They came, they saw, they vented. More than 100 people crammed into City Hall Auditorium in Burlington for a special city council meeting Thursday night about the status of beleaguered Burlington Telecom.
The nearly four-hour meeting probably didn’t change many minds. Diehard BT supporters are still insisting the utility can be saved. Likewise, those who would like to see the mayor resign and be held personally liable for returning the $17 million BT owes Burlington taxpayers weren’t swayed by arguments that the company is now “cash flow positive.”
In all, more than 40 questions were put to city officials, outside consultants, lawyers and city councilors. Of those, 35 were submitted in writing ahead of time (see below).
Mayor Bob Kiss and the outside consultants said while BT’s financial troubles left a hole in the city’s cash pool, the utility has turned things around and is in a better financial position to seek outside investors now. Kiss also refuted some of the claims that have been made about his administration’s failing in regard to BT operations and oversight.
His words, however, didn’t seem to resonate with most people at the meeting — even BT supporters.
In the end, the issue of “trust” came up time and time again: Could supporters trust BT would be there when they need it for their small business or household; could supporters trust that BT would be the same top-notch service if a new owner is found; could residents trust that taxpayers wouldn’t be out $17 million and forced to repay the money through higher taxes; could residents or councilors trust anything the administration, or consultants hired by the city, had to say; could the public trust that CitiCapital wouldn’t sue the city for terminating the lease and using what is essentially its equipment for several months to operate the network?
When it was their turn to speak, several city councilors — including three prospective mayoral candidates — did their best to ensure the public that they have been doing everything possible to protect taxpayers and clean up the fiscal mess created by Mayor Bob Kiss and Chief Administrative Office Jonathan Leopold.
Councilor Karen Paul (I-Ward 6) dismissed Mayor Kiss’ claim that a proposed financing deal floated in late 2009 would have solved BT’s cash crunch. She bluntly asked BT’s interim manager Steven Barraclough, from the firm Dorman & Fawcett, if the Piper Jaffray deal would have been viable given BT’s revenues. Barraclough said, not really.
Councilor Kurt Wright (R-Ward 4) called on Kiss to publicly admit there had been serious mistakes made — well-intentioned or not — as a way to begin to restore public trust. Kiss didn’t take Wright up on his offer. In his opinion, Wright noted, the council’s chief mistake was not holding more public forums to keep the public better informed about BT.
That the council went along with some of the administration’s plans should not, he added, be seen as an act of complicity. “Could we have figured this thing out?” asked Wright. “It was a trust issue. We trusted the charter language and the 2008 budget resolution. We trusted that the administration was not doing what we later found out it was.”
A budget resolution in 2008, crafted by former Democratic Councilor Andy Montroll, forbid BT from building out the system unless the money came from subscriber revenue.
Councilor Ed Adrian (D-Ward 1) also raised the issue of trust, noting that of all people CAO Leopold was not at the meeting to answer questions. Mayor Kiss said Leopold, who had hip surgery, could not be at the meeting.
Councilor Joan Shannon (D-Ward 5) told residents that the creation of the Blue Ribbon Panel, a special audit committee to review the city’s audits and to look more closely at BT’s books, disallowed BT’s use of the cash pool and set new guidelines for how the CAO can use the cash pool.
Councilor Sharon Bushor (I-Ward 1), who was on the city’s Board of Finance in late 2007 and early 2008 when the administration said it first alerted councilors to BT’s financial problems, said she felt like everyone involved has been doing what they thought was best for the city. Also on the Board of Finance at the time was Councilor Wright.
“We were building on the understanding that we had underestimated the cost of the buildout, and much to my chagrin I am not one who feels like I can point the finger at someone and blame them,” said Bushor. “Everyone made decisions in good faith.”
She recalled that the Board of Finance was fully briefed in early 2008.
Wright, Paul, and others however, believe that the administration was not fully transparent in its use of the cash pool to keep BT operational, going much farther into debt to the city’s taxpayers than had been anticipated — or allowed by the city’s certificate of public good.
Some residents held up signs and had stickers that read “Give Us Back Our $17 Million.” Another, David Grossnickel, held up a sign before the council and administration that summed up his inability to believe anyone about the BT updates given the past transgressions: “Liar Liar Pants on Fire!”
“I’ve been hearing you talk, but I’m not hearing you say anything,” said Grossnickel. “I think today would be a great day for you to resign.”
His statement drew applause.
