BURLINGTON — Burlington city councilors are split on whether the city should invest a portion of the $6.5 million in funds the city received in the sale of Burlington Telecom into its new corporate owner.
The city sold BT to Schurz Communications for $30.8 million, a sale that was approved by state regulators in February 2019. The city must decide by March 12 whether to invest in Champlain Broadband, the local affiliate Schurz set up to operate BT.
Mayor Miro Weinberger has proposed investing $2.4 million of those funds into Champlain Broadband to purchase a 7.5% membership interest into the company, which would include a seat on the company’s board. The City Council is expected to vote on the matter Tuesday.
Three councilors who support investment — council President Kurt Wright, R-Ward 4; Councilor Brian Pine, P-Ward 3, and Councilor Sharon Bushor, I-Ward 1 — pitched their case at a press conference Wednesday at City Hall with former councilors Dave Hartnett and Jane Knodell.
But Hartnett acknowledged that less than a week before the expected vote, a majority of the council opposes the idea.
Burlington had agreed to sell BT to settle a lawsuit with Citibank, which sued the city for $33 million after the city defaulted on a loan. Then-Mayor Bob Kiss had used $16.9 million in taxpayer funds to prop up the telecom in 2009.
The sale followed a highly scrutinized process in which Schurz was selected over a local co-op and Toronto-based Ting in November 2017. The Vermont Supreme Court upheld the sale in a decision last month.
Wright argued that investing in Champlain Broadband offered the city its best chance to recoup funds for taxpayers and a decision to pass on the investment would be “shortsighted.” Schurz has said that Burlington Telecom is exceeding expectations.
“We will be saying it’s over, and we have lost the rest of the money, instead of making a real effort to bring in money to the taxpayers that could benefit every citizen of Burlington for years and years to come,” Wright said.
Knodell said the projected distribution to the city on the $2.4 million investment in five years would be more than $300,000, or a 12.5% rate of return. The city would pay off its investment in eight years, Knodell said.
“I challenge anybody to show me anything else with this level of risk that’s giving a 12.5% rate of return,” she said.
Pine said that investing in Champlain Broadband represented a chance for the city to set up a revenue stream that is an alternative to the property tax.
“This is a new source that allows us to give the taxpayer some break,” he said. “I think we can’t overemphasize, this gives us the ability to fund city services without relying on the taxpayer.”
Pine said the city would be “cheating its taxpayers” of future revenue by deciding not to invest now.
Councilor Max Tracy, P-Ward 2, said in an interview with VTDigger Wednesday that he does not support investment. He said the volatility of technology made him worried about the investment’s risk.
“I think we need to be very careful about engaging in speculative investments with private companies,” he said.
Tracy said he believed the city should spend the funds on other needs after a discussion with residents.
“There are so many other additional needs we have in this community, so I think we’re going to have to be very careful about how we use the limited resources that we do have, and use them strategically to the greatest good,” he said.
Councilor Ali Dieng, D/P-Ward 7, said that he was concerned about the risk and that he believed the city had too many competing funding needs to invest in Champlain Broadband.
“I think we need to cash out and move forward,” he said. “We have so many other competing priorities in the city, and any penny we can get elsewhere, our constituents need that break.”
Councilor Jack Hanson, P-East District, said he was currently against investing as he was worried about the risk.
“I’m uncomfortable with the idea of putting public money into a private company we don’t control,” he said. “I don’t think one seat on the board gives us real control.”
Councilor Franklin Paulino, D-North District, said he believed the investment would be “spending good money after bad.”
“I think it’s too speculative and I don’t think we should be putting money into something with the expectation we are going to get returns,” he said.
Under Weinberger’s proposal, the city would spend $1.4 million to settle liabilities associated with BT, including settling unfunded retirement liability from when the city owned BT and for moving BT equipment out of Memorial Auditorium if necessary.
The city would use another $1.4 million to reduce taxpayer costs by paying $350,000 a year for four years to cover the city’s technology costs. The remaining $1.6 million would go into a reserve fund for special projects.
Weinberger said the administration’s proposal was conceptual, and he was open to ideas about how much should go into the special projects fund as opposed to keeping operating costs down. He said it was “very clear” the city needed to address the liabilities associated with BT.
Weinberger said he supported investing in Champlain Broadband to ensure a smooth transition and to guarantee that the company follows through on its agreements with the city, not in the hopes that investing would return a major profit.
“I think having a seat at that board would serve as a guarantee of sorts that the important public protections that I negotiated into that transfer agreement are observed and implemented as they are written on paper,” he said.
For example, the sale mandates Schurz continues to treat customer information the way the city did when it owned BT and mandates other community investments, among others commitments.
Weinberger said he thought investment was “relatively safe” and said he expected a close vote. If the council decides not to invest, he said the city was prepared to set up structures to ensure that Schurz fulfills its promises in the sales agreement.
