Burlington has come up with a possible solution for the Public Service Board to at least one of its Burlington Telecom violations: removal of the condition in its Certificate of Public Good (CGP) that requires building a system that serves every city resident.
The resolution to drop “the obligation to build out the entire City and replace it with a line extension tariff” was introduced by Karen Paul, I- Ward 6, after review by the city attorney’s office. Noting that this has been an ongoing concern for the PSB, she urged the council to “admit that we cannot meet this condition.” The main reason for the resolution, she added, “is to attract a partner.”
In 2005, the PSB approved Burlington Telecom’s license to provide cable television service in Burlington. Since then, the municipal-owned utility has brought its own TV, telephone and high-speed Internet service to much of the city. By late 2007, however, the Kiss administration had borrowed $16.9 million from the city treasury and failed to pay it back within the required two months. The PSB has called Burlington’s actions a “wanton” violation of the CPG.
Mayor Bob Kiss and chief administrative officer Jonathan Leopold kept the debt secret until after the March 2009 elections that gave Kiss a second term. In 2010, BT was challenged by the Department of Public Service on behalf of consumers, and by Comcast, the city’s main competitor. The PSB found BT to be in violation of four conditions of its license.
The city is simultaneously being sued by Citibank for fraud and breach of contract regarding a $33.4 million lease purchase deal. Citibank wants the money back, plus punitive damages, charging that Burlington has continued to use its equipment to generate revenue.
Six week ago, an attorney for the Public Service Department said that the city must find a way to repay the borrowed local money and “cure” other violations within a “reasonable” time. If not, “the PSB may have no alternative but to revoke BT’s Certificate of Public Good,” warned attorney Geoff Commons.
Two weeks later, on Sept. 16, Moody’s Investors Service warned that BT’s financial problems could lead to a further downgrade in the city’s credit rating. Moody’s says the $16.9 million debt is a reason for lowering credit ratings not only of the city itself, but also of municipal enterprises such as Burlington Airport and Burlington Electric Department.
Shannon argued on Monday that the requirement to build a BT network that serves every residence, building and institution in the city “is making it less attractive” to any potential private partner. “This is an obstacle,” she said. According to Joe Reinhart, assistant to Mayor Bob Kiss, Burlington is negotiating with an “out-of-state independent telephone company” that might be willing to let the city keep a minority share.
BT’s interim general manager Stephen Barraclough says closing down the enterprise isn’t on the table. Rather, the focus is to “right-size BT.” Since last year, when the city brought in Barraclough and other consultants, at least $900,000 has been spent on management and financial advisory services.
As the resolution adopted Monday night explains, since BT started to build its network “state law and PSB rules have changed, so that a cable television company is not obligated to overbuild where another cable company has previously built a cable television system.” City Attorney Ken Shatz told the council that new PSB rules provide “an opportunity to cure that violation.”
The resolution also acknowledges that BT’s revenues “are insufficient to both build out the remaining areas of the city and repay the $16.9 million debt to the cash pool.”
Shannon said that many of the residences that may be affected are in her south end ward. “My hope is that when we create a new partnership, they will do what they can to build out,” she said. “But we can’t expect a new entity to blast through rock.”
Councilors Sharon Bushor, I-Ward 1, and Bram Kranichfeld, D-Ward 2, a candidate for mayor, asked for an explanation of the “line extension tariff” that might come into play. Shatz explained that the term refers to a “cost- sharing formula” that could be used if new lines are needed to serve potential customers in low-density areas. In other words, some customers might see an extra charge.
The handling of BT finances has already emerged as a key issue in the upcoming mayoral race. Even Sen. Tim Ashe, a former Progressive city councilor who announced his candidacy for the Democratic nomination Monday, has been critical of the current Progressive administration. “In order to attract a private partner, BT must aggressively work to retain and add subscribers,” he said in his announcement. “In addition, BT must renew its effort to serve Burlington’s institutions and businesses.”
The resolution says that Burlington remains committed to “a full build-out of the city as long as a full build-out is commercially feasible.” Nevertheless, they are asking the PSB to drop the obligation to do that imposed by Condition 17.
