Public Service Board Denies Burlington Telecom Access to City Cash

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In an eight-page ruling, the Vermont Public Service Board late Tuesday denied Burlington Telecom's request to dip into the city's so-called "cash pool" to make a key $386,000 interest payment tomorrow on its lease with CitiLeasing.

This means the city will not be able to make the payment, meaning it will be in technical default of its $33 million lease purchase agreement with CitiLeasing. That's because on Friday, it agreed to a court order barring it from using pooled cash or "any other city monies" to make the payment. That includes BT revenues.

The court order, which now will govern BT's ability to pay its bills, restricts BT from using pooled cash and "other city monies" to pay any other bills it owes unless the funds are repaid in 60 days. To enforce that aspect of the order, BT agreed to give several key financial reports to the plaintiffs every 30 days, including reports of accounts payable and receivables, the daily statements of city accounts, all money due to and from BT, all money owed by BT to the city, and financial projections.

It's unclear what remedy the city will pursue to make up for missing a payment to CitiLeasing. As noted in a previous blog post, the city's lease does include a $1 million reserve fund that CitiLeasing can access in the event that BT misses a payment. But, repaying the debt to the reserve fund would likely be taken into account as part of any future payments.

The board denial, though eight pages long, was based on two reasons: BT's failure to present sufficient and reliable information to independently verify its claims that it could repay any borrowed money within 60 days, and the fact BT filed the emergency motion just 12 days shy of when the payment was due. The PSB said this short notice precluded it from conducting a full and fair hearing.

The PSB held a short hearing last week on BT's motion. At the time, the three-member panel was clearly upset with the utility for violating key terms of its certificate of public good, most notably borrowing $17 million from the city's checkbook and not repaying it.

In a statement, Progressive Mayor Bob Kiss said he was disappointed in the ruling.

"The work of the City and the Blue Ribbon Committee on Burlington Telecom over the last several weeks has been aimed at preserving and strengthening the tremendous asset we have in Burlington Telecom.  This decision jeopardizes these efforts," said Kiss.

Allowing BT to make its February payment using pooled cash would have given the city more time to find a lasting and sustainable solution to BT's finances.

"Without the ability to use pooled cash for the February payment, taxpayers and BT operations are placed at a greater risk," said Kiss, who is currently in Vancouver, Canada, attending a sustainability conference sponsored, in party, by Virgin Group business mogul Sir Richard Branson.

In its ruling, the PSB disagrees that missing the interest payment puts taxpayers, or BT, at any further risk than it already faces due to its own actions. Besides, any negative impact of missing the payment rests solely with the city and BT's management.

"From at least the time BT filed its amended petition on September 30, 2009, requesting temporary relief from Condition 60, BT has no doubt been aware that it would be unlikely to be able to fund future rental payments under its master lease purchase agreement without access to the city's pooled cash management system during that time its amended petition was pending," the PSB stated in its ruling. "Yet BT did not file its request for relief from Condition 60 to make the scheduled interest payment until 12 business days before such interest payment was due."

In the ruling, the PSB noted that on Feb. 2 it requested BT's cash flow, as well as documented payables and receivables, so the board could independently evaluate the city's claim — in an affidavit by Chief Administrative Officer Jonathan Leopold — that it could repay any borrowed money within 60 days.

According to the PSB, the financial information BT provided to the board didn't make fiscal sense. Starting from a positive cash position of $92,000 on January 4, BT forecasted cumulative cash deficits through April of $115,000 — without taking into account the money needed to make the $386,000 payment, or to repay the cash pool, according to the ruling.

In addition, BT faces another $387,000 interest payment on May 17 and then a larger lease payment of $706,000 on August 17. The latter payment includes both interest and principal.

What's not clear is what impact this week's missed payment will have on the city as a whole, and on this lease in particular.

In its ruling, the board said allowing CitiLeasing to dip into the reserve fund means the city is in "technical default" of the lease provisions, but the problem does not rise to a more serious "payment default."

Kiss said the city is discussing its options with its outside financial advisers. One option would be to allow CitiLeasing to dip into the reserve fund.

