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Friday, January 18, 2013

Burlington Telecom and the Koch Bros: The Oddest Couple?

Posted By on Fri, Jan 18, 2013 at 11:06 AM

"Would a Progressive Burlington, Vermont, mayor partner with the Koch brothers? Obviously not." That's what local left-wing agitator Jonathan Leavitt wrote in a 2011 blog post to illustrate the irony of Progressive Mayor Bob Kiss partnering with defense contractor Lockheed Martin on climate change initiatives.

How silly to think, Leavitt was suggesting, that the People's Republic of Burlington would ever do business with the billionaire Koch (pronounced "Coke") brothers, notorious among leftists for their bankrolling of numerous right-wing groups and causes.

Guess what?

Kiss' equally Proggy predecessor, Peter Clavelle, did do a deal with the Koch brothers (pictured) — and quite a momentous one, at that.

One of the many arms of a corporate empire nicknamed the Kochtopus provided $22.6 million in startup capital for the People's Republic project par excellence: Burlington Telecom. This municipally owned enterprise was styled by the Progs from its conception in the mid-1990s as an affordable alternative to the rate-gouging Adelphia Communications, the Pennsylvania-based cable company later absorbed by Comcast.

Koch Financial Corp., which specializes in lending cities money for equipment leases, signed an initial $2.6 million agreement with Burlington in 2002 that enabled the city to begin construction of its own telecom network. Three years later, Koch Financial provided an additional $20 million that was supposed to allow Burlington to finish building the fiber-optic infrastructure. Every home, business and institution in the Queen City was going be offered access to landline telephone, cable television and warp-speed internet service.

Except it still hasn't happened. Not even after BT got another multimillion-dollar infusion of capital — this time from Citibank.

Arizona-based Koch Financial decided in 2006 that "their exposure of $22 million was enough," says Tim Nulty, the original boss of BT who had engineered the deal with Koch.

Enter Citibank. The New York-headquartered financial behemoth agreed in 2007 to refinance the Koch leases and to provide an additional $11.5 million that would finally enable BT to complete its build-out. Citibank thus took ownership of the entire BT financing package, on which the essentially insolvent utility has stopped making payments. Citi is currently suing the city in federal court to get its money back or to repossess the equipment that undergirds the BT operation, which still does not reach about 20 percent of Burlington's homes.

The trans-species coupling of BT and the Kochs is recounted in a Citibank court filing last year.

Charles and David Koch control what Forbes magazine ranks as the second-largest privately owned company in the United States (behind Cargill). Koch Industries, which owns Koch Financial, makes its gazillions mainly in manufacturing, minerals, agriculture, petroleum refining, paper-making and investment deals — including, at one time, with little old Burlington, Vermont.

Nulty says now that he wasn't aware 10 years ago of the Koch boys' lavish underwriting of libertarian and ultraconservative organizations. "They hadn't really surfaced then in that role," he recalls. And it's true that the brothers have come to be seen as arch-villains by the left only within the past few years. It was revelations of the Kochs' financial backing of Tea Party groups that made them infamous in Prog circles.

But it wasn't as though the Kochs' political sentiments were entirely unknown at the time Nulty initiated negotiations with their subsidiary. David Koch had run for vice president in 1980 on the Libertarian ticket, calling for the elimination of Social Security, public schools and the CIA and FBI. Three years prior to that, brother Charles had cofounded the Washington-based Cato Institute, a libertarian think tank.

It's pretty unlikely that the bros themselves were aware of Koch Financial's tie-up with the People's Republic, Nulty suggests. "Koch Financial is very far down in their empire. From that perspective," he adds, the deal with Burlington "was just a standard transaction of municipal financing."

And Nulty says Koch financing for a publicly owned telecom system is not as ironic as it might seem. "This stuff about local ownership has been made into an ideological issue by the incumbent telecom companies — Verizon, Comcast, AT&T," he says. "Municipal ownership of a telecom system isn't really all that different from municipal ownership of a water system or a bus company. A large number of these things [city-owned telecoms] exist in red states."

Jonathan Leopold, who became Burlington's chief financial officer in April 2006, does regard the BT-Koch hookup as "very amusing." Leopold, who served as the Kiss administration's point man for BT as it melted down, notes he was not in city government at the time the deals were made with Koch. "But when I learned about their political activities, I thought it was just so ironic that Burlington had gotten involved with the Kochs."

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About The Author

Kevin J. Kelley

Kevin J. Kelley

Kevin J. Kelley is a contributing writer for Seven Days, Vermont Business Magazine and the daily Nation of Kenya.

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