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City Hall Criticizes State 'Audit' of Burlington Telecom 

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Late Tuesday, the Kiss Administration issued a 21-page rebuttal to last month's blistering review of Burlington Telecom and the city's oversight of the fledgling telecom.

The so-called "Larkin Report" was initiated in October 2009 by the Vermont Department of Public Service as the city sought relief from a few key conditions contained in its certificate of public good. This was when it was first revealed that the city had used $17 million in taxpayer funds to prop up BT over the course of several fiscal years.

The report, conducted by Larkin and Associates, was released December 10, 2010 and claimed that BT was in violation of Condition 60 of its CPG since its inception, and that BT overpaid for installation services and programming — perhaps twice as much. Condition 60 forbid the city from using any taxpayer funds unless they could be repaid within 60 days.

The report also questioned BT's long-term viability, and whether city officials had fully informed the public and city councilors about the extend of BT's financial problems.

The report was issued just days after the city told state regulators that it had backed out of its $33.5 million lease finance arrangement with CitiCapital and was seeking new financial and strategic partners. Consultants Dorman & Fawcett have been leading those talks and are one of several outside firms who have been brought in to help reorganize BT.

Mayor Bob Kiss and his administration took issue with the report as soon as it was released, but now they've provided additional details and documents they claim the consulting firm either missed, or failed to acknowledge.

"The Larkin report omits critical facts, contains inaccuracies, fails to verify assumptions and relies on dated information.  Moreover, Larkin did not engage person-to-person with key city staff or the city’s auditing firm and financial consultants," said Kiss in a memo to the city council. "While we have several concerns about the Larkin Report that needed to be addressed, our focus is to continue to move forward to preserve Burlington Telecom as an asset providing significant value to Burlington and potentially Vermont.”

On Thursday night, a special city council meeting will be held in City Hall Auditorium at 6:30 p.m. The meeting is being billed as a chance for the public to get information about the status and future of Burlington Telecom and have questions answered. Champlain College's vice president David Provost, who chaired the Burlington Telecom Blue Ribbon Commission, will facilitate the meeting. Residents will be given up to three minutes to speak, but are encouraged to submit questions in advance. Questions may be submitted in advance here.

Here is what the city had to say in response to Larkin's conclusions:

• Larkin’s methodology. In drawing its conclusions, Larkin failed to speak with the City’s independent auditors, Sullivan, Powers & Company, anyone from the City administration or Clerk-Treasurer’s Office, or the City’s financial advisers Dorman & Fawcett. In failing to do so, Larkin omitted key information that would have addressed or contradicted many of its concerns. This problem is exacerbated by Larkin’s failure to incorporate and assess information regarding significant progress for BT, available before the report was issued, clearly relevant to its conclusions.

• BT as a “going concern.” Larkin’s analysis of this issue neglects a crucial element — the City and CitiCapital’s mutual acknowledgment that the lease on BT’s equipment has been terminated. Because Larkin appears to misconstrue the nature of the lease agreement, their analysis does not contemplate that the lease payments may cease to be an obligation of BT. News of the City and CitiCapital’s acknowledgment of the lease’s termination was public and available to Larkin prior to the report’s issuance. Cash flow — or earnings before interest, taxes, depreciation and amortization ("EBITDA") — is the fundamental test of a business's viability. BT's cash flow, while modest, is positive.

• The City’s response to BT’s financial issues. Larkin makes several errors and omissions regarding the City’s identification and communication of BT’s financial issues. There is an extensive record on this subject available to Larkin but ignored. [In its response, the city provided minutes from several meetings in 2007 and 2008 which appear to indicate that city councilors were apprised of BT's financial problems, auth. note]

• Condition 60.

o Larkin’s claim that City officials became aware of the Condition 60 violation prior to November of 2008 is based solely on assumptions drawn from interpreting one workpaper created by Sullivan, Powers & Company during the FY2007 audit process. Larkin never spoke to Sullivan & Powers, or anyone with the City, or BT about this claim to verify it. Workpapers are kept confidential by Sullivan & Powers and were never shared with anyone at BT or the City during the FY2007 audit process or anytime prior to Larkin initiating its report more than a year ago. There was no discussion of a Condition 60 violation in the 2007 management letter issued by Sullivan & Powers in June of 2008.

o Larkin’s analysis of BT’s compliance with Condition 60 since its inception appears to misunderstand the nature of the City’s access to the Koch and CitiCapital financing. Until 2007, BT had first Koch and later, CitiCapital financing funds available to repay advances from the cash pool. When BT’s CPG was issued, the record is clear that BT had funds available through the Koch financing that exceeded BT’s negative pooled cash balance. Contrary to the assertion by Larkin, there was no restriction on the use of these funds to meet BT’s debit to pooled cash (with the exception of the $1 million debt service reserve under the CitiCapital financing).

• Accounting issues. Larkin’s analysis demonstrates a lack of understanding of municipal accounting practices. The City’s accounting practices are consistent with established municipal accounting standards and most other Vermont municipalities. Larkin makes errors regarding pooled cash interest charged to BT, how expenses are booked, and timely posting of expenditures. Moreover, Larkin repeats issues raised in the City’s audit management letters that were addressed by BT six months to a year prior to the report’s issuance.

Download the city's full response here: Download CityRebuttaltoLarkin

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Shay Totten

Shay Totten

Shay Totten wrote "Fair Game," a weekly political column, from April 2008-December 2011.

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