GRU Audit Request
On Oct. 24, Sen. Keith Perry and Rep. Chuck Clemons submitted a request to the state’s Joint Legislative Auditing Committee to direct the Auditor General to conduct “a comprehensive, in-depth audit of the operational practices and managerial oversight of the City of Gainesville.”
This request includes items related to Gainesville Regional Utilities that GRU management finds misleading and without substance or merit. We address each of these items below.
Audit Request Claim: “… Our constituents are concerned with Gainesville Regional Utility’s lack of financial transparency and stability.”
Reality: GRU has proactively alerted the Gainesville City Commission about the transformation of the utility industry, as well as kept them apprised of GRU's financial and operational status. In 2018, GRU held 18 public meetings with the Utility Advisory Board (UAB) and the commission regarding its proposed FY2019 budget. Coming out of the FY2019 budget process, GRU initiated a FY2020 budget process that included:
- The issuance of two white papers, "GRU at a Crossroads" and "GRU by the Numbers" on Feb. 7 and Feb. 15, 2019, respectively, in which General Manager Ed Bielarski explored in detail the elements that led to GRU's current financial state, as well as a detailed list of cost-saving measures. As part of that process, the general manager presented a Shortfall Scorecard that projected cash shortfalls and how various cost-saving measures would impact those shortfalls. This includes the 2019 Series A, B and C bond issuances referenced in Sen. Perry and Rep. Clemens’ audit request.
- In 2019, during the FY2020 budget process, GRU held a series of 17 public budget meetings with the UAB and City Commission, in which the utility used the aforementioned Shortfall Scorecard to explore budget options.
Audit Request Claim: “… Increasingly frequent restructuring of bonds and interest rate swaps (including a vaguely defined $1.55 billion restructuring approved by the City Commission October 17), and a lack of financial transparency collectively warrant an audit by the State of Florida.”
Reality: The misunderstanding of the bond documents showing $1.55 billion is reflective of Bond Counsel’s need to reference the entirety of the bond issuances, from which specific transactions were authorized. It references the total value of GRU’s bond portfolio.
The Series D and E bonds referenced as part of the commission approval contained no new debt. GRU proposed refunding and/or restructuring existing debt. The D and E bonds were estimated to generate a reduction in total principal and interest costs of approximately $30 million, at the time of the approval.
GRU was proactive in working with its financial advisor and bond counsel to craft a resolution which would allow the utility to execute a series of re-financings and/or restructurings, based on a strict set of parameters, subject to the general manager's final approval. GRU requested this authority because the market can change rapidly and if the utility were to wait to go before the City Commission each time a market condition presented itself, that market opportunity likely would be lost. Based on testimony before the City Commission, GRU's financial advisor, Chris Lover of financial consultant Public Financial Management (PFM), indicated that many governments are utilizing the same practice to better take advantage of market opportunities.
Audit Request Claim: “In 2019, the Gainesville City Commission identified a ‘budget crisis,’ and authorized GRU to restructure older bonds and issue newer bonds, which raised Gainesville's 30-year debt service from $1.6 billion to $1.7 billion.
Reality: The Gainesville City Commission never recognized GRU’s budget issues as a budget crisis. In fact, many commissioners spoke multiple times about the ability to solve any budget issues with the levers and options which GRU had identified.
Aside from improperly labeling “debt” as “debt service” in the claim, GRU's debt has fallen from $1.948 billion as of Oct. 1, 2015, to $1.665 billion as of Oct. 1, 2019, a $283 million (14.5 percent) reduction. That reduction was achieved through the buyout of the biomass power purchase agreement, along with a variety of reductions in annual utility operating costs.
Audit Request Claim: "The financial consequences of these decisions [assuming Series A, B, C, D and E] have forced GRU to repeatedly increase rates and have frozen the level of GRU’s cash transfers to the city’s general fund, resulting in FY2020 property tax millage rate increases of more than 15 percent.”
Reality:
- GRU's overall utility rates are lower today than they were in FY2015.
- In "GRU at a Crossroads," the general manager actually recommends freezing the general fund transfer.