"Our financial advisers will have further discussions with CitiCapital about potential ways to resolve the situation," said Kiss. "While this decision limits the city’s options, we will consider every alternative to meet BT’s immediate needs and move forward to establish a stronger telecom enterprise for the city and BT’s 4600-plus customers."

Click to download and read the full board order (PDF): (Download PSB Order 2-16-10)

Photo of Mayor Bob Kiss courtesy of WPTZ NewsChannel 5.

Comments

[Haik Bedrosian]

The taxpayers will have to eat the 17 million. That much seems clear. How much of the rest of it will Citi have to eat and how much damage will that inflict on the city of Burlington's reputation and credit rating? Enough damage to force taxpayers to cough of the rest too?

You cannot seperate a city-owned entity from the fact that the city owns it. Sooner or later, it's the taxpayers on the hook.

[stan]

Kiss first said the taxpayers would never be at risk of exposure no matter what happened to BT. Now he's saying that unless the city uses 'pooled cash', the taxpayers will be at risk.

This guy is as shifty as they come. He's a liar. If he has the balls to run for office a third time, it will be hilarious watching how badly he loses. Not even IRV could save this moron in the next election.

[MisterGuy]

"The taxpayers will have to eat the 17 million"

...since many different sides have allied themselves to block BT from moving forward with refinancing, which is the *only* way that the City can get it's money back immediately.

"How much of the rest of it will Citi have to eat and how much damage will that inflict on the city of Burlington's reputation and credit rating? Enough damage to force taxpayers to cough of the rest too?"

Surely, a default on the part of BT now will hurt both BT's chances of *ever* getting any kind of financing in the future & it may negatively impact the the reputation of the City. However, the taxpayers of the City of Burlington are NOT on the hook for all of BT's debts, period.

"You cannot seperate a city-owned entity from the fact that the city owns it."

Ugh...I'm constantly amazed at how much misinformation there is out there about BT. The City does not "own" BT, Citi does! The agreement that Citi has with the City f Burlington is very similar to the arrangement that one makes when one buys a car with a loan from a bank...you don't actually own the car until ALL of the payments are made on the car...sheesh...

IMHO, the City should just make BT's payment (that's due today!) from pooled cash & have BT dedicate money to get it paid back within 60 days. To heck with the PSB & the other GOPers that are suing the City to kill BT.

[Jimmy]

"IMHO, the City should just make BT's payment... from pooled cash & have BT dedicate money to get it paid back within 60 days."

One thing that gets lost in all of this is that the wording of Condition 60, and the VERMONT STATE LAW from which it arose, forbids the use of taxpayer funds without equivalent receivables on the books. There is no way BT has $386K in receivables. Taking money from pooled cash would not just violate Condition 60, it would violate the B'ton City Charter and the Vermont Statutes.

"many different sides have allied themselves to block BT from moving forward with refinancing"

It was determined that BT has no chance to repay the debt on its books now, let alone additional debt. Given that, it would be irresponsible to keep borrowing money. Never mind the fact that no one is going to loan BT the kind of money without a City guarantee (ie. the PJ proposal), which is illegal. Not just ill-advised, not just morally wrong, ILLEGAL.

[morgan m]

"The agreement that Citi has with the City of Burlington is very similar to the arrangement that one makes when one buys a car with a loan from a bank..."

Your analogy misses the point that the bank can send the repo man to reclaim your car, but it cannot go after your house.

The agreement between Citi and the City does not limit Citi's recourse to simple reposession of the (now depreciated!) network. They can and will go after the full $33M.

And I don't know if ignoring a PSB ruling AND a court order constitutes a criminal, or a civil offense, but I doubt that even these guys would risk it!

[MisterGuy]

"Never mind the fact that no one is going to loan BT the kind of money without a City guarantee (ie. the PJ proposal)"

You don't know that at all. Half a dozen financial firms are willing to give BT the money that it needs right now.
-----------------------------------

"Your analogy misses the point that the bank can send the repo man to reclaim your car, but it cannot go after your house."

Exactly, and, in this case, the car is BT & the house is the taxpayers of the City of Burlington. Thanks for making my point!

