A special panel created by the Burlington City Council to examine the viability of Burlington Telecom has come to a simple conclusion: The utility is not viable as it’s currently being run.
That said, the seven-member Blue Ribbon Committee does not believe that Burlington Telecom should be sold outright to the highest bidder, or that the fledgling utility should be allowed to take on more debt on its own.
The committee — comprised of three councilors and four citizens — met Thursday to discuss its draft report. It will deliver a final report to the City Council at a special council meeting next Thursday night.
“The committee does not recommend an outright sale of Burlington Telecom as it’s not in the best interests of the community and taxpayers,” said David Parker, operations director of Dealer.com, and a member of the special committee.
“I think it’s also important to note that we’re not going to get our money out of it that way,” added Councilor Joan Shannon (D-Ward 5).
Committee Chairman David Provost, the vice president of finance at Champlain College, said putting BT for sale up to the highest bidder would recoup only a fraction of what is currently owed to the taxpayers and CitiCapital.
Instead, 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.
The committee relied upon the reports provided by two outside consultants, as well as one from Burlington Telecom to gather the information it needed.
Pat Robins, one of the committee members, said the panel didn’t agree with many of the financial projections, and assumptions, and will spell out why they disagree in their final report.
“Both reports said you need more money, but what is missing out of both paths is how do you get there?” said Robins. “Both fell short in that regard.”
Given BT’s debt load, its cash flow needs, operational costs and necessary profit margins it cannot possibly grow fast enough to pay down its debt, said Robins. BT’s current debt is roughly $51 million, and it is estimated that it will take another $15 million to complete its buildout.
“Nothing that I see in the business plan of Burlington Telecom gets me comfortable that that debt load can be supported,” Provost said of the $51 million. “And, if we’re not comfortable with the debt load of $51 million, then we really get uncomfortable with $65 million.”
Robins said BT’s own financial pro formas seemed “incredibly optimistic”.
Shannon said the committee needs to spell out clearly in its final report why it’s taking an approach that’s different from the one outlined in the consultants’ reports and recommending against adding to BT’s debt load.
Despite the financial pitfalls ahead for Burlington Telecom, the committee did find that the fiber network is “one of the bright spots of the analysis we’ve done,” said Provost.
Fiber is the right technology, and is an asset to the city’s economic development plans to attract and retain businesses, said Parker.
“Fiber will be important for the city in attracting and retaining businesses and providing additional competition that drives down the pricing of all providers,” said Parker.
The panel expects to have the public version of its report available to the public before the special council meeting next week. At that meeting, it is expected that the Blue Ribbon Committee will make a short presentation, allow the public to comment, and then brief the city council in secret on more sensitive matters related to Burlington Telecom.
The seven members met for about two hours in City Hall.
Councilors serving the committee are: Shannon, Karen Paul (I-Ward 6) and Clarence Davis (P-Ward 3).
The citizens committee members are:
• David Provost, senior vice president for finance and administration at Champlain College, who will serve as the committee’s chair;
• David V. Parker, operations director at Dealer.com, a Burlington company which provides online marketing services to the automotive industry;
• Patrick Robins, chairman and co-founder of Symquest Group, a South Burlington company focusing on technology services; and,
• Bill Shuttleworth, who recently served as the executive director for the Vermont Telecommunications Authority.
The Blue Ribbon committee was charged with assessing BT’s viability in terms of:
• Its current debt load;
• Additional financing necessary to comply with its certificate of public good;
• Industry and technology trends; and,
• Developing projections based on these trends and financial analysis of BT to determine its ability to repay such financing, and to preclude the necessity for relying on the resources or full faith and credit of the city.
This article appears in Feb 3-9, 2010.
