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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on-going negotiations…lolIs it like when Citi said yeah we are terminating the lease but we will let you use it for $311,000 / month and Kiss countered with “maybe $40,000 / month.” At which point Citi initiated the process of inventorying their assets? Negotiations my butt… BTV is trying to negotiate 33.5 Mil of installed fiber cable for 0.5 Mil of it on a spool. And eventually Citi is going to ask Kiss if he ate lead paint as a child and tell him to cough up the cash or disconnect the system.
“There isn’t a stand-alone termination letter. Letters between the City and CitiCapital involve ongoing contract negotiations and settlement discussions. Therefore, in order to protect the City’s interests, we need to keep them confidential.”Translation: they’re threatening to sue the city for $33 million dollars.
Shay, thank you for clarifying the lease termination there is none.Janice, this is the can of worms or whoopass because we do not a have a clear lease termination the psb requires the city to maintain service. The lease is still in force in some quasi manner Because we are using all of CITI’s goods and capital. No doubt to be argued in court with hundreds of thousands in taxpayer money. If you refer back to the master lease agreement section 11 the security agreement and section 20 events of default. You will clearly understand that the lawyers are using words like “in my understanding.” which is lawyer speak for Im not opening that can of whoopass and i will be too cute by half.We are on the hook for more than the 17million let us be very aware of the jeopardy the actions of this Mayor and Cao have placed the city in. When the system is sold by Citi we will have to declare the debit a loss and it will impact every city department and our credit rating will be reduced to junk.We all agree that fiber system is amazing for the internet it beats tubes and tin cans any day. But make no mistake the Mayor and the CAO have dug a hole that they should be buried in as I understand it.
On the question of whether a stand-alone termination letter exists between the city and CitiCapital, I asked City Attorney Ken Schatz about the topic (and to produce copies of any such documents if they exist). This was his response:”There isn’t a stand-alone termination letter. Letters between the City and CitiCapital involve ongoing contract negotiations and settlement discussions. Therefore, in order to protect the City’s interests, we need to keep them confidential.”
@Janice we have absolutely no evidence that such an agreement was ever struck. It makes no sense for Citi to do so and, as Finn points out, if there was such an agreement it would certainly have been trotted out by now. All we know is that there was a forbearance period, and as I’ve pointed out, that just means a period during which default is postponed. That period ended a while back. Fill in the blanks.
I had sent in a question that I did not hear answered or even offered up at the meeting. Why hasn’t a legal termination agreement been offered to the public for review where is this document? My other question the 17 million dollar loan was made to BT with absolutely no collateral , is that correct/ was answered by mayor Kiss h e weaseled saying that it was not a loan. If it was not aloan it sure as hell isnt going to be paid back, any more than CITI will be payed back. You can bet that CITI who is in first position will not twiddle their fingers if they take a 80% hair cut and the city of Burlington is made whole.I also doubt that we will get a payout from Travelers because Leopold was negligent and Sharon Bushor just implicated the entire City council with her testimony regarding the finance committee meeting in january of 2008. Which means Kurt Wright is up to his beady little eye balls in a lie.Our Lawyers are not doing us any favors telling us that they have terminated the lease we are still suing one hundred percent of CITI Capitals equipment. The master lease clearly staates in section 11 that all money made from their equipment must be used to satisfy the lease. if we are still using the equipment we are acting as tenants at will same as if you broke the lease with your landlord you would still owe them the rent they just get to kick you to the curb whenever they want.It is terrific that BT can be a going concern albeit one on the scale of a community with 15,000 households not the 100,000 the leaders in Burlington pretend they rule.As a community I would like to see the fiber saved, I would also like to see the mayor pushing a shopping cart and picking up bottles on the side of the road. it seems to be the job he is most qualified to hold.Right now we are lucky that CITI hasn’t sold the business out from under us. Im sure they have a team of 22 year old investment bankers working on it. They own the asset not COB.To the COB wthe question remains can you provide a lease termintion agreement? If not we are open to a huge lawsuit from CITI. They can attach the money we get from Travelers for Leopold and Kiss’s screw up.
If there were an agreement under which CitiLease agreed that it did not have the right to sue for more than the value of the repossessed equipment, or that it was waiving that right, the city would have eagerly announced that by now. It hasn’t.
@Jimmy: Once again, if there are mutual agreements that post-date the original lease, those take precedence.
You’re right, it’s not pretty clear that they’re in default, it’s crystal clear. Of course, you have to actually read the agreement, which I’m pretty sure you haven’t done.”Subject to the provisions of Section 7, any of the following events shall constitute an “Event of Default” under any Lease: (a)failure by Lessee to pay any Rental Payment or other payment required to be paid under that Lease at the time specified in that Lease”The $1m slush fund was exhausted, the forbearance period ran out, no 90 day notice, no payments. Default.BTW, one clue is that “forbearance” means a mutually agreed delay of default, typically foreclosure in a mortgage context. It has nothing to do with a delay of nonappropriation. Also, nonappropriation can only occur at the end of a fiscal year (with 90 days’ notice), which for Burlington is June 30. You can’t pull the plug midyear.
@ Dawley:”According to this memo from Kiss’s office, there was an agreement between BT and CitiCapital . . .”And you believe “this memo” from Kiss and Leopold??? Why??? How have they convinced you that you should believe a single word they say? At this point, no one should believe them if they predict that the sun will come up tomorrow.Fact is, CitiLease can, should, and will sue the city for $33 million dollars. That’s the document that the city signed up for.