a 7% GRU electric increase in 2022, and defers the Advanced Metering Infrastructure project (an $81 million capital project with terrible economics, which doesn’t break even for 21 years) to avoid another debt issuance that will further increase debt and undoubtedly result in debt downgrades #6 (Fitch) and #7 (Moody’s) within a span of less than ten years.

While I do not advocate raising property taxes, the current situation is a problem of the City Commission’s own making. Given a choice of evils, a property tax increase is far less regressive than imposing another utility rate increase that GRU customers cannot afford and that disproportionately impacts low income households, hard-working Gainesville families, and local businesses.

In summary, GRU’s current leverage and $3+ billion projected future debt is unsustainable. As evidenced by the five (5) GRU debt downgrades since 2012, it is abundantly clear that the approach being taken by the Mayor and Gainesville City Commission with respect to the financial management of GRU is not working. With Fitch and Moody’s downgrades hanging in the balance, it is imperative that the Mayor and Gainesville City Commission consider different alternatives in order to protect the financial health of utility while avoiding the imposition of regressive utility rate increases on GRU customers.

Based upon the above, I firmly believe that the Mayor and City Commission should reverse the prior direction given to GRU management and City staff and actually take the time to have an intelligent discussion of the solution proposed on the above slide that provides a more equitable solution for addressing the problem.

In this regard, I would welcome the opportunity to have this conversation and a constructive dialogue as an agenda item during a City Commission meeting.

The $60 million in financial harm resulting from five (5) GRU debt downgrades since 2012 is more than sufficient justification to afford me more than three (3) minutes in a forum to help you avoid yet another GRU debt downgrade.

GRU customers cannot allow you to continue to destroy what little is left of what once was the City’s most valuable asset.

This reasonable request provides the City Commission with the opportunity to turn the page and show Gainesville that you are willing to start listening to citizens who are trying to provide you with prudent solutions to address the financial challenges facing GRU and City government.
 
In closing, I hope that someone on the Gainesville City Commission will have the wisdom to honor this reasonable request.  You have everything to gain and nothing to lose by granting the request to have an intelligent discussion and constructive dialogue relating to the common sense alternative presented in the attached slide.

Sincerely,
Nathan A. Skop, Gainesville