Burlington Telecom Deal Could Be Big Win for Weinberger — And for Taxpayers? | Off Message

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Tuesday, February 4, 2014

Burlington Telecom Deal Could Be Big Win for Weinberger — And for Taxpayers?

Posted By on Tue, Feb 4, 2014 at 10:13 AM

The administration of Mayor Miro Weinberger appears to have negotiated a good deal for the city in the proposed $10.5 million settlement of Citibank's $33.5 million lawsuit over troubles at Burlington Telecom.

While the settlement would pay off the city-owned utility's debt to Citibank, it does not immediately reimburse taxpayers for an additional $16.9 million improperly spent by BT — although Weinberger said in announcing the deal Monday that it could eventually lead to at least partial reimbursement.

And the settlement may eventually come at the price of ceding control of the city-owned utility to private interests, as well as requiring taxpayers to cover at least a portion of the $1.3 million city contribution to the settlement.

The plan unveiled Monday will likely lead to the city ceding majority ownership to an outside partner or partners  within four years, Weinberger said. While corporate interests would be most likely to have the necessary cash, the local group working to form a telecom co-op could conceivably emerge as the new owner, Weinberger said.

Alan Matson, a leader of the co-op effort, said in an interview that his group will seek to “seize this opportunity” to keep BT in local hands and under democratic control. But the fledgling co-op, which has so far raised less than $300,000 from supporters, will have to achieve a stunning financial breakthrough in order to come up with the $6 million “bridge loan” the city needs to pay off part of its debt to Citibank. 

Weinberger said at the news conference that “investment banks” would be the likeliest source of the bridge financing. 

Even if BT ends up under corporate control, Monday's announcement represents a big political win for Weinberger. And the mayor may gain additional advantages in his expected re-election bid next year if the deal with Citibank persuades Burlington's credit monitors to elevate the city's nearly junk-bond rating in the coming months.

Ward 3 Progressive Vince Brennan — a member of the largest opposition bloc on the 14-member city council — was present at the crowded, celebratory press event to bless the settlement with Citibank. Council President Joan Shannon, a Democrat, also heaped hosannas on her party's mayor.

“Today,” Shannon told an audience of about 75 city officials and reporters, “the big dark cloud that has hung over Burlington for four years is beginning to break up and the sun is beginning to shine through again.” Alluding to Weinberger's 2012 campaign slogan, Shannon added, “Thank you for the fresh start, Mr. Mayor.”

Weinberger himself framed the tentative out-of-court settlement of the federal lawsuit as a big step toward resolving a crisis that has spanned “some of the most difficult and tumultuous years the City of Burlington has ever faced.”

BT was established a decade ago under the Progressive administration of Mayor Peter Clavelle as a city-owned utility. It came to grief during the six-year tenure of Mayor Bob Kiss, Clavelle's Progressive successor, who secretly engineered unauthorized taxpayer financing in an attempt to keep the sinking telecom provider afloat.

The arrangement with Citibank makes no provision for repaying the $16.9 million taken from the city's cash pool in violation of state regulations. But Weinberger said on Monday that successful conclusion of the deal with Citi could lead to at least a partial payback of that sum. The mayor offered no specifics on how such an outcome would be achieved.

Kiss and his top financial aide, Jonathan Leopold, needed to somehow procure all that money because BT was in danger of collapsing in 2009. The telecom had spent far more in installing its technologically advanced network than had been budgeted. And it never generated enough revenues from business and residential subscribers to become a financially viable enterprise.

Citibank, which had financed the BT infrastructure, went to court two years ago to demand repayment of the $33.5 million cost of the network. Failing that, Citibank wanted the court to order BT to return the widgets and wires that enable the utility to provide television and high-speed internet service to about 4,000 customers. Monday's announcement set forth the terms of a compromise agreement between the city and Citi.

The $10.5 million payment to the giant commercial lender will be generated from several sources. And the whole package must be approved by both the city council and the Vermont Public Service Board, which seem likely to give their respective go-aheads.

In addition to the $6 million “bridge loan” to be secured by BT's assets and earnings and used to pay the Citi debt, the agreement calls for:

  • a $1.5 million payment from the law firm of McNeil, Leddy & Sheahan and/or its insurance company. (The firm was also targeted by the Citi lawsuit for its role in the BT mess. Weinberger would not say how that sum was arrived at. The politically connected firm continues to do legal work for the city.);
  • nearly $1 million in BT revenues that have been deposited in an escrow account during the past two years;
  • another $250,000 from BT to be paid to Citi before the deal is officially clinched; 
  • $500,000 from the city's insurance carrier; and 
  • $1.3 million from the city's own coffers. (This money is supposed to come mainly from BT revenues. But Monday's announcement adds that “this amount could increase, and other city funding sources may be required, depending on the amount of bridge financing finally negotiated.”)

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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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