- The 2019 Series A, B and C bond issuances were carried out for two reasons:
o To generate money for new construction projects to support the reliability of GRU’s utility services.
o To restructure a portion of GRU's existing debt, with the goal of creating near-term debt service savings to provide cash flow that would:
Reduce rate pressure
Stabilize GRU’s cash reserve levels, which had been declining over several years due to no or lower-than-requested utility rate increases
Provide cash for technological investments in the utility
Audit Request Claim: “We have also received complaints about GRU compounding the Local Utility Tax with the State Gross Receipts Tax.”
Reality: On July 24, 2015, the County Court of the Eighth Judicial Circuit in Alachua County heard a case regarding this issue and “denied Refund and Declaratory Judgement” to the plaintiff, a frequent and vocal critic of the city and GRU.
Audit Request Claim: "… GRU spent $10,000 in the midst of a ‘budget crisis’ on a guest speaker for an annual fundraiser that is meant to benefit academic scholarships for Gainesville students."
Reality: GRU's Brighter Tomorrow Scholarship Banquet provides engineering scholarships to local high school students attending UF or Santa Fe College. These scholarships benefit students from under-represented populations.
Each year, GRU brings in a speaker whose message not only resonates with these students but aspires to increase event attendance, so the utility can raise more money and provide more scholarships. GRU’s budget for hiring a speaker is $10,000. This year’s speaker was former Gainesville High student and Tallahassee Mayor Andrew Gillum.
Audit Request Claim: “The hiring of guest speaker Andrew Gillum garnered media scrutiny due to his endorsement of Mayor Lauren Poe mere months before the fundraiser.”
Reality: Mayor Lauren Poe takes no part in the selection of GRU’s keynote speaker for the Brighter Tomorrow Scholarship Banquet. The keynote speaker is chosen by GRU’s Community and Government Relations Officer and approved by the general manager.
Audit Request Claim: “… Following the outcry, the funds were donated to a charity of the City Commission and GRU's choosing …”
Reality: Andrew Gillum never received payment for this event. The $10,000 he would have received went to the Alachua County Education Foundation to fund more scholarships.
Audit Request Claim: “… However, there was no follow-up to determine if these funds were distributed correctly.”
Reality: GRU has the appropriate vouchers, invoices and checks that reflect the contemporaneous recording of scholarship funding within its accounting records, as is the case with all GRU transactions.
Supporting Documents
Audit Opinions
GRU is proud to have had clean and unmodified audit opinions from our external financial statement auditors. We complete the audit process to the absolute best of our ability and have staff that take great pride in what they do. These are the positive audit results for the last five years at the Utility.
In simple terms, the audit opinion was the highest opinion an outside auditor can offer an organization.
2019 ABC Bonds
Cash levels were scheduled to decrease significantly in the next several years without substantial rate increases as the utility was not earning enough funds to pay the general fund transfer to the city. To provide a financial buffer, the utility, with the approval of the City Commission, entered into the 2019 transaction to provide for capital infrastructure cash needs as well as reduce near-term debt service payments. These bonds:
- Generated new money for construction projects.
- Restructured a portion of GRU’s outstanding debt to provide near-term debt savings that created cash to:
o Reduce rate pressure.
o Stabilize GRU cash reserve levels which had been declining over several years and enable GRU to reach cash levels as required under our adopted Cash Balance policy.
o Provide cash for technological investments in the utility.
o Provide cash to accelerate payment of principal on outstanding debt.
- 2019 AB Series Transaction
- 2019 C Series Transaction
2019 DE Bonds
The 2019 D&E bond issuance is designed to reduce interest costs. On a debt portfolio of $1.6 billion, the savings is small, but GRU is doing everything possible to reduce costs when possible. The D&E bond issuance:
- Contained no new debt – only refundings and restructurings were included.
- Generated (based on market conditions at the time the item was presented to the City Commission) a reduction in total principal and interest costs on GRU’s debt portfolio of approximately $30M.
- 2020 Proposed Transaction
GRU has a favorable interest rate market and like a homeowner with a high-rate mortgage, we will explore possible lower-rate debt and interest payments in a refinancing.