"The agreement between Citi and the City does not limit Citi's recourse to simple reposession of the (now depreciated!) network."

Yes it does...read the contract!

[Jimmy]

"Half a dozen financial firms are willing to give BT the money that it needs right now."

Again - a response to an RFP is not a commitment to lend money. No one has made a commitment to lend BT money.

[Thomas]

MisterGuy, I admire your willingness to defend the City/Mayor, however your comments belie a profound misunderstanding of financial and legal mechanics that responding to you would be a waste of time at this point. You exhaust the patience of those who are a) concerned about BT and b) defeated by the Mayor's ability to navigate. It's become a joke and you, sorry to say, are just to ridiculous to respond to. In your own words "ugh" back at you.

[MisterDoofus]

"You don't know that at all. Half a dozen financial firms are willing to give BT the money that it needs right now."

Not one of those firms has made a commitment to lend a dime. You are a joke.

[MisterGuy]

"your comments belie a profound misunderstanding of financial and legal mechanics that responding to you would be a waste of time at this point."

Thanks for wasting all of our time by posting a non-response response "Tommy"...ugh indeed...
------------------------------------
Ah, the Internet Trolls return...with nothing to say of course...lol...

[Thomas]

MisterGuy, my point was that your retorts were absurd. But I see your point....as you wish...carry on!

[Another Rensselaer Graduate]

Ever notice that when leadership is needed, mayor Kiss is out of town instead of minding the store?

Ironic that he's at a "sustainability" conference, when right here at home we're all having one big $17MM lesson in financial unsustainability thanks to Boondoggle Telecom.

A is for Accountability.
Leopold is an accountant. An accountant's job is to put money in the right bucket and make sure it STAYS THERE, PERIOD. What part of this did he not get and why isn't someone getting prosecuted?

[MisterGuy]

"What part of this did he not get and why isn't someone getting prosecuted?"

Because what was done with the so-called "cash-pool" simply wasn't illegal, period.

[Jimmy]

"What part of this did he not get and why isn't someone getting prosecuted?"
"Because what was done with the so-called "cash-pool" simply wasn't illegal, period."

It was, actually. See the Vermont State Statute citation in the PSB ruling.

[sean]

What part of secretly taking $17 million out of city funds without informing the City Council or the Board of Finance; not paying it back within the required 60 days as mandated by the PSB permit; allowing the situation to linger for months; being told of the illegality by the city's attorneys; and continuing to hide the violation from the PSB and the City Council, is NOT illegal? What part of violating a state permit and the city charter is not the illegal part?

Clearly, MisterFool is either Kiss or Leopold.

[MisterGuy]

"What part of secretly taking $17 million out of city funds without informing the City Council or the Board of Finance; not paying it back within the required 60 days as mandated by the PSB permit; allowing the situation to linger for months; being told of the illegality by the city's attorneys; and continuing to hide the violation from the PSB and the City Council, is NOT illegal?"

Both the City Council AND the Board of Finance were informed about the diversion of funds from the so-called "cash pool" at the time that they occurred, which the city govt. has complete control over. They did the same thing with BED at the same time as BT because no one could get refinancing due to the recent, worldwide economic meltdown.

It is in fact true that the money from the "cash pool" was not paid back within 60 days, which is an issue that the PSB will be dealing with. No one will be going to jail over this issue though.

Were there issues with the speed & type of transparency of these "cash pool" payments? Yes, and the City Council has taken action to ensure that it doesn't happen again.

Could the City have informed the PSB earlier of the issues with the CPG as it related to BT? Of course, but all of these issues have been intentionally blown out of all proportion for political gain & the residents of Burlington will ultimately be suffering because of that.

[Jimmy]

1. Condition 60 specifies that pooled cash "loans" must not be for more than cash on hand or receivables. BT had neither in amounts anywhere close to $17m. The condition was violated the second the money was taken, not after 60 days.

2. Condition 60 and the City Charter language are just reiterations of Vermont state law. The cash pool withdrawal was illegal.

Nothing has been blown out of proportion at all. On the contrary, I would wager that between the forensic audit, the lawsuit (and related depositions), and the criminal investigation, the story will get much uglier over time.

