Mayor to Propose Burlington Telecom Fixes

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In a letter to Burlington city councilors in advance of tonight's special meeting about the fate of Burlington Telecom, Mayor Bob Kiss said he supports a full, independent audit of the utility's finances, among other steps, to reinstate residents' confidence in the fledgling venture.

The audit request comes on the heels of an extensive war of words between the Kiss administration and David O'Brien, the state's public service commissioner. O'Brien's department represents ratepayers in cases before the Public Service Board, the quasi-judicial body that regulates utilities.

Currently, BT is in violation of two key conditions of its certificate of public good (CPG) issued by the PSB: it hasn't built out its network within the Queen City as fast as it originally claimed and it borrowed a total of $17 million from the city without repaying the money within 60 days.

Kiss said another city entity, Burlington Electric Department, already has audits conducted separately from the citywide financial audits, and a BT audit could likely be completed before the end of the calendar year.

"I agree with suggestions for an independent audit of the current state of BT finances and operations. My administration will work to ensure that such an audit is completed in an expedited fashion if we choose to pursue a separate audit of BT similar to the process used by [Burlington Electric Department]," writes Kiss in his letter (a full copy is pasted below). "I think a separate audit of just BT can ... help to allay public concerns."

Kiss also said that Chief Administrative Officer Jonathan Leopold, who alone OK'd the city loans to BT without explicit approval from the Board of Finance or the City Council, will recommend several refinancing options to councilors by their Nov. 16 meeting. That financing plan will include an immediate repayment of the $17 million.

The Kiss administration will outline additional steps it believes the council should take to reinforce its support for BT. Two weeks ago, the city council voted 13-1 to seek relief from the repayment condition of its CPG. That vote came after the $17 million in loans was publicly revealed.

In recent weeks, city officials admitted to loaning Burlington Telecom (BT) at least $17 million from the city's checkbook in order to keep the utility afloat as it awaited a new round of financing to complete the build out of its fiber-optic network within the Queen City.

Since last fall, the city has been negotiating with the Department of Public Service ways in which they could better define how that build out occurs in order to plan the next round of funding. To date, BT has spent upwards of $50 million: $33 million came from two separate rounds of financing with outside investors, while the remaining $17 million has come from Burlington's "cash pool" account. Or, in layman's terms — the city's checking account, through which about $300 million flows annually.

O'Brien said Friday he wants BT to repay the city loan now and to stop taking more cash from taxpayers.

BT has been paying back the interest on the loan, but not the principal. According to its certificate of public good, BT should have been repaying that money within 60 days. City officials say they have been in violation of this CPG condition since early 2008.

In his letter to councilors, Kiss said the loan from the cash pool has not risked any taxpayer money. That's because the city can easily refinance BT's total debt. It only wanted more clarity from the PSB about what it means to "pass by" all homes.

BT said its initial CPG is not clear if "passing by" all homes includes laying fiber-optic cable along private rights-of-way inside condo associations. In filings before the PSB, the city estimates it will cost another $6 million just to pass by all homes (including the entrance to condo associations) and businesses in Burlington.

The city could refinance BT's debt right now, and repay the city, but it could cost $1.1 million in fees and penalties, said Leopold.

Aside from tonight's special city council meeting, the city council will host a public forum to hear residents' concerns. That will take place Thursday night in Contois Auditorium. The forum begins at 7 p.m. Kiss will be out of town and unable to attend the public forum.

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Complete text of Mayor Bob Kiss' letter to the City Council:

October 19, 2009

Dear City Council:

I am writing in advance of the special City Council meeting Tuesday evening about several important matters related to Burlington Telecom. While much has been said and written in recent days, I know that we share a common interest in BT and a commitment to its continued success and future viability. In particular I want to emphasize the following points:

1. The use of pooled cash relative to Burlington Telecom does not place city finances or taxpayer dollars at any additional risk. Because of the availability of refinancing, this practice does not create a greater risk to the viability of BT than the normal risk that is inherent in the enterprise itself.

As you know, the City has already taken a definitive step in filing with the PSB for a clarification of our responsibilities under our Certificate of Public Good conditions 17 and 60.

2. I agree with suggestions for an independent audit of the current state of BT finances and operations. My administration will work to ensure that such an audit is completed in an expedited fashion if we choose to pursue a separate audit of BT similar to the process used by BED. As you know, BT has been audited by the City’s auditors since inception. However, the audit of the entire city for fiscal year 2009 will not be completed until the end of the calendar year. Currently BED has an audit independent of the regular city audit in order to complete the audit earlier than the City audit. I think a separate audit of just BT can be completed more quickly and help to allay public concerns.

3. We are committed to arranging for replacement financing to remedy the current situation in which pooled cash has been borrowed beyond the 60 days required by the Vermont Public Service Board. CAO Leopold will provide recommendations concerning this financing to the City Council no later than November 16, 2009.

4. In light of public concern regarding the status of BT’s finances and the negative effect of DPS Commissioner O’Brien’s remarks this past week, I recommend that the City should petition the Public Service Board to expedite the hearing on condition 60 of the CPG.

We are building an infrastructure to meet the needs of the future. With its high-quality, reliable, and comprehensive telecommunication services, BT is an essential tool for the citizens and businesses of Burlington. I am confident that working together we will see an effective Burlington Telecom that meets all of our needs and puts Burlington in the best position possible to build and sustain a high quality of life and service.

