Editor’s note: This commentary is by Jane Knodell, a Progressive Burlington city councilor and an economics professor at the University of Vermont. She was City Council president when it decided to sell Burlington Telecom.
Burlington Telecom: A story of either tragedy or redemption in three acts.
Act 1: Fore-sighted investment (2000-2008). The people of Burlington approve the creation of a municipal telecommunications company, BT. BT builds a state-of-the-art fiber system with “pipe” big enough to upload and download large volumes of data. The company runs bigger and bigger operating deficits in a long start-up period, which the city finances with larger and larger lease financing arrangements. The city owes Citibank $33 million by 2009. At this point, the city is operating one of the fastest fiber networks in the country, but BT’s debt is greater than its value: it is “underwater.” As a result, BT is essentially owned by Citibank.
Act 2: Crisis and recovery (2009-2017). Soon after the election of 2009, it is revealed that the city’s administration had violated the city charter and its certificate of public good from the state of Vermont by borrowing $17 million from the city’s cash pool in order to keep BT operating. By fall 2010, the city has defaulted on its debt to Citibank and has hired a restructuring firm to manage BT. In early 2014, the city settles with Citibank. The city raises the funds needed to write down the debt to Citibank by selling BT’s assets to a local financier, and agreeing to sell the company within five years. The new managers turn BT into a successful company, which attracts high bids. BT is sold to Schurz Communications in late 2017.
Act 3, February 2020: Redemption or tragedy? The city has until March 2020 to act on the opportunity to share in the profits of the new BT. The rate of return is projected to be 12.5% by 2024. Risk on the investment is modest, since demand for high speed telecommunications service will only grow, and BT is well positioned to expand into neighboring communities. If the city were to invest all of its available proceeds from the sale ($5.3 million), within five years this investment would be injecting $665,000 into the city’s annual budget, year after year after year – allowing the city to reduce property taxes by two cents, and more over time. A redemption story.
But many of our elected officials in Burlington are saying they don’t want to invest anything, or they only want to invest part of our proceeds from the sale. They want to spend it. But once you spend it, it’s gone. Now that BT is actually a profitable company, our city leaders are going to walk away from letting Burlington taxpayers fully benefit from their investment? That would be a tragedy.