[sean]

"Both the City Council AND the Board of Finance were informed about the diversion of funds from the so-called "cash pool" at the time that they occurred."

Lie. They were not informed at the time. You make shit up.

[MisterGuy]

"BT had neither in amounts anywhere close to $17m."

Too bad they didn't ask for $17 million in one lump sum. Half-truths are soooo easy to knock down yanno.

---------------------------------------

"They were not informed at the time."

Of course they were! The record is very clear indeed on this issue. One can make the argument that these bodies didn't understand what they were being told by the Kiss administration, but they were told about the use of the so-called "cash pool".

[Jimmy]

"Too bad they didn't ask for $17 million in one lump sum."

2600 subscribers x $100/mo (generous estimate) = $260K receivables at any given time. Are you saying they took it out in $260K chunks? Very sad that this is what you're down to.

[Jimmy]

"Too bad they didn't ask for $17 million in one lump sum."

2600 subscribers x $100/mo = $260K receivables at any given time. Even if they took the money $1m at a time, they still violated the CPG, charter and VT state law.

BTW, no one "asked for" anything. Leopold just took it.

Very sad that this is what you're down to.

[sean]

@ MisterLiar: What's "clear" is that the borrowing was never mentioned -- not once -- by Herr Leopold. His spreadsheets made a buried, indirect reference to it, by showing that BT was in the red. According to him, the Council should have "inferred" that BT was therefore borrowing cash from the cash pool. That's not "informing" the City Council of the borrowing. On the contrary, that's hiding it. You're a liar/apologist for Kiss.

[MisterGuy]

"Are you saying they took it out in $260K chunks?"

The money was taken in small amounts due to the fact that BT couldn't get refinancing on the open market due to one of the worst worldwide economic meltdowns since the Great Depression. Once again, BED did the exact same thing as BT with respect to the so-called "cash pool".

We're going 'round & 'round here "Jimmy".

"BTW, no one 'asked for' anything"

...because they simply didn't need to ask in the first place. The so-called "cash pool" is City money, period.

[Jimmy]

BT did not take money out in $260K chunks, it was taken out all in one month by all accounts. If you have evidence to the contrary, cite it. There are no state laws, city charter provisions or any other limitations on BED's use of pooled cash. In any case, they have never failed to replace what they take.

When BT took the pooled cash, they did not have receivables equivalent to the amount(s) they took. That was a violation of state law, the city charter and their CPG, pure and simple.

[MisterGuy]

"BT did not take money out in $260K chunks, it was taken out all in one month by all accounts."

Got any proof of that?? I didn't think so...

"When BT took the pooled cash, they did not have receivables equivalent to the amount(s) they took"

...as far as you know. I didn't know that you were BT's accountant "Jimmy".

[Jimmy]

You're the one who's trying to make the case that they took it out in small enough pieces that they could potentially have had receivables to match the amounts being "borrowed." Do the math, it's literally impossible. It takes years for BT to collect $18m.

If they had had receivables equivalent to the amounts they took, they could have paid the money back. So either they didn't have the receivables, or they just chose not to repay the loan.

Finally, Leopold said (as you have clumsily reiterated) that they could not repay the money because they could not get refinancing. Not because they got stiffed on receivables, but because they couldn't borrow money they thought they could borrow. Potential refinancing is not a "receivable."

[MisterGuy]

"You're the one who's trying to make the case that they took it out in small enough pieces that they could potentially have had receivables to match the amounts being 'borrowed.' Do the math, it's literally impossible."

Your "math" is half-assed at best, since not all of BT's customers (especially the business ones) pay the same amount of money to BT every month. You're *not* BT's account "Jimmy".

"Finally, Leopold said (as you have clumsily reiterated) that they could not repay the money because they could not get refinancing. Not because they got stiffed on receivables, but because they couldn't borrow money they thought they could borrow."