I look forward to working with you on these issues.

With best regards,
Bob Kiss, Mayor

Comments

[Jimmy]

"That's because the city can easily refinance BT's total debt. It only wanted more clarity from the PSB about what it means to "pass by" all homes."

Ridiculous. One thing has nothing to do with the other. They took the money because BT was failing, and they couldn't get any other financing, Leopold said so at the press conference. That money is more than "at risk," it's gone for good.

[Laban]

Gee...Isn't that exactly what the public service commission wanted? Good thing Mayor Leopold--oops, I mean Kiss--is acting as if he is being proactive on this despite the fact that he has tried to be secretive and nonresponsive until he was completely backed into a corner. I've been fed up with this administration for a couple of years. This is nothing new for Kiss/Leopold. I just wish the city council would hold them accountable and give Leopold a vote of no confidence.

[Jay Vos]

The City moves into "damage control" mode. I can see it now, calls for independent investigation met, with the end white-washed result being "mistakes were made." Typical!

[Concerned in B'town]

This whole mess is awful and avoidable. Here's what we know...

1. "BT the network" is a tremendous asset for Burlington... truly astounding that we have this technology here and that it's owned by us.

2. "BT the organization" is a mess.

Employee morale has been in the dumps since Jonathan took over.

BT does NOT have a true telecom CEO at the helm... how can you run a cutting-edge state-of-the-art network in an almost unique business model (that is, municipal-owned) without an experienced leader?

And, as we all can see now, there's been no real oversight... Jonathan has hoodwinked a weak City Council for years now.

Moving forward... get an innovative and genuine telecom CEO running the show, get some real oversight, and shift this incredible asset into high gear. Well run, BT should be making us a pile of money while providing great service to us.

I'm furious about what Kiss/Leopold have done, and what the complacent City Council has allowed to happen. Now their screw-ups may result in us losing one of the best things to happen in Burlington in a long time.

[christopher mitchell]

Jimmy has no idea what he is talking about. The quote he references makes sense. BT had a couple of choices when the financial markets fell apart - borrowing money from the city or stopping the buildout. They continued the buildout by borrowing money (to stop the buildout would have violated another provision of the CPG).

Now it makes no sense to refinance as the amount needed for hte refinance will not be determined until the PSB and BT settle on a time to complete the buildout. The faster the buildout, the more money the refinance will have to include. Allowing greater time to complete the buildout means less to refinance as the buildout will be funded in greater proportion by incoming revenues from services sold. Additionally, the refinance should not be done until BT is told whether it can offer services behind the city.

Financing a network is not like buying a car. It is complicated and can be confusing - especially when some people just want to declare things to be failures rather than understanding what is really happening.

[Jay Vos]

Actually, come to think of it... the upcoming public forum meetings this week are more like "controlling the message" than actual damage control. I certainly hope that Shay's continued coverage reports this.

[Jimmy]

"BT had a couple of choices when the financial markets fell apart - borrowing money from the city or stopping the buildout."

Using Condition 17 to excuse behavior that violates the CPG AND the City Charter, breaks promises made to the voters who approved BT in the first place, and puts BT and the City square in the crosshairs of a lawsuit from Comcast and heavy state fines or permit revocation, is patently ridiculous. Using the excuse that they didn't understand what was meant by "pass" and had to borrow $17m for nearly two years while they waited for the answer is beyond silly, but apparently it's all they've got at this point. In any event, the PSB had essentially hit the pause button on the requirement that BT comply with Condition 17 until such clarification had been issued.

The reality is, as Leopold spelled out in the press conference, that BT was not cash flow positive when they went to the well and needed additional funds to survive. Only $11m of the $17m they took from the City was used to expand the network; the remainder was used as operating capital. They would have had to take that additional $6m just to keep the doors open, even if they had completely halted the buildout.

[Dale Tillotson]

a few sound bites.
Kiss now in favor of independent audit. That means we still pay for he and leopold's doing.
Leopold to recommend financing options. We need no longer ever to listen to leopold he is one of the major problems we are here.
1.1 million in fineas and penalties. Kiss and Leopold should be made to pay this. Working it off at hard labor would be fine by me.
And closing with Kiss will be out of town for Thursdays meeting. Translated equals teflon Bob on the run.
Take back Burlington.

[Buster]

It is time to Garnish the Wages of CAO Leopold and Bob Kiss.

Throw the bums into the street. Bob sees no theft stealing the money on Tuesday and promising to borrow the money from his dead aunt next year or some time to replace his ill gotten booty. This man is a complete imbecile and should be impeached immediately.

The only way we can trust an independent audit is if is conducted through the courts. Kiss and Leopold left a paper trail of deceit throughout the city's public records leading to the Bond fraud last year where they failed to properly account for the theft of the peoples money.

Leopold and kiss have violated the public's trust. Why should we believe anything Kiss says if it were so easy to raise capital for the failing BT why is the money gone?

Impeach, and fire the CAO then fully prosecute the crimes.

[angry BT supporter]

It's not so much our confidence in BT's viability (although we still need to know it's health and value), its our confidence in Kiss and Leopold. How does one go about repairing something that's been completely shattered?