Blurt: Seven Days Staff Blog

NOTE: Blurt has been retired and is no longer updated regularly. For new content, follow these links:

OFF MESSAGE: Vermont News and Politics
BITE CLUB: Food and Drink Blog
ARTS AND MOVIES NEWS: Updated at sevendaysvt.com

« Vermont Yankee Dumps Employee Ads From Website | Main | Newbery Winner at Flying Pig and Why You Should Read 'Feed' »

February 10, 2010

Burlington Telecom Continues to Dive into Cash Pool

As reported in this week's "Fair Game", Burlington Telecom is seeking approval to make a February 17 payment to CitiLeasing on the order of $390,000.

It was also noted that BT was prepared to make the payment from its current cash flow and not borrow any money from the city's "cash pool."

Guess what? BT officials told Seven Days today that, in fact, they may need to borrow an undisclosed amount of money from the cash pool. However, BT claims it will be able to repay the money within 60 days, per the conditions of their certificate of public good.

Where have we heard that before?

In November, BT borrowed about $265,000 from the cash pool to cover some operating expenses and a portion of their lease payment, according to Chris Burns, BT's general manger.

In their pleading to the Public Service Board, BT argues that it "plans to have sufficient funds to make a portion of these payments, but may need to access pooled cash for the remainder. As just stated, however, BT will have sufficient receivables to repay pooled cash within 60 days."

The PSB hearing is slated for 1 p.m. Thursday in Montpelier. On Friday morning, Chittenden Superior Court Judge Helen Toor will preside over a hearing where two Burlington residents are seeking a temporary restraining order against BT from spending any more money — in particular the Feb. 17th interest payment.

The pair — former Republican city councilors Gene Shaver and Fred Osier — sued the city late last year to stop BT from spending more money until taxpayers are repaid the roughly $17 million they are owed thanks to loans provided to the utility by Chief Administrative Officer Jonathan Leopol. Those were loans not explicitly authorized by the city council or the city's board of finance. The lawsuit holds Leopold personally responsible for repaying the money if BT can't come up with the cash.

"Even though Leopold knew that BT had not and could not repay funds from the City's cash pool management system within 60 days as required by its Certificate of Public Good, he continued to authorize the payment of such funds to BT and to hide the violation from regulatory authorities, city councilors, and the public," the lawsuit alleges. "Such conduct constitutes deceit and renders Leopold personally liable for the unpaid funds."

Given that hanging out there, you have to wonder why Leopold continues to sign off on letting BT have access to the city's pooled cash.

Also released late today was the BT Blue Ribbon Committee's final report. The committee has rejected the notion of further borrowing by BT, but rather believes BT should seek an outside partner and create a stand-alone corporation separate from the city.

Mayor Bob Kiss said he remains skeptical of claims that BT cannot survive on its own, given more time to right itself and add more customers from the market.

Here are excerpts from their report (Download a PDF copy here: BT Blue Ribbon committee final Public report):

The following report specifically responds to each of the questions raised by the City Council. The overall assessment of BT from the Blue Ribbon Committee is as follows:

• BT fiber network is a significant asset to the City of Burlington, its businesses and residents.

• BT overpaid for this investment and the debt load is too great to be covered by the revenue and earnings from Burlington Telecom. Without successfully negotiating significant reductions in debt with its creditors, at least $15 to $20 million of this investment might never be recaptured.

• Simply borrowing more debt to meet its current obligations will only prolong the reality that the City must right-size BT. The BRC does not support borrowing more money to do so.

• If BT can be successful in right-sizing, the overall strategic plan of Burlington Telecom must shift from engineering and technology based to one based on sales, marketing, and customer service in order to be successful in the future. Organizational structure should be refined to meet the needs of such a strategic plan.

• The Committee recommends that the City consider developing a restructuring strategy that would achieve 3 basic objectives:

1) Continue to allow the residents and business of Burlington to benefit from the fiber investment made to date by Burlington Telecom

2) Allow BT to continue to operate under new governance and ownership with the experience of marketing and selling telecom services.

3) Provide a long-term opportunity for the City of Burlington to realize a return on its investment in Burlington Telecom.

