The Burlington Telecom Blue Ribbon Comittee will recommend this week that BT forge a partnership with a private, outside entity in order to ensure the utility's survival, and so the city can recoup about $17 million of taxpayer money.
The recommendations will be formally presented to the city council Thursday night. The seven-member Blue Ribbon Committee met last week to discuss its preliminary findings and recommendations.
The committee will recommend BT find an outside partner/investor, form a new corporation and seek financing without the city's backing. The city would retain a minority stake in the company in order to recoup $17 million in taxpayer loans. That repayment would not occur immediately, but over an undetermined period of time.
To date, VTel, a telecommunications company based in southern Vermont, has expressed an interest in partnering with BT.
A key FairPoint exec said Monday his company is also interested in partnering with BT. The comment came on "The Mark Johnson Show" in response to a call from Burlington City Council President Bill Keogh.
"Certainly, Burlington Telecom is something we need to look at," said FairPoint's Vermont-based President Mike Smith. "I expect that I will be speaking you and other city officials in the next few weeks. It's definitely something to explore."
FairPoint is currently in bankruptcy court, and filed its reorganization plan today.
Kiss concurs that BT is in precarious financial shape, but said all options recommended by the committee and outside consultants need to be reviewed before settling on one option.
"We've paid more money for it than we can afford," Kiss admitted to Seven Days. "But, I'm just going to continue to be skeptical of the recommendations until we have them and then look carefully at the details."
Two consultants hired by the special panel also said BT cannot sustain its debt load given its current customer base. That said, Kiss noted, one of the consultants did believe that if BT were to take on more debt, complete its buildout and more aggressively market its products and services that it could survive in its current form.
The special blue ribbon committee rejected those notions after carefully examining BT's financials and benchmarking them against industry standards.
The committee balked at the notions of BT taking on more debt to complete its in-city buildout on its own, or the city selling the utility to the highest bidder. Neither option, the committee surmised, would allow city taxpayers to recoup the $17 million loaned — a loan that was approved solely by Chief Administrative Officer Jonathan Leopold without either council's explicit approval and knowledge, or the approval of the city's board of finance.
The council created the committee in December to help it independently evaluate BT's fiscal and operational health. At the time, the Kiss administration was asking the council to approve a roughly $65 million refinancing deal so BT could repay taxpayers and complete its buildout.
Kiss said his administration's initial proposal was designed to give BT additional cash, repay taxpayers and give the utility three more years of breathing room to determine if it could survive on its own or bring in outside partners.
"I think that everyone agrees BT is a valuable asset for the city both for residents and as an economic development tool and I think it's something we should continue to work hard at trying to preserve as an asset of the city and not lose it," said Kiss. "Once the report is issued, the test for me is to look at all of the recommendations to make sure that BT is a success."
The Vermont Department of Public Service is investigating BT's use of taxpayer money as it violates a condition of BT's certificate of public good. According to its CPG, any taxpayer money loaned to BT needs to be repaid within 60 days; this condition is known as Condition 60. The city admits that BT failed to repay taxpayer loans for more than 18 months. In addition, the city's charter prohibits taxpayers from shouldering any of BT's losses.
BT is also in violation of Condition 17 in its CPG. Under the provisions of that condition, BT should have completed its buildout within the city last summer. It has yet to do so, with about 15 percent of the most difficult areas of the city yet reached — largely due to the fact that the lines have to be buried underground through bedrock.
To comply with these CPG conditions, and remain solvent, the committee will recommend that BT find a third party investor, form a separate corporation and yet allow the city to retain a minority stake in the new enterprise. Any restructured corporation would have to pass muster with the city council as well as state regulators.
Under this scenario, the roughly $17 million owed to the taxpayers would be paid out over time rather than in one lump sum. However, the committee stressed that under this scenario the city taxpayers could reap sizable profits over the long-term life of the company.
"Out of this recommendation, we'll have to look at the details pretty carefully and act with all due speed to asses the recommendations to come out with a proposal from the administration and have it approved by the city council," said Kiss.
The blue ribbon panel will explain its report in two separate sessions on Thursday: One publicly, where they will also allow for public comments, and another in secret with the city council. The meeting will begin at 6 p.m. in City Hall Auditorium.
Aside from the committee's report, BT remains under heavy scrutiny from the Department of Public Service.
On Thursday, the city will argue before the Public Service Board for temporary relief from Condition 60 in order to make a February interest payment to CitiLeasing.
Likewise, a taxpayer lawsuit against the city and Burlington Telecom continues to move through the Chittenden Superior Court.
The lawsuit seeks:
• Repayment of the $17 million to the taxpayers;
• Putting a hold on the use of Burlington Telecom's assets to protect any taxpayer investment;
• A full accounting of money provided to BT from the city's cash management system, including the timing and amount of all payments from the city's cash pool to BT; how BT used the money; the amount BT owes to the city, including interest; and, a determination if BT is able to promptly repay any owed amounts from its assets or operating revenues; and,
• An injunction to keep BT from taking any further actions that violate the CPG or city charter.
The suit also holds CAO Leopold personally liable for any unpaid money to the so-called cash pool.
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