City Cites Debt Worries in Utility Fight

Article reposted with permission from The News Service of Florida.

The city of Gainesville has launched a wide-ranging constitutional challenge to a new state law that overhauled control of the region’s municipal utility, including saying it could violate bond agreements.

The lawsuit, filed Friday in Leon County circuit court, seeks to block a law that created the Gainesville Regional Utilities Authority to direct the utility system, known as Gainesville Regional Utilities. While the law says the authority will “operate as a unit of city government,” its board will be appointed by Gov. Ron DeSantis and will not be under the city commission.

Among the major arguments in the lawsuit is that the changes could affect $1.8 billion in bonds and other debt that the city has issued to pay for Gainesville Regional Utilities projects. Also, it said the law (HB 1645) could damage the city’s credit rating.

The lawsuit said that under the changes, “elected officials, otherwise constitutionally charged with running the city, are barred and prohibited by this state law from exerting any control over the electric system. Such does not comport with ownership and violates the bond covenants. As is typical, there is short-term debt that will need to be re-issued, but which presently cannot be.”

“In short, severing the control over revenues and the utility system generating those revenues, and leaving the city and its lenders without any rights bargained for and agreed upon, requires the city, under the terms of its bond ordinance, to challenge HB 1645 in good faith, which it clearly is doing,” the lawsuit also said.

The lawsuit named as defendants DeSantis, Attorney General Ashley Moody and Secretary of State Cord Byrd. It came a little more than two weeks after a non-profit group and Alachua County residents filed a federal-court challenge to the utility overhaul. The federal case, which includes arguments that the law will improperly restrict speech rights, is pending. It named the city, DeSantis, Moody and Byrd as defendants.

The overhaul emerged during this spring’s legislative session after Republican lawmakers repeatedly questioned transfers of money from municipal utilities to bolster city budgets. Those questions stemmed, at least in part, from many utility customers living outside the boundaries of the cities.

The House considered a bill that would have applied to municipal utilities throughout the state, but lawmakers ultimately passed the narrower measure focused on Gainesville. Rep. Chuck Clemons, a Newberry Republican who played a key role in the debate, is House speaker pro tempore, making him a top lieutenant of Speaker Paul Renner, R-Palm Coast.

Gainesville Regional Utilities provides electric, natural gas, telecommunications, water and sewer services, and its rates have been set by the city commission, according to the lawsuit.

The new law said the authority is being created for the “express purpose of managing, operating, controlling, and otherwise having broad authority with respect to the utilities owned by the city of Gainesville.” That includes authority to set rates, buy property and authorize issuing bonds.

DeSantis will appoint five board members, whose terms are slated to start Oct. 1. The board will appoint a CEO or general manager for the utility.

In targeting potential effects on bonds and other debt, the lawsuit alleges a violation of part of the Florida Constitution that bars impairment of contracts. But the case also alleges violations of other parts of the Constitution, including due-process rights.

The lawsuit said the law is ambiguous and “unconstitutionally vague, so as to deny the city due process.”

“For example, HB 1645 appoints five members of the board by the governor, but states it is a ‘municipal unit.’ The term ‘municipal unit’ has no definition in law that negates the role of the municipal elected legislative body,” the lawsuit said.