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October 22, 2009

Quick Guide to Burlington Telecom Controversy

Tonight, the public will finally be asked to sound off on the ongoing controversy regarding Burlington Telecom and its use of $17 million in city funds to keep it afloat.

The City Council called the special meeting, which will begin at 7 p.m. inside City Hall's Contois Auditorium.

Here is a quick recap of the BT controversy, along with links to past articles and blog posts tracking this unfolding story.

Mayor Bob Kiss called a special City Council meeting Tuesday night so he and his administration could respond to growing criticism of Chief Administrative Officer Jonathan Leopold's decision to loan Burlington Telecom $17 million — from what is essentially the city's checkbook — to keep the fledgling utility afloat while the city explored new financing options.

That move violated BT's license to do business, issued by the Public Service Board; BT was supposed to repay the city any borrowed money within 60 days.

Some councilors believe it also violates the spirit, if not the letter, of the city's charter.

Councilors are also upset that Leopold failed to explicitly inform them about his use of taxpayer funds to prop up BT — or of the violation until six months after city officials learned of the problem. Nor did he seek their approval, or the approval of the city's Board of Finance, to loan $17 million to BT.

Only the council or the board of finance can approve additional financing for BT.

Leopold has admitted that he did not seek explicit approval from the Board of Finance or the City Council to use the city's "pooled cash" (i.e. checkbook) for Burlington Telecom, nor did he tell the City Council that BT was in violation of its certificate of public good until six months after city officials learned of the violation.

He bristles at the notion that he has kept this a secret, though admits he could have done a better job at ensuring that councilors, and the board of finance, understood the implications of BT's financial troubles.

The use of "pooled cash" to fund various operations of the city is a routine practice, said Leopold, in anticipation of receiving outside financing. In the case of BT, no such additional outside financing has been secured.

Under questioning Tuesday night, Leopold admitted that if BT were to go belly-up, and a sale of its assets were not enough to cover the money it owes to outside financiers and taxpayers, that any money not repaid to the "cash pool" would become a drain on the city's general fund.

This original 60-day stipulation was put in place to answer competitive concerns raised by Adelphia (later Comcast) and the Public Service Department. Both the state and the multi-billion dollar cable giant were concerned that if BT were allowed to rely on taxpayers for funds it would give them a competitive advantage.

The city's charter also explicitly forbids Burlington from using taxpayer funds or money from Burlington Electric Department ratepayers to fund BT.

The city has also failed to meet its stated timeline to complete the build out of the fiber-optic network within the city. Leopold and Kiss say this is because it's proved more expensive than initially forecast by BT's original General Manager Tim Nulty. City officials say opposition by Adelphia and Comcast caused longer days than anticipated, too.

At Tuesday night's meeting, Kiss suggested several steps the council should approve to shore up confidence in the utility and clear up concerns about its finances.

City councilors gave Kiss and Leopold an earful of harsh criticism, but took no action, at the Tuesday night special session. It's expected that the council will debate a wide-ranging resolution aimed at clearing up the financial controversy and shoring up support for BT.

The council's seven Democrats will caucus Sunday night, in preparation for Monday night's regular meeting, and are seeking input from other councilors as they meet with their own outside counsel, Dan Richardson of the Montpelier-based law firm of Tarrant, Marks and Gillies.

The Democrats pooled about $10,000, their share of $21,000 originally set aside for the whole council to hire a budget analyst, to put an attorney on retainer. The council, as a whole, could not agree on how to hire someone and the administration failed to issue a request for proposals in time for an analyst to be hired before the review of the current budget.

"I realize that some councilors were vehemently opposed to the Dems' use of our council funds in this way and want to proceed differently in the future," noted Democratic Councilor Joan Shannon (D-Ward 5), in an email to her council colleagues. "However, the issue at hand right now is how we can best serve the interests of the Burlington citizens, businesses, and taxpayers, and it is my hope that Mr. Richardson will be of help in this endeavor which I believe is our shared goal."

Leopold has faced increasing criticism from the public and councilors about his role in the funding fiasco, with one councilor — Ward 1 Democrat Ed Adrian — urging Mayor Kiss to put Leopold on unpaid leave until an independent audit is conducted.

Most councilors, though upset with Leopold's actions, have said publicly they want BT to succeed.

Burlington Telecom, a municipally-owned and run cable, phone and internet company, ran into financial troubles in early 2008 when it burned through its $33 million lease-purchase loan from CitiCapital. That loan included the refinancing of the utility's original $22 million loan from Koch Financial.