The point is that the so-called cash-pool payments would never have been made in the first place could BT had got refinancing at the time. The choice back then was very simple...let BT fail completely & cede control of it to Citi OR get BT the money that it needed through the so-called cash pool. It appears that *you* would be happier if the City of Burlington let BT die several years ago. I also wouldn't be surprised if you were never a supporter of BT in the first place "Jimmy".

[Jimmy]

"since not all of BT's customers (especially the business ones) pay the same amount of money to BT every month."

If the average residential customer pays $100/mo, the average business would have to pay something like 1/2 million a month. You're never going to win this one, and it's a moot point anyway, since there can be no debate that the CPG, the city charter, and VT state law were violated, and that BT continued to violate all three after being informed of the violation.

"The point is that the so-called cash-pool payments would never have been made in the first place could BT had got refinancing at the time."

This is like using your inability to pay your rent as a bankrobbing defense. Completely ridiculous, and it's not going to work for Leopold either, no matter how good the lawyer we're buying him is.

[sean]

You're wasting your time: "MisterGuy" wouldn't recognize logic, reason, or truth if he tripped over it.

[MisterGuy]

"BT continued to violate all three after being informed of the violation."

What was *your* solution to the problem back then "Jimmy"? Or have you been opposed to BT all along??

"This is like using your inability to pay your rent as a bankrobbing defense."

No money was "robbed" from anyone, period.

[MisterWrong]

No money was robbed???

Wrong. Period.

Money was taken out of the taxpayers' bank account -- ungodly, unfathomable, obscene amounts -- that BT had absolutely, positively no hope whatsoever of repaying within the mandated 60-day period, if ever. Taking money you know can't be repaid, and without expressly informing the City Council, is robbery. If it's not, there was no need for Leopold to do it in secret.

It also violated both the CPG and the City Charter.

When it wasn't paid back within the required 60 days, the coverup began. That too was illegal.

It was, in fact, robbery and it was all 100% illegal.

Solution???

The solution was for the Ding-Dong administration, BEFORE taking a single dime out of the cash pool, to immediately bring BT's financing problem to the City Council (in Executive Session, if necessary), and say, "BT can't pay its bills. We propose to borrow from the cash pool and ask the PSB for a change in our CPG, while we seek refinancing."

What is so hard about that? But no. Kiss/Leopold didn't want anyone, even the duly-elected representatives of the people, to know that the Progs' darling, BT, was in big trouble.

Honesty in government. What a concept. A concept Leopold and his pal Kiss can't seem to grasp.

[Jimmy]

"What was *your* solution to the problem back then "Jimmy"?"

Pretty much what they're doing now. Assessing viability and taking action based on the findings. You know, like most companies do on an ongoing basis. You don't "borrow" $17m to keep going when you don't even have a business plan.

"No money was "robbed" from anyone, period."

Money was taken illegally. Not sure what your definition of "robbed" is, but no one is disputing that Vermont State law was violated when that money was taken.

[MisterGuy]

"Money was taken out of the taxpayers' bank account"

Really now Mr. Troll?? How often were individual taxpayers taking money out of this "bank account" for their own use??

"Taking money you know can't be repaid, and without expressly informing the City Council"

...who was, in fact, informed of the cash pool payments, troll.

"That too was illegal."

According to who, troll??

"and ask the PSB for a change in our CPG, while we seek refinancing"

...which is what the City basically did, troll.
---------------------------------------------------

"Pretty much what they're doing now. Assessing viability and taking action based on the findings"

...which will likely result in the end of BT as we all know it.

"Money was taken illegally."

Again, according to who...you?? Why isn't anyone in a jail cell then "Jimmy"??

[sean]

You're the troll, Coop. How many blogs have you been banned from already?

[Mark]

I'm gonna have to give MisterGuy the advantage on this one. Something isn't illegal just because you want it to be or because you're against municipalized utilities...

I'm sure you all would rather have BT fail, ceded to Citi and its infrastructure sold to Comcast...

[sean]

You're "sure?" Well, you're wrong. It's wrong of you to assume that everyone who thinks Kiss/Leopold acted arrogantly, outrageously, unethically, undemocratically, and, yes, illegally, is against BT from the start. I don't think it was a well-thought-out idea, but that doesn't mean I'm against it per se. I'm not.