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The problem is not the overbuilt technology it is the mismanagement by the CAO his illeagal “loan” which is carried on the city’s books as an asset. it is a liar loan with no assets backing it up. We the taxpayers are on the hook to the tune of fifty million dollars. There is no way that Bt uin its current form with the current level of debt and the crooks who are managing it will ever be able to one service the debt and two expand and three maintain and upgrade the infrastructure.The ward two resident who wants to continue the operation fails to understand that paying ten thousand dollars a resident to maintain cable service makes no economic sense at all. it is wasting valuable resources we need to maintain the city. if you have unlimited funds to continue this charade buy the company and the debt.With Leopolds secrecy it makes one question the integety of all of the citys finances under his managment. he has continually copped to being incompetent and not able to face the challenges of his job.The consultants said as much. it is like trying to swim across the lake with a seventy five pound belt strapped to your waist.
As noted in today’s BFP, Bob Kiss seems perfectly willing to go down with this ship. I don’t know if I should pity or admire him. I am faintly optimistic that BT can indeed survive with a commercial partner, and for the mayor to reject the panel’s recommendations out of hand is beyond belief. Are there no respected Progressives out there who can stage an “intervention” with our Mayor? The Progressive movement itself is at risk here.
No matter what we do the Mayor and CAO’s actions must be monitored with a microscope. The past facts of these two not presenting the taxpayers with proper information ways heavily on my mind.So heavily each and every project in Burlington must be micro managed, questioned and not allowed to go forward until all facts are put on the table. This will bring our city government to a crawl, but it needs to be stalled because of the actions of the Mayor and CAO. I have no trust in them.
The Toyota (BT) is a great car (network) except the accelerator sticks (CAO loaned $18Million clandestinely) and the brakes fail(CAO hid his loan from everyone). The City is out of most options in this debacle. One certainty: taxpayers of Burlington will pay for it. Our once golden image is tarnished. Thank you Bob Kiss & Jonathan Leopold.
“Then we should be able to dig out of the financial hole we’re in while still reaping the benefits of this great tech asset.”So basically, just get in a time machine, go back two years and do everything differently. That ship has sailed.
BT is the right technology, we just have too much of it (the hub was overbuilt). We need to have BT serve a larger area… say all of Chit. Co. But to do that, we need professional management (missing in action for 1-2 years), a better-performing governance structure (maybe something like CSWD), a real marketing effort, and restructured debt. Then we should be able to dig out of the financial hole we’re in while still reaping the benefits of this great tech asset. But I don’t know if any the players who have the political capital to make this happen have the smarts or the motivation… trouble.
Essentially the only politically safe conclusion from every consultant and committee is that BT is viable but not currently–with variations on what needs to happen. The difference isn’t perception, but instead who’s making the recommendation. The mayor says move ahead, the city council pleads ignorance, consultants suggest marketing, David O’Brien prefers selling BT off entirely, and the latest citizen committee suggests distributing financials liability in a public-private partnership. Underlying these are essentially all the same conclusions reached 2 months ago: BT is struggling under debt but is a successful operation that only needs to get better.If selling BT is not “not in the best interests of the community and taxpayers” then why would selling half of it or a fraction be less worse?
Shay, when are you going to finally find your spine and tell the readers that BT will not work anymore? You are clearly a prog party memeber and through your writing, it shows.
Also, the muni lease holder (Citi or GE, I forget) of the “orginal” 33 Million dollar note has a stake. Their muni lease is based on a benefit received because its funding a muni project. One can’t simply transfer ownership of a muni “business” to another entity without satisfying the primary lienholder’s interest -which will likely mean paying off the giant 33M lease. Who is going to invest additional capital in order to revamp the BT business? It’s saddled with so much debt (Thanks JPAL!)that there would have to be some forgiveness of debt to attract any interest. This means that taxpayers would be on the hook and that is unacceptable to the State and BTV citizens. So what you have here is an intractable situation. No one wanted to say it – and I don’t blame them- but the best option may be to have a fire sale and find the best and most capable operator to keep it going.What a mess!!
Instead, 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.Who would want to invest if the city won’t back the note?Selling to the highest bidder and eating the loss may still turn out to be the city’s best option.