City officials say people shouldn't lose sight of BT's value to the city and the state. Its fiber-optic network is state-of-the-art and it provides necessary competition in a state where few private companies offer similar services. The state's largest private cable provider is Comcast.

Kiss told councilors Tuesday night that BT has to date saved taxpayers more than a half million dollars  by providing lower-cost phone and internet services than previous providers. BT also pays franchise fees and payments in lieu of taxes to the city.

For a complete rundown of Seven Days' coverage of the BT controversy, I've put together this list of blog posts and articles as a resource. I've posted them in reverse chronological order.

Secret Lives, Public Officials ("Fair Game" column, examining the political implications of keeping BT finances secret. Posted Oct. 21)

Kiss Administration Grilled by Council on Telecom Finances (posted Oct. 21)

Councilor Wants City CAO Placed on Leave (posted Oct. 20)

Mayor to Propose Burlington Telecom Fixes (posted Oct. 20)

State Tells City: Stop Loaning Cash to Burlington Telecom (posted Oct. 17)

City to Host Special Meetings on Burlington Telecom (posted Oct. 16)

Telecom Tangle ("Fair Game" column where PSD Commish David O'Brien lashes out at BT. Posted Oct. 14)

Where the Hell's My Money ("Fair Game" column, where CAO Leopold defends use of pooled cash. Posted Oct. 7)

On the Public's Dime ("Fair Game" column originally breaking the $17 million loan from taxpayers to BT. Posted Sept. 30)

Some background is missing here. BT runs on the basis of trade secret under the assumption that other companies would like to get their hands on customer information and otherwise. The proprietary protections and non-disclosuree agreement even exist at the public service board level as well at the city level. I think it's all stupid and the reason we're here today, but there's a good argument for it since BT does not have the privilege of operating as a lone public utility without competition--like the electric department. The expansion proposal--that has delayed a year--hinges on funding and PSB approval. Councilors are pleading ignorance about the expansion when mayoral candidates campaigned on it. Also, this is potentially the second time cash pool funding violation occurred. The other context is that BT is (and public access TV was) under pressure from Comcast to fulfill information requests. David O'Brien hasn't had a Christmas party with Comcast management but he's definitely under pressure to provide a level playing field. BT has limited access to capital reserves nvestment in this tough economic period as opposed to Comcast--albeit BT has technically superior infrastructure with fibre. Build-out failures and poor planning meant city cash pool was the only option to maintain services. All these pressures have probably forced city officials to hold all their cards close in the low-intensity war played about between BT and Comcast.

BT has some loose ends that will need leadership, but currently it is on a cash-positive road and is generating (small) income for the city on interest payments for the loan--in addition to the tax and franchise revenues and operational savings to the city.

"Build-out failures and poor planning meant city cash pool was the only option to maintain services. All these pressures have probably forced city officials to hold all their cards close in the low-intensity war played about between BT and Comcast."

BT did not have the right to use that money past 60 days, if they had played by the rules they would have had to shut down. That's life, and the fact that they broke the rules to keep the lights on puts them, and the City, in line for a Comcast lawsuit IMO. Nothing "forced" officials to withhold the CPG/City Charter violation from parties with whom they are obligated to share such information; nevertheless they chose to do so.

"currently it is on a cash-positive road and is generating (small) income for the city on interest payments for the loan"

I believe Leopold has disagreed with you on the cash positivity, unless you're talking about projections, which apparently are also a big secret. If BT takes $17m from the City and throws a few grand back, that is not "generating income."

The value of BT is not the issue here. BT may be a great thing and well worth saving. But "protecting" BT cannot be an excuse for glossing over and forgiving the illegal activity of Mayor Leopold and his assistant Kiss. No matter what, they MUST be held to account for their illegal actions.

No one is above the law, and the ends do not justify the means.

Four councilors (3 dems and 1 rep.) have signed onto ADrians call to suspend LEOPOLD

Hey Shay:
You've got to remember Bernie Sanders cut his teeth in Burlington and the city is his baby.!!! We all know you have to protect your babies.!!!
It will take some doing but he will figure out a way to introduce legislation and slide it through in some sort of grant or pork bill going through and you won't even recogize it's intention and believe it or not he might even suck Leaky Leahy into this bailout.
People you must understand there is 33 million dollars of Democrat's money on the line and much like our current leader they will not loose.!!!

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