Others were more forward-looking. Small business owner Nathan Smith Pete Jewett noted that BT was a valuable asset and should be preserved, and any newly structured BT should include repayment of the $17 million. “Telecom is going to drive the next 100 years the way that electricity drove the past 100 years,” Smith noted.
Jewett, Smith, like others in support of BT, also drew applause from the crowd.*
Consultant Gary Evans, of Hiawatha Broadband in Minnesota, told residents that for BT to be viable in the long-term it needed one simple thing: more subscribers. He called the network a state-of-the-art system that has great potential to lure application developers and companies from around the world given its speed and capacity.
Once the financial situation is settled, Evans noted, “Then we need to get on with the job of building the subscriber base and we’ll build something very special for this community, tomorrow and into the future.”
In the end, residents were told:
• BT is “cash flow positive” if you don’t take into account repayment of its roughly $51 million in current debt. Steven Barraclough said BT has a “surplus” of roughly $40,000-$50,000 per month and is not taking any money from the cash pool. In addition, BT is paying the interest on the $16.9 million owed to the cash pool.
• BT has priced replacement equipment it suspects it will need when CitiCapital seeks return of the equipment it now owns as a result of the lease termination. CitiCaptial has not yet fully identified that equipment, or when and how it will want it returned. Barraclough said the replacement equipment will cost about $6 to $8 million.
• BT is developing a plan to take out existing equipment and install new equipment that is designed to provide “minimal disruption in service,” Barraclough noted.
• CitiCapital could still sue the city, but attorneys declined to speculate for what reason, since they believe the city took proper action in terminating the lease.
• If the city does not prevail in a taxpayer lawsuit, City Attorney Ken Schatz said the city would file a claim with the city’s insurer to make payment.
• Likewise, if CitiCaptial sues the city, in all likelihood the city would file a claim with its insurance company, if it did not prevail in court, to pay any damage.
* Additional borrowing costs due to the bond ratings downgrades by Moody’s could cost the city as much as $500 to $5000 in interest per $1 million borrowed per year. The city is also looking to issue bonds through the state Municipal Bond Bank to get better rates.
David Provost, the senior vice president for finance at Champlain College and chairman of the Burlington Telecom Blue Ribbon Committee, told the audience, “We would have loved to have it resolved sooner, but we were told early on by [the consultants] that this is a process and it takes time. The Blue Ribbon Committee is satisfied with Dorman & Fawcett and satisfied with their efforts to date and now it’s onto the next steps of finding the next strategic partner.”
Barraclough said BT is in talks with several prospective partners — none of whom he would name publicly because they had signed confidentiality agreements — interested in providing capital and possibly equipment to BT.
Once the consultants line up a few prospective deals, it will bring those first to the Blue Ribbon Committee. After the committee vets the deals, they would then go to the City Council for approval.
In the interim, BT has until February 28 to file a “cure proposal” with the Public Service Board — barring any requests to delay that date. That proposal should spell out how the utility plans to repay the $17 million and complete its network buildout in Burlington.
Download the list of pre-filed questions for the BT meeting: Download BT public questions
Download the FAQ handed out at the meeting: Download BT FAQ
* The original article misidentified one of the speakers in support of BT. It has been updated. Also, late this afternoon, the city made available the FAQ that was passed out at the meeting. It has been added as a PDF download.
This article appears in Jan 26 – Feb 1, 2011.
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@ Janice”because a lot of the financed equipment cannot easily be repossessed (for example, fiber optic cable that has already been run through the ground).”I don’t think the lease says that the equipment is repossed, merely that BTV must return it (or rights to it) back to Citi. Citi now owns the lines in the ground to sell if they like. So posit this…why would Citi accept a 500K spool of fiber when they can sell the fiber in the ground to comcast, fairpoint or anyone else for much much more? It’s there line? It makes ZERO fiscal sense for them to do so. And I again submit, BTC will have to hand over all reciepts the are currently collecting as they do not own the line or the equipment. Citi does and all revenue being generated right now is there. This will cost BTV more then 51 million when its all said and done. Oust Kiss and shut BTC down. Sell the building and try to sell the customer list and be done with it.
@Janice, The lease agreement also states that at no time will illegal funds be used. By violating condition 60 of the CPG BTC violated the lease agreement. In the lease agreement it also states any violation of this agreement will constitute a default. Ergo, BTC is in default. It is that simple. It’s worded very clearly. Watch the lawyers Ellis for example is clearly uncomfortable and is doing his best to defend BTC, much in the same way some attorney will try and defend any criminal caught red handed. Just because the Schatz et al say there is no default, means little. They have an obligation to defend the City and they certainly are not going to come out and say yup, we blew it.