But it's a completely false choice to say that if you are "pro-BT" then you have to support what Leopold did. That's a false choice that only a myopic Prog would advance.

What Leopold did was ILLEGAL. Period.

Completely different issue from whether BT is "good" or "bad."

[MisterGuy]

"I'm sure you all would rather have BT fail, ceded to Citi and its infrastructure sold to Comcast"

Exactly!
------------------

"I don't think it was a well-thought-out idea, but that doesn't mean I'm against it per se. I'm not."

You just contradicted yourself...and all within two sentences...lol...

"But it's a completely false choice to say that if you are 'pro-BT' then you have to support what Leopold did."

That's not the point at all...not that you'll ever get it of course. Once again, the choice that the City faced with BT a while back was very, very clear...either let BT fail or get BT the money that it needed to continue. There were NO other choices!

"What Leopold did was ILLEGAL."

Keep wishing that this were true...I don't think that anyone will be going to jail or getting fined for what the City did with the so-called "cash pool".

As for the City Council leading the way forward with BT now, the Council unfortunately seems to excel at delaying, deliberating, and ending up doing not much of anything. Because of their complete & total inaction BT is on the verge of vanishing as we now know it. Comcast here we come!

[sean]

"That's not the point at all...not that you'll ever get it of course. Once again, the choice that the City faced with BT a while back was very, very clear...either let BT fail or get BT the money that it needed to continue. There were NO other choices!"

Who gives a sh** whether you, MisterFool, think there were "NO other choices." Just because you say it doesn't mean it's true. And even if it were true, please splain me why Leopold chose not to immediately tell the Council about his decision to "borrow" $17 million from the cash pool?

He's a dishonest, arrogant, undemocratic crook, and you're his shameless, conscience-less, pathetic PR flak.

Sorry, you lose.

[MisterGuy]

"Who gives a sh** whether you think there were 'NO other choices.'"

So, what other choices were there back then "Sean"?

"please splain me why Leopold chose not to immediately tell the Council about his decision to 'borrow' $17 million from the cash pool?"

Once again, it wasn't done in one lump sum (and there's ZERO evidence to the contrary), and the Council was told about the transfers from the so-called "cash pool".

And 'round & 'round we go...

[Sean]

"When commercially expedient, stealing is legal."

-MisterGuy, Shameless-Idiot-Apologist to Kiss/Leopold.

[MisterGuy]

Putting words in someone else's mouth is a sign of a weak argument BTW.

[sean]

That's exactly what you are saying.

Making an argument, and then criticizing someone for calling you out on exactly what you're saying, is a sign of a weak argument BTW.

[MisterGuy]

LOL...now you're not making *any* sense whatsoever...good luck with that...

[sean]

Dude, when did you escape from Vermont State Hospital? You can't even follow a thread that starts with your own 3/5/10, 5:52 p.m. posting? How dumb are you?

Progs, for mercy's sake, you've got to get this guy back to the hospital and stop having represent himself as your spokesperson.

[MisterGuy]

I'm not a Prog "Sean"...try & keep up, will ya?

[sean]

"Progs, for mercy's sake, you've got to get this guy back to the hospital and stop having represent himself as your spokesperson."

Did the above post say that you are a Prog? No. Only that you are acting as their spokesperson. Which you are.

Try to keep up, please.

[MisterGuy]

"Only that you are acting as their spokesperson."

Which I'm not, since I'm *not* a Prog "Sean". Once again, try & keep up.

[sean]

You express no logic. You don't have to be a Prog to act as their spokesperson, which is what you are doing.

Whether you admit to being a Prog or not is irrelevant. You are acting as their chief supporter and apologist.

But the fact is, you are a Prog, and your shame at admitting it is extremely telling.

And the proper expression is "try to" not "try and."

Now go away, "Misterguy."

[MisterGuy]

"But the fact is, you are a Prog, and your shame at admitting it is extremely telling."

LOL...in your crazed mind that is. I'm a life-long Democrat...now deal with *that* "Sean". Run along now...I'm bored with you...

[sean]

We've all long been bored with you, Jeffie.