In order to achieve these objectives, the committee suggested this approach:

The committee conceived a variety of strategies and approaches. We recognize the need for flexibility
as the financial and legal implications of different approaches need to be considered. We also recognize
the time sensitive need to address the issues related to non-compliance with Condition 60 and the City’s
credit rating. In light of the fact that the fiber network is an extremely valuable community development asset to the City, the following steps should be undertaken to enable BT to become a viable telecommunication network:

• The first step is to retain an expert financial advisor to consider short and long-term strategies towards implementing the recommendations listed below:

• Restructure BT’s debt to relieve the current debt burden

• Seek equity investment by entering into a partnership with a private entity or otherwise obtaining private investment

• Create a new entity, “BT Inc.” to manage and operate the business of providing telecommunication services, with a board of directors that includes minority representation by the City

• Make staffing and operating model changes consistent with the reports and recommendations of the consultants’ to the Blue Ribbon Committee

In conclusion, BT is a valuable asset – a “platform for innovation” according to Stratum’s presentation – to the City. It cannot be viable under its current configuration. It can however be viable with a financial restructuring that secures favorable terms and conditions, creation of BT, Inc. as a for-profit corporation, and identifying a majority investor to provide needed capital for technological upgrades, operations, and future growth of the business. It must also refocus its entire structure to one of a company emerging out of distribution and into customer retention, expansion and all the attributes that a viable business in the private sector embraces successfully.

Let it die. It's over.

I am so disgusted by Bob right now and I voted for him 1st! What a mistake. I am just so sick of this. Bob, for god sakes and for your reputation's sake, Fire Jonathan before you lose all credibility and become a lame duck. I'm begging you. Bring someone in with business and political savvy that has experience in running a city and not someone with an ego the size of the state. Your administration has become ethically challenged and you really need to start at the top and clean house. The fact that you tried to alter the Blue Ribbon Commission's recomendations is just so short sighted. I love BT but if we want to move forward, you're going to need to get a new team in place. There is nothing wrong with admitting that you F'ed Up. For the utilities sake and for the cities sake, Fire Jonathan or have him step down on his own and get someone new in there.

You're political obituary is being written right now and you risk becoming irrelevant and this is going to be a campaign issue for City Council. It will hurt the Progs running in the Old North End and I'm inclined to support the Democrats here.

With the Mayors return of the BT report to the BRC in an edited state shows a blatant disrespect to the BRC and their hard work, and a continued disrespect to the residents of Burlington.
The Mayor, his Asst. and the CAO will never live this display of disrespect down. This administration continues to not follow any rules except their own, and we has citizens and taxpayers are the ones paying the price. I hope the voters do their part in the booth and remember those candidates that have supported this administration and vote them out.

Hey Shay, the Daily 7 e-mail announcing this story says: "... Shay Totten reports that BT may once again need to borrow money from taxpayers." Isn't that an as-yet unproven statement? The cash pool is a fund whose coffers are filled with fees, commerical taxes, city revenues AND taxpayer money (taxpayer money being one part of the whole). Won't the current "forensic audit" determine if taxpayer money was indeed used towards BT?

I know it sounds like minutiae, but the current undertone in town is the fear that taxpayers will be on the hook for BT. Use of funds other than taxpayer money would show a city on sound footing that can swing BT for the short term. Granted, a bigger vision has yet to be determined, but that's for tonight's meeting.

Tiki, since taxpayer funds are the only source of pooled cash that's not immutable, $18m flushed out of there is taxpayer money by definition.

The whole "it's not really taxpayer money" ship has sailed - ask the PSB.

Jimmy - if the "ship has sailed", why is there an audit taking place?

BTW, the PSB is hardly the end-all be-all to the story. David O'Brien's tough-on BT, soft-on-Fairpoint/Entergy reveals a political bent among the group. Since Shay has already written about that too, one could argue that the whole "PSB is looking out for taxpayer interests" ship has sailed.

The myth that it's not taxpayer money was floated early on and quickly discredited, that's what I meant by the ship has sailed. Digging into how the money was spent certainly isn't over, and that's as it should be. I'm sure there's a LOT more to come on that front.

Similarly, O'Brien has been lauded as an early friend of BT, so the whole "he's out to get us" thing died a while back as well. Try to keep up. In any case, the PSB has absolute authority over BT. If they decide to shut it down, you can whine that it was political all you want, it's still getting shut down.

I'm trying to keep up with you, Jimmy, but you appear to be better at knee-jerk reactions than me.

Agreed that the PSB has finger power over BT. Doesn't mean nobody should ask how politics plays a role in the PSB's decision. Why didn't O'Brien also attend Entergy's PSB hearing, for example?

BTW, O'Brien's "early friend of BT" status was given solely by Tim Nulty, the guy who understated BT's startup costs. Not knocking Nulty altogether as he is a very smart man and had the idea to expand outside Burlington long ago. But O'Brien's "friendly" claim doesn't pass the smell test.

Nulty was one of the few heavily involved early on, he has no reason to lie on this matter and no one has refuted him.

The comments to this entry are closed.

Stuck in VT (VIDEOS)

Solid State (Music)

Mistress Maeve (Sex)

All Rights Reserved © Da Capo Publishing Inc. 1995-2012 | PO Box 1164, Burlington, VT 05402-1164 | 802-864-5684