@Jimmy: I don’t believe it is “pretty clear” that BT is in default of the lease. Bill Ellis has disputed this claim before, and frankly, I’m more willing to believe him than I am to believe you, given that he’s actually been party to the discussions with CitiCapital, and you have not.@Morgan: Maybe you know something I don’t know about what the city councilors are thinking, but frankly, last night most of them came across as trying to cover their asses and/or position themselves for a run for mayor. I didn’t see much actual concern about or understanding of the world of finance.
Ross, you can’t blame voters who “liked” BT at the polls but did not sign up. I routinely vote for ballot items that I think are good ideas even if I personally will not benefit or participate. I like your Facebook analogy, because a ballot issue really is a “LIKE” button. It’s not a “SIGN ME UP” sheet.What might have helped was a well-run market research effort and phone poll of all residents to determine what the actual “take rate” might have been.Janice, the councilors continue to press the administration on the $33M lease fallout because the city continues to treat that matter as largely “closed” in calculating BT’s liabilities.
We are all aware that there is an open question of whether Citi will take spools of cable in lieu of what’s in the ground. If that was all they were dealing with, they would have said that, and everyone would have felt a lot better. Clearly there’s more to it than that.All I’m saying is that it’s pretty clear that BT is in default as defined by their agreement with Citi, and that the remedy for default is repayment of all monies owed. See Sections 20 & 21 of the agreement. You can believe that Citi may be willing to take less than they are owed, despite the future ramifications of setting such a precedent. This could be in the form of accepting BT’s interpretation of their actions as “nonappropriation,” despite the fact that it’s pretty clear that they did not meet the requirements. I just have no idea why they would do that. We’ll all find out soon enough.
bottom line #1.I heard nothing last night that insured the 17 million would return to our wallets(maybe it will but did not hear it last night and I doubt we will see it.)Bottom line #2.Kiss is holding us hostage by saying BT will not be a debt unless it folds. I guess that means that unless we all cut him a check to save it then it is our fault and we are responsible.Bottom line #3. Check the passports of Kiss and leopold and hold them at the airport.Biggest bottom line of reality.Amazing that CAO Leopold was not their last night but could be at the meeting Monday to request a tax hike.If the CAO is not capable of performing his duties due to his medical issues he must be put on medical leave and the issues must be solved without his interference(I meant input)We should all be praying for CAO Leopold in his recovery as maybe the FBI has a warm bed in waiting.
@Jimmy: The remedy is not clear even in the event of a by-the-book termination, because a lot of the financed equipment cannot easily be repossessed (for example, fiber optic cable that has already been run through the ground). Citi *could* ask for that cable back, but what would be the point? If they ripped it out, it would be ruined and worthless. If they retain ownership, they have to do something with it to make it worth keeping. If they want to sell it, they have to find someone to sell it to. It really is not clear cut. Thus the need for negotiation.
If the lease were terminated, the remedy would be clear. There would be no need for negotiation. They were asked repeatedly whether Citi was going to come after them for the full amount and all they would say was they believed that this was nonappropriation but they didn’t know whether Citi was going to come after them. I heard no one say that they didn’t think they were going to come after them. They just said they didn’t know.If they were in agreement with Citi that it was nonappropriation and a straight termination per section 7 of the agreement, they would have said that. IMO if reps from Citi had been in the room, you would have been hearing a very different tune.
@Jimmy: I did not see any ambiguity in the responses to questions about the lease. The lawyers clearly said: a) BT is not technically indebted to Citi; b) the “remedy” is being negotiated, but will likely be limited to the repossession of a subset of the financed equipment.In my view, the repeated questions from city council members about whether it was possible for Citi to file suit against BT were stupid in light of the information that had been provided. There is no way the lawyers could have honestly said it’s *not* possible; after all, we live in a litigious society, and nothing prevents a corporation or a private citizen from filing a completely frivolous law suit, let alone one with any merit. But they clearly thought it was unlikely to happen, and I’m inclined to believe them absent any other indications from CitiCapital.
Absent any evidence that Citi is giving BT a pass on the 90 day requirement – and given the fact that no one would refer to such a pass being given upon repeated questioning about the likelihood that Citi will come after the rest of their money – what we have is what we have. And what we have says that they are in default. If any agreement had been struck that gets them out of that, last night was certainly the time to mention it, and no one did.Remember that Citi is going to be VERY wary of setting a precedent here. The eyes of every struggling municipality that they’ve lent money